Buyers Eyeing Hotels
Sydney Morning Herald
Saturday May 22, 1999
AFTER some hard times for the hotel industry there is a mood of optimism returning as the Olympic Games approach. Bargain hunters have been enticed back and pundits believe a number of deals will be concluded over the next year.
Although hoteliers forecast that room rates will remain under pressure because of continued weaker Asian tourist markets and cautious domestic travellers, they are starting to show more confidence than they did over the past year.
According to Colliers Jardine's latest hotel and tourism property market report, specific Australian accommodation markets are starting an upswing following a trough in trading performance.
The report highlights the differences in the trading performances between hotels with common star gradings and locations.
The managing director of the hotels and leisure division of Colliers Jardine, Mr Robert McIntosh, says improved visitor numbers over the coming two quarters will help hotel, motel and serviced-apartment performance in some Australian cities that have absorbed recent increases in supply.
However, locations with significant increases in supply under construction will struggle to maintain existing operational levels.
"Expenditure for the year ended September 1998 increased by 3 per cent despite a 2.9 per cent decline in visitor numbers," Mr McIntosh said.
The rise in expenditure could be attributed to the increase in the average length of visits to Australia from 24 to 25 days, he said, and growth in high-yield markets where visitors exhibited higher-than-average spending.
Australia's most significant inbound tourism growth for the year ended September 1998 was from the United Kingdom. British tourist arrivals grew 16.5 per cent, dominating "visitor nights" in Australia.
NSW was the most popular destination, generating 35 per cent of total trips, followed by Victoria at 24 per cent and Queensland at 20 per cent.
According to the Colliers Jardine report, Sydney, Melbourne and the Gold Coast - the primary tourism centres - recorded significant supply growth in anticipation of escalating tourism numbers.
"The three-star accommodation market nationwide has suffered from reduced group travel from Asia and the slow growth of Australia's domestic tourism market," Mr Mcintosh said.
"However, demand for accommodation in most four- and five-star establishments is steady, supported by the more stable independent travel markets of Europe and North America, and the domestic business market.
"Despite supply increases in a number of Australia's major tourism centres, performance indicators for hotel properties show a great variance.
"Effective marketing and/or cost control has produced outstanding performance in specific properties, despite the market average."
Jones Lang LaSalles Hotels also believes the cycle has bottomed and that conditions are set to improve, particularly for buyers hoping to enter the market.
According to its executive vice-president, Mr Geordie Clark, some cities have already gone through the worst of the room supply increase, while others still have a number of hotels to come on.
Most major tourist destinations such as Sydney and Melbourne had experienced a fall in occupancy because of an increase in supply, he said.
"Due to the strength in our economy and the forthcoming Olympics in Sydney, we are not expecting occupancy levels to fall anywhere near what they did during our last recession.
"At the bottom of our last down cycle we saw Asian buyers move in and pick up hotels at prices which were up to half replacement cost.
"Currently, there are few anti-cyclical Asian buyers around, so we are looking to local buyers and new entrants from the northern hemisphere to secure keenly priced hotels."
According to the research by Jones Lang LaSalle Hotels, markets in destinations such as Perth, Gold Coast and Cairns appear to have bottomed, while Brisbane, Sydney and Melbourne are likely to bottom within the next year.
"Sydney and Melbourne have held up very well," Mr Clark said. "Sydney has absorbed a 13.2 per cent - 2,047 rooms - increase in supply during 1998, while Melbourne has added 1,508 rooms since January 1998. Both cities also recorded occupancy levels on an area wide basis of 69.0 per cent and 70.6 per cent respectively for the year ending December 1998."
Only 942 rooms are to come into the Melbourne market over the next year and about 2,153 in Sydney. Perth has only 84 rooms under construction, Gold Coast 235 and Brisbane 525.
"The important thing from a buyer's perspective is that they can quantify to new supply and assess the market with that knowledge," Mr Clark said.
"Previously, we had many mooted hotel projects with no real way of knowing which would be built prior to the Olympics, which was very off-putting to buyers. Now it appears very unlikely there will be any major hotel development after the Olympics in most of the major destinations, giving hotel owners and buyers the opportunity to achieve growth in profitability."
© 1999 Sydney Morning Herald
