03 May 2013
Words Tim Admin

Opportunity knocks on motel room door

Accommodation occupancy rates in Australia are rising, yet growth in room numbers remains low. Over time, the laws of demand and supply have pushed prices higher. But investment in accommodation has not kept pace. I now see a very strong case for accommodation investment. Motel development has stagnated for too long. Australia needs at least 100 new motels, of 30 to 40 rooms each, in key locations now. But the investment must be well-targeted. According to the latest figures released by the Australian Bureau of Statistics (ABS), the national occupancy rate for hotels, motels and serviced apartments (15 or more rooms) rose to 65.8% in 2012, up from 65.3% in 2011. For someone who has been in the industry for as long as I have, these are impressive figures. For the 20 or so years up to the mid-2000s, the traditional average occupancy rate hovered around 57 – 59%. The industry’s other key performance indicator, revenue per available room (RevPAR), has also climbed. ABS data shows it rose from $103.83 in 2011 to $107.99 in 2012. Anecdotally, I can tell you average room rates in most areas have increased by about $25 net of GST in the past four years, driven by the accommodation shortage. National figures show a steady and encouraging upward trend. But we need to drill deeper, looking at the detailed regional results to identify where the opportunities lie. Australia’s accommodation industry is a patchwork landscape with its cities and regions subject to diverse economic factors and influences. Queensland, Western Australia and the Northern Territory recorded the greatest trading improvements from 2011 to 2012, again reminding us of the importance to our industry of business generated by the resources and energy sectors. In Queensland, for example, while the average daily rate (ADR) statewide has risen by almost 12% over the last five years, the regional results vary wildly. According to figures provided to the Informer (March 2013) by M3 Properties, the 5-year change in ADR swung dramatically from a rise of 41.5% in the resource boom-affected Central Queensland region to a fall of 9.4% in tropical North Queensland, where they’ve had to contend with the double whammy of the GFC-driven tourism downturn and natural disasters. In the regions impacted by mining and energy industry fluctuations, the supply issue is complex. In times of peak construction activity, for example, local motels are never enough, and mining camps are established to meet peak accommodation needs. The motels are still busy catering for executive and regular business and holiday guest demand. But when the mine construction activity scales back, the camps pack up and leave. Remaining operations personnel, however, still need accommodation and they turn to the motels. There are never enough. So why is it that these prime opportunities have largely gone begging? Why have developers been slow to fill the supply gap? One of the biggest hurdles is often State and local authority red tape, involving lengthy development approval processes and associated costs. That’s why I’m so impressed with new modular and pre-built motel delivery options featured recently in the Informer. The time and cost savings offered by both the R.I. Kenco Spa Modular Building Systems design and Podfirst’s motel units present innovative, viable solutions to our motel supply needs. R.I. Kenco’s Italian-designed and pre-fabricated Modus units arrive flat-packed. With a build time of just eight weeks from start to finish, you have a new motel in place for around $50,000 - $60,000 per room. In the case of Podfirst, the architecturally designed, pre-built masonry motel rooms are delivered as connection-ready pods, from $42,000. They have reinforced, concrete-filled wall panels over a concrete slab floor, with sub-floor services, all ready to plug in. Forecaster Deloitte Access Economics anticipates room occupancy rates in Australia are going to further increase from 65% to 68% by 2014. While international visitor numbers are rising, more and more Australians are choosing to holiday at home. And our own population includes a large bubble of baby boomers who’ll be spending more and more time in pursuit of leisure. Tourism Australia, in 2009, announced we needed to deliver 40,000 more accommodation rooms by 2020. But according to their State of the Industry 2012 report, there’s only been a net increase of around 730 nationally since then. That’s a huge shortfall. I can honestly say, the long-term outlook for motels is stronger now than any time in the almost three decades I have been in this industry. Opportunity is knocking.