04 Mar 2021
Words Ted Tabet The Urban Developer

Australian hotel market in 'two speed economy'

Capital city hotels, reeling from the loss of both international visitors and corporate travellers, will not experience pre-Covid demand levels until 2023 despite a recent uptick in interstate travel, Resort Brokers managing director Trudy Crooks says.

The accommodation sector, which hit rock bottom in April when the nationwide lockdown drove down occupancy to about 20 per cent, has enjoyed renewed confidence in recent months with domestic tourism providing a welcome lifeline.

Crooks, who will be joining The Urban Developer’s upcoming Hotel vSummit on Thursday 25 March, said the recent surge in domestic travel has seen regional markets prosper.

“The Australian hotel market is very much in a ‘two-speed economy’ which means some destinations and sectors are doing really well and some are not.

“Capital city accommodation assets, particularly in Brisbane, Sydney and Melbourne, rely heavily on international travel as well as the corporate market.

“While these [locations] could take up to three years to return to pre-Covid demand levels, some operators with strong balance sheets believe these CBD operations will revert to their longer term, and strong, fundamentals,” Crooks said.

Since October, capital city hotel occupancies have been heading in the right direction, spurred on by the busy Christmas and New Year holiday period and freer movement between states.

It follows a difficult year unsurprisingly in which all capital city hotel markets fell sharply on a performance basis, led by Sydney and Melbourne.

Occupancy rates averaged just over 40 per cent in the country's two biggest CBD markets across 2020—half of what they achieved in 2019.

Average daily room rates also plummeted over the year by almost 60 per cent to hit the lowest levels for any year on record.

According to the latest figures from hotel research firm STR, occupancy rates in CBD hotels in Sydney were at 26 per cent in January, against 78 per cent the same time a year earlier.

On the eve of the Australian Open, occupancy in Melbourne city central was shy of 40 per cent, versus 90 per cent for the same period last year.

By comparison, regional hotels are enjoying higher occupancy rates as they benefit from the rise of “staycations” as Australians who would normally head interstate or overseas choose holidays closer to home spending more on up-market accommodation.

“Domestic tourism has bounced back better than most in the industry expected and it has ‘absorbed’ some of the loss of overseas travellers and some regions have benefited from this,” Crooks said.

“However, fairly remote locations such as Cairns and far north Queensland aren't reaping the benefits of the increase in domestic drive tourism because traditionally 40 per cent of the market in this region is from overseas.

“Conversely, this return to the good old fashioned road trip has destinations like the Sunshine Coast and northern NSW absolutely pumping on weekends and during school holidays and the ‘no vacancy’ signs are up on a regular basis.”

Australia’s hotel quarantine program has also continued to support the sector, generating up to a fifth of room revenue for some participating operators and owners.

Excluding quarantine business, some capital cities would have occupancy rates 5-12 per cent lower.