Sydney leads hotel occupancy, rest share mixed fortunes in 2015 second-half: Deloitte study

The hotel industry was characterised by mixed fortunes in 2015, with the second half continuing the trend from the first, according to Deloitte Access Economics' Tourism and Hotel Market Outlook.

Sydney had the country's highest hotel occupancy at 88%, with a room rate growth of 8.8% annualised for the second half of the year, signalling that room rate growth expected to accompany such lofty occupancies is finally materialising.

Across Australia, room nights sold were up 3.3% from the 2.5% observed over the year to June. National room rates growth similarly accelerated over the second half of the year.

Fortunes were mixed across the major markets, with key outlook highlights:

- While rates in Melbourne grew 4.5% for the year, 93% occupancies in November were a record for the city

- Hobart, a market an eighth the size of Melbourne by turnover, recorded the same feat in the same month

- Queensland’s beaches posted the biggest gains in occupancy, with the Gold Coast and Tropical North Queensland recording increases of 3.0% and 4.8% respectively from a year earlier, although the latter was due to some properties being taken out of service for renovation

- Mining hubs lagged as supply increases combined with softening demand to drag both occupancy and room rates lower in Brisbane, Perth and, especially, Darwin

- Brisbane hoteliers, who had a good run during the G20 meeting at the end of 2014 with room rates at record highs, struggled to see growth for most of 2015

- Despite significant supply increases, the Darwin market effectively contracted 8.4% over 2015, as measured by total takings

- Canberra was the quiet achiever, where additions to supply masked 10% growth in room nights sold.

Hotel market outlook

Looking forward, 64 properties are due online before the end of 2018 across the nine major hotel markets analysed in the outlook. This represents a significant increase in the supply pipeline from Deloitte's August 2015 report, with the new room count up 12% in likelihood adjusted terms. Another 30 projects are mooted for regional hotel markets, although many are in the 50-room category.

Activity is not limited to additions in supply, with transaction volumes well up on previous years. Sixty-two existing hotel sales were recorded in 2015, with an aggregate value of AU$3.77bn, AU$1.2bn more than 2014.

Key Outlook forecast points, include:

- 8,650 rooms are expected to be added to the nation’s major hotel markets, and a further 3,900 in other regional markets, over the next two-and-a-half years, pushing supply higher at an average annual pace of 1.7%

- The supply growth outlook is led by Perth, with likelihood-adjusted expectations of an additional 1,900 rooms by the end of 2018

- Hobart has nine properties in the pipeline, and will undergo its own small boom in hotel construction, with room nights available increasing at 5.6% per year

- Over the next three years, supply growth is expected to be healthy, but more moderate, in Brisbane (4.1% per year) and Adelaide (4.0% per year)

- In Sydney and Melbourne, where 90% average occupancy is in sight, supply is still forecast to trail demand despite a number of high profile projects coming onto the market over the next three years

- Of any market, the relative growth prospects have improved most for Canberra given its hotel stock upgrades and refurbishments, and the expected arrival of direct international flights from Singapore and Wellington

- The projected national performance outlook remains one of demand growth (3% per year) outstripping supply growth (1.6%) and occupancies forecast to climb 2 percentage points to just above 71% by December 2018.

“The range of forecast performance across markets is widening as the sector’s growth drivers shift. With corporate travel following the nation’s economic transition back to the south east, so too is short stay accommodation demand, in turn putting further pressure on the already stretched Melbourne and, particularly, Sydney markets," Deloitte Access Economics partner Lachlan Smirl said.

“At the same time, a resurgent domestic leisure segment is buoying demand for holiday hot spots from Tasmania to Queensland’s beaches and emerging Asia continues to propel markets successful in luring these high growth segments."

The Gold Coast is projected to post the largest occupancy gains leading up to the 126,000 visitors expected for the Commonwealth Games in April 2018.