Despite the challenging economic environment, Australia's hotel markets have maintained growth momentum. 

The newly released Australian Bureau of Statistics (ABS) accommodation data shows growth came largely on the back of strong increases in Average Daily Rates (ADR) during the first quarter of 2008.

Revenue per Available Room (RevPAR), the industry benchmark for hotel trading performance, recorded solid Australia-wide growth of 5.6% during the first quarter of 2008 to reach an all time high of $91.31.  "Whilst the rate of growth has slowed from last year, the results are an encouraging sign that Australia's major markets are more resilient than widely thought," said Mr Troy Craig, Executive Vice President, Jones Lang LaSalle Hotels.  He added, "Queensland's leisure markets were particularly hard hit by a very wet summer period which drove visitors to alternate domestic and international destinations."

ADR jumped by 7.9% to $140.05 across Australia, despite room night demand softening by 1.1% and an average occupancy of 65.2%.  "Whilst most major markets recorded improvements in RevPAR, the cities of Darwin and Perth were industry standouts having both very strong demand and ADR growth."

Benefiting from the strongest levels of demand growth in Australia and static room supply levels, Darwin recorded the highest RevPAR growth of 18.3%.  "Even though new supply is expected to surge in Darwin over the next 12 months, March quarter demand growth suggests that the market is well placed to deal with the challenge of increased competition," said Mr Craig.

Hoteliers in Perth continue to reap the benefits of a robust trading environment.  "A slight increase in Perth's room supply saw occupancy levels retract to 82.9%, however with occupancy levels amongst the highest in the country this is not a concern," said Mr Craig.  He added, "With very limited new supply expected to come on line over the next two years, we expect Perth to continue to see strong ADR growth on the back of occupancy levels near or at full capacity."  Significant ADR growth of 16.2% throughout Perth saw RevPAR increase by 14.6% to reach $123.16.

"Sydney occupancy was 85.3% during the March quarter - which despite being slightly lower, still represents a full house position," said Mr Craig.  He added, "In the context of the economic uncertainty that has taken hold during 2008 thus far, these results are welcome news for hoteliers."  In this environment hotel operators are able to drive room rates harder and this is reflected in the fact that Sydney posted ADR growth of 6.4%.  Sydney's position as a key corporate destination may make it vulnerable to any softening in corporate travel however the market's benign new supply outlook will insulate it to some extent.

In Melbourne, occupancy levels recorded a slight decline but were still at a healthy 81.7% which in turn enabled operators to achieve excellent ADR growth of 10.2%.  "Over the next two years, Melbourne will see around 1,000 new rooms come on line," said Mr Craig.  He added, " Now is not the time for Melbourne to take for granted the excellent demand growth that has been achieved over the past five years."

Strong midweek business demand continues to underwrite Brisbane's hotel market.  "Brisbane is performing very well at present with RevPAR growth of 5.9%," said Mr Michael Clarke, Senior Vice President, Jones Lang LaSalle Hotels.
The Tropical North Queensland market of Cairns continued to experience lacklustre levels of demand in the March quarter, partly caused by the region being declared a National Disaster Area after the wettest summer in years. 

International visitation, particularly from Japan, dropped by 2% in 2007.  "The level of domestic visitors has also declined, with an 8.5% drop in visitors and a 12.5% decline in nights spent in hotels and resorts last year," said Mr Clarke. He added, "These March quarter figures were not influenced by recently announced flight changes – but probably reflect why they occurred."

Bad weather during the peak January holiday period also negatively affected hotel trading performance on the Gold Coast.  "The revised school holiday times also did not allow for an extended Easter break," said Mr Clarke.  "This weak demand failed to lift occupancy levels, however ADR increased by 9.7% to help boost RevPAR by 5.2% to reach $104.03," said Mr Clarke.

The strength of the Australian dollar also encourages increased outbound travel, thereby affecting domestic leisure destinations.

Adelaide posted a slightly higher occupancy level of 79.1% which represents an excellent outcome for the summer quarter, especially given that the city endured an extended heat wave.  Adelaide set an unenviable national record during March when it recorded the longest-lasting heat wave - 11 days - of any Australian capital city.  "With occupancy at such strong levels, ADR continued its upward trend to post growth of 8.2% during the quarter," said Mr Craig.

Slowing economic growth, both here in Australia and overseas, coupled with the rising transport costs and higher interest rates, are all likely to impact demand growth across Australia in the short term.  "Whilst occupancy levels are expected to soften, the saving grace in this cycle is that new room supply is minimal in most markets," said Mr Craig.  He added, "This being the case, the subsequent rebound in demand growth will quickly push occupancies back to levels that enable ADR growth."

"Markets where expenditure is highly reliant on discretionary spending are likely to be the most affected," said Mr Craig.

Tourist Accommodation Performance – Q1 2008 (Source: ABS Survey of Tourist Accommodation)
% change over Q1 2007 , RNO = Rooms Night Occupied (Demand), TR = Tourism Region