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Hotel construction surges in 2018

Tuesday, 10 April 2018

The hotel sector is experiencing a strong 2018 year, with overseas visitor numbers up 7.2 per cent in the past 12 months and significant investment in the sector by hotel groups, according to Turner & Townsend.

Recent Australian Bureau of Statistics data up to December 2017, highlights 8.85 million visitors entered the country. Forty-nine per cent were here for a holiday, 28 per cent were visiting friends and family, 8 per cent came for business and 6 per cent were here for education purposes.

Short term visitors surged in the last 12 months, with Chinese visitors overtaking New Zealand to reach 1.38 million. New Zealand visitors were only slightly behind at 1.36 million, the US was third reaching 783,600 while the UK was fourth at 726,300. 

Dave Liddle, Director for Turner & Townsend comments, “The hotel sector is set to experience a few very strong years based on current overseas visitor numbers and significant investment in the sector, especially in New South Wales, Queensland and Victoria. China is the fastest growing country for overseas visitors and outspends all nationalities. This market added $9.8 billion per annum to the economy which is more than double the expenditure of the next major spenders who are from the UK and USA, according to Tourism Research Australia International Visitor Survey, June 2017.

“Of the short term overseas arrivals New South Wales received 3.3 million. Arrivals into Victoria have grown very quickly to 2.2 million, which is up 117 per cent in the last 10 years, compared with a 53 per cent growth rate in New South Wales and only 17 per cent in Queensland. Queensland’s growth was slower than New South Wales, Victoria, South Australia and Western Australia. Cyclonic weather such as Cyclone Yasi, which came after the global financial crisis and Cyclone Debbie’s impact last year could have impacted visitor numbers in this state.”

New South Wales has the highest level of investment forecast in the short-term accommodation sector, followed by Queensland and Melbourne. Western Australia and South Australia are also showing strong signs of construction activity in 2018.

According to Tourism Accommodation Australia, in Sydney city alone, almost 3000 rooms are scheduled to open within the next three to four years with a projected spend over $4 billion, either already approved or in the advanced planning stages to meet expected demand.

Some of the major hotel projects in Sydney either recently opened or under construction include the Four Points by Sheraton, Accorhotels’ Sofitel, Sydney Darling Harbour and The Ribbon in Darling Harbour. Intercontinental refurbishment at Circular Quay, and a new mixed use project at 59 Goulburn Street.

Melbourne is also experiencing a hotel boom with plans for more than 4500 rooms across the city. Over 18 major new hotels are in the planning stages or about to be built. Major recent announcements include the Marriott at Docklands, the 500 room Shangri La on the old Telstra site on Latrobe Street and the Mandarin Oriental at 600 Collins Street.

Brisbane’s Queens Wharf project, recently branded as Destination Brisbane is the biggest new hotel project in the city. In Perth, the Westin Park Regis and Ritz Carlton are under construction, while in Adelaide the Holiday Express on Hindley Street just opened. A new Sofitel and Langham are currently under consideration in Adelaide’s CBD. In Hobart Tasmania Fragrance group are looking at a number of potential hotel sites for development.

The surge in construction activity in both the hotel and infrastructure sectors in New South Wales and Victoria is expected to put significant pressure on trades and drive up prices.

Queensland on the flip side is experiencing a slowdown in the apartment market, which is freeing up trades to work on projects in other sectors including the hotel industry.

Construction cost increases are likely to ease in Queensland. Western Australia is unlikely to see construction costs spike upwards in the near future, while South Australia could possibly witness a slight increase in costs due to the increasing number of defence projects,” Mr Liddle added.

Airbnb is fast emerging as a major provider of short term accommodation, particularly amongst budget conscious travellers. It started out as a service in which people with a spare room could rent out for extra cash. The median earnings for a room in 2015 – 2016 was $4920 (Source: Deloitte Economic effects of Airbnb in Australia report).

Mr Liddle added, “At present, three-quarters of Airbnb accommodation is not in traditional tourist locations, however this is expected to change in the future.  Airbnb accommodation appears to be extending into the market traditionally dominated by serviced apartments. This trend could be in response to an oversupply of apartments in parts of the country and the inability of investors to secure long term tenants.

“Hotels may need to offer cheaper accommodation options, especially to retain the business traveller market. With the growth of inner city apartments, the locational advantage of major hotel chains is reduced, hence cost becomes a factor. For some hotels which operate a serviced apartment style model, there may be advantages in joining Airbnb to reach the budget traveller market,” Mr Liddle added.

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