26 September 2011
Australia’s CBD hotel market continues to be the standout
performer in the commercial property markets according to NAB
Senior Economist – Property Mr Robert De Iure.
He said the hotel market remains strong overall with solid
capital growth expectations over the next 3 years underpinned by no
significant new supply on the horizon.
“With hotel room supply shortages expected to persist and the
booming resources sector driving business demand the CBD hotel
market is expected to rise strongly by June 2013.
NSW is leading the hotel markets with an undersupply of rooms in
the CBD while WA was also performing well on the back of the mining
boom.
“Business demand is keeping CBD room rates high and the lack of
new stock in the major markets is creating a shortage.
“Sydney, Perth and Brisbane are underbuilt while recent stock in
Melbourne has been absorbed and benefits from the numerous major
events in the Victorian capital,” he said.
Despite the shortage of rooms the development pipeline remains
very limited.
“Historically hotels are the lowest on the investment totem
because of the high construction costs compared to the office
buildings or apartment towers that compete for the prime locations
preferred by hotel operators,” Mr De Iure said.
He said this was further complicated by a difficult funding
environment and banks’ typically lower risk appetite for
specialised property assets such as hotels.
“At the same time the CBD market is ripe for refurbishment but
the operators are reluctant to upgrade the buildings because the
occupancy rates are so high,” he said
In the tourist market business is less positive. Demand from
leisure travelers was viewed as “fair” and international traveler
demand was assessed as “poor”.
Mr De Iure said the Non-CBD Hotels had been negatively affected
by consumer caution and the strong $A impacting on tourist
demand.
He said the net outflow of tourists from Australia has reached
record levels as the $A deterred overseas visitors coming here and
Australian tourists headed to cheap off shore destinations.
As a result the NAB found occupancy rates in the tourist markets
are around 70% while the CBD hotel markets are experiencing
occupancy rates around 80%.
“The Non-CBD hotel market will bounce back from current lows
with NAB’s June Quarter Commercial Property Survey indicating quite
a positive outlook out to 2013,” he said.