Australia hotel industry recovering well, but challenges await

AUSTRALIA Hotel occupancy levels in Australia’s major cities are well on the path to full recovery to pre-recession levels, with Sydney the star performer according to a new report from Deloitte.

Australia hotels are on course to average occupancy of 65.6% by the end of this year, up from 62% in 2009 and an estimated 63.9% in 2010. RevPAR is expected to increase by 9.1% on average in 2011 to A$97, up from A$89 a year ago and A$84 in 2009.

 Sydney leads the way in hotel occupancy, closing 2010 with 85.6% and anticipated to reach around 87% in 2011, compared to a peak before the recession of 82% and dropping to 78.8% in mid-2009. Driven by expected room rate growth of 11.4% in 2011, Sydney RevPAR is expected to reach A$171 by year-end 2011, significantly higher than the A$136 recorded in 2009. 

Melbourne and Brisbane are both expected to achieve occupancy levels towards 82% supporting double-digit rate growth, resulting in a RevPAR lift of 13% to 15%. Perth is expected to push occupancy to 88% with a 20% RevPAR uplift.

The hotel industry in Australia and Oceania has weathered the recession better than most other regions, says Rutger Smits, Deloitte’s Australia leader for tourism, hospitality and leisure. Australia and Oceania hotels finished 2010 with occupancy levels in the mid-70% range, compared to Western Europe in the mid-60% range, the Middle East in the low 60% range and North America in the high 50% range.

The economic outlook for Australia overall is positive, relative to the rest of the world, driven by an active resources market, Smits says. “This drives corporate demand for accommodation. In 2011, I expect average room rates in major Australian cities to see strong growth on the back of surging demand, supporting high room occupancies,” he says. He cites a prolonged absence of significant additions to accommodation supply for underpinning the relatively strong occupancy levels.

The corporate sector’s rate of recovery in 2011 will not likely be reflected as strongly in the leisure sector, however. “The leisure segment is currently enduring financial pressures in the domestic market, as well as unfavorable exchange rates, which encourage Australians to holiday overseas and tourists to stay home or consider alternative destinations,” Smits says. “Destinations such as the Gold Coast and Tropical North Queensland will remain under pressure and will find it difficult to drive significant rate growth.”

The impact of recent floods and Cyclone Yasi further exacerbates the situation. “There is a general perception of total devastation, leading to booking cancellations,” Smits says. “The reality is that most of the tourism infrastructure is intact and open for business, and they need every visitor they can attract.”

New supply in Australia’s accommodation space will remain very limited as land, labor and construction costs remain high. “This is unlikely to change until profit margins in the hotel industry improve materially,” Smits says, adding that the next few years should see strong growth in hotel profitability.

He also warns that a downturn in foreign students may see the number of foreign workers in the tourism sector decline over the next few years. “Foreign students play an important role in supporting the hotel industry, and a reduction in the number available to work in this sector will add pressure to profit margins, especially in the seasonal resort sector,” Smits says.

For a copy of Deloitte’s “Hotel Market Outlook: 2010 in Review; 2011 and Beyond,” visit