Hotel Market Overview

26 September 2011

Australia’s CBD hotel market continues to be the standout performer in the commercial property markets according to NAB Senior Economist – Property Mr Robert De Iure.

He said the hotel market remains strong overall with solid capital growth expectations over the next 3 years underpinned by no significant new supply on the horizon.

“With hotel room supply shortages expected to persist and the booming resources sector driving business demand the CBD hotel market is expected to rise strongly by June 2013.

NSW is leading the hotel markets with an undersupply of rooms in the CBD while WA was also performing well on the back of the mining boom.

“Business demand is keeping CBD room rates high and the lack of new stock in the major markets is creating a shortage.

“Sydney, Perth and Brisbane are underbuilt while recent stock in Melbourne has been absorbed and benefits from the numerous major events in the Victorian capital,” he said.

Despite the shortage of rooms the development pipeline remains very limited.

“Historically hotels are the lowest on the investment totem because of the high construction costs compared to the office buildings or apartment towers that compete for the prime locations preferred by hotel operators,” Mr De Iure said.

He said this was further complicated by a difficult funding environment and banks’ typically lower risk appetite for specialised property assets such as hotels.

“At the same time the CBD market is ripe for refurbishment but the operators are reluctant to upgrade the buildings because the occupancy rates are so high,” he said

In the tourist market business is less positive. Demand from leisure travelers was viewed as “fair” and international traveler demand was assessed as “poor”.

Mr De Iure said the Non-CBD Hotels had been negatively affected by consumer caution and the strong $A impacting on tourist demand.

He said the net outflow of tourists from Australia has reached record levels as the $A deterred overseas visitors coming here and Australian tourists headed to cheap off shore destinations.

As a result the NAB found occupancy rates in the tourist markets are around 70% while the CBD hotel markets are experiencing occupancy rates around 80%.

“The Non-CBD hotel market will bounce back from current lows with NAB’s June Quarter Commercial Property Survey indicating quite a positive outlook out to 2013,” he said.

This entry was posted on Monday, 26 September 2011.

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