Boom times for hotel property sector

Boom times for hotel property sector

7 April, 2017

The hotel property sector is currently outpacing all other segments of the Australian property market, with Sydney and Melbourne the standout performers, reports The Sydney Morning Herald.

According to Michael Simpson, Savills Hotels’ managing director, the dominant factor driving the growth is the 22 percent increase in Chinese visitors to Australia.

This growth is being fuelled by a tourism boom that has seen passenger numbers through Sydney Airport up almost six percent last year to 41.9 million.

A growing Chinese middle class, increased air capacity between China and Australia, and the relatively low Australian dollar is making Australia a more affordable destination, said Mr Simpson.

“In a very positive sign for the depth of the market, the outstanding international inbound growth has been experienced across a wide range of markets, with inbound visitor growth from many established Asian markets, as well as the US, above 15 per cent,” he said.

Meanwhile, The Australian Financial Review reports that Sydney’s luxury hotels were almost fully booked in the first two months of the year due to a surge in corporate visitors and holidaymakers.

JLL Hotels & Hospitality recorded the five-star occupancy rate over January and February at 95 percent and 90 percent across the broader Sydney hotel market.

“We have seen strong sustained demand increases for accommodation in Sydney over the last few years and this has had considerable impact on not only the rates achieved by hotels but also whether those travelling for business or leisure can even get a room” said Craig Collins, Australasia CEO of JLL Hotels & Hospitality Group.

Sydney’s occupancy rates are now among the highest in the world,” said Mr Collins, “and ahead of global visitor destinations like New York, London, Paris and Hong Kong through the year to date.”

Improving hotel returns have driven a surge of international capital into the Sydney hotel market in recent years, notes the AFR.

Iconic hotels like the Hilton Hotel recently sold to Asian investor, Bright Ruby, for $442 million, while a Singapore and Hong Kong joint venture acquired the Westin Sydney for $445 million.

The tourism boom is also driving investment in new hotels. These include:

  • The 590-room Sofitel Sydney Hotel at Darling Harbour, the first newly built luxury hotel in Sydney in two decades, is set to open in November 2017.
  • The five-star InterContinental Sydney hotel is slated for a $200 million upgrade.
  • A 305-room Holiday Inn is set to open near Central Station in 2020.
  • The Australian reports that Marriott International plans to build a five-star 400-room hotel in Sydney’s CBD and hopes to add up to 40 more Marriott hotels to the CBD in the long-term.

Even so, the limited number of potential new hotel sites in Sydney is frustrating some investors who want to enter the market, said Mr Collins.

“Sydney CBD is a very constrained market geographically,” he added. “Any sites that do potentially suit a hotel development are often pursued for office or residential development instead.”