Hotel room rates push returns higher.
Tuesday, 22nd January 2008
Source : Jones Lang LaSalle Hotels
Hotels around Australia have recorded a 10% increase in RevPAR and caught the attention of investors.

The newly released Australian Bureau of Statistics (ABS) accommodation data shows growth came largely on the back of record occupancy levels and strong increases in room rates during the September quarter 2007.

"Average Daily Rates (ADR) jumped by 7.0% across Australia, supported by an all time national occupancy high of 67.1% - surpassing the record highs recorded during the Summer of 2006," said Mr Mark Durran, Executive Vice President, Jones Lang LaSalle Hotels. He added, "Whilst all major markets recorded excellent improvements in room yield, the cities of Perth and Sydney remain markets to watch as the best opportunity for income and capital growth."

"With such positive hotel trading performance conditions, we're experiencing a situation where many hotel owners are reaping the benefits of favourable returns and other investors are competing for limited opportunities when they come to market," said Mr David Gibson, CEO Asia Pacific, Jones Lang LaSalle Hotels. Hotel transaction activity in Australia reached an all time record high of $1.63 billion during 2007.

"Clearly, hoteliers in Perth are still being rewarded by a robust local trading environment," said Mr Durran. Western Australia reportedly continues to lead the country in terms of business investment, exports, employment and population growth. A combination of static room supply, demand growth of 8.3% and room rates being up by 10.5%, has ensured hotels in Perth outperformed the market.

The Hobart tourism region recorded the largest increase in RevPAR (+19.6%), boosted by exceptional demand growth of 12.7%. "This strong level of demand resulted in occupancy levels soaring to their highest level ever in a September quarter," said Mr Durran. He added, "This is an exceptional level of growth for Hobart."

Sydney continues to boast the highest ADR and RevPAR levels in Australia. "Rate growth in Sydney has lagged other major markets of late however the market has made a significant turn and hotel trading performance is on the rise again," said Mr Durran. Occupancies in a September quarter have not been higher since 1988. "The APEC event seems to have had no real adverse impact on accommodation performance during the quarter as was feared," said Mr Durran.

The strong hotel trading performance results for Melbourne come as no surprise. "Similarly to Perth, Melbourne benefits from very strong tourism market fundamentals," said Mr Durran. He added, "Supported by the strongest occupancy levels recorded for a September quarter on record, hotels in Melbourne experienced the third highest level of RevPAR growth at 16.7%."

Optimism about the South Australian economy and a growing interest in the State's mining and defence sectors has benefited hotels in Adelaide. "Despite a slight drop in demand, hoteliers managed to increase ADR by 7.5% to $129," said Mr Durran. Occupancy levels in Adelaide are also currently at their highest level on record.

Brisbane is also a city reaping ongoing growth. "The Brisbane hotel market is performing very well at present with RevPAR growth of 9.8%," said Mr Gibson. He added, "Ongoing hotel development has not slowed the market's stellar performance, with occupancy levels remaining amongst the highest of all major markets and ADR growth of 10.9%."

"Static demand failed to lift occupancy levels on the Gold Coast, however ADR increased by 6.9% to help boost RevPAR by 7.5% to reach $90," said Mr Gibson. Reportedly, the major attractions along the Gold Coast, including Broadbeach, Surfers Paradise and the theme parks were also very busy throughout the December quarter.

Benefiting from a reduction in room supply, Darwin and Canberra also recorded their highest occupancy levels in the quarter at 90.1% and 76.8% respectively. Average room rates also grew by 7.5% in Darwin to reach $146 and by 10.3% in Canberra to reach $131.30.

The Tropical North Queensland market of Cairns remains a market hampered by additions to room supply and lacklustre demand levels, however the results are coming off a high base. RevPAR growth in Cairns was the lowest of the 11 major markets at 0.1%. "The strong Australian dollar has also most likely impacted on negative travel sentiment to the region," said Mr Gibson.

With three quarters of tourism accommodation data recorded for 2007, all markets (except Cairns) look set to turn in an excellent full year performance. "Ten out of the eleven tracked markets are currently reporting RevPAR growth in excess of 8% and five markets look exceptionally strong having achieved double-digit RevPAR growth in the first three quarters," said Mr Durran. These markets include Perth (21.2%), Canberra (14.8%), Sydney (12.9%), Darwin (12.3%) and Brisbane (11.2%).

"As such, we expect some hotel owners to capitalise on the favourable conditions and formally market their assets for sale," said Mr Gibson.

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