Home is Where the Hotel is for Savvy Investors

30 March 2017

The hotel property sector is currently outperforming all other property classes in the Australian market, with Sydney and Melbourne the standout performers, thanks to the continued achievement of strong market KPI’s against a backdrop of compressing yields.

According to recent data from Savills Australia’s Hotels market report, with International and Domestic visitors growing 11.5% and 5% respectively in CY 2016, the hotel industry has not seen growth at this level since the Sydney 2000 Olympics.

According to Michael Simpson, Savills Managing Director of Hotels, “Chinese visitor growth of 22% is the dominant contributor to this stellar performance, which is being driven by a growing Chinese middle class having access to increased air capacity between China and Australia, as well as the relatively low Australian dollar making the country a more affordable destination.

“In a very positive sign for the depth of the market, the outstanding international inbound growth has been experienced across a wide range of markets, with inbound visitor growth from many established Asian markets, as well as the US, above 15%” he said.

Tourism Research Australia’s 10 year forecast provides a positive outlook for continued growth with International visitor nights and Domestic visitor nights expected to grow at 5.6% and 3.1% annually respectively. Australia can expect to see increased room night demand nationally for the foreseeable future.

The Australia wide market achieved a ‘revenue per available room’ (RevPAR) for CY 2016 of $139, which represented YOY growth of 2.2%.

All Australian cities posted RevPAR growth except Perth, Brisbane and Darwin with RevPAR declining in those cities by 9.3%, 8.7% and 9.6% respectively. The decline in performance of these markets is primarily a result of the curtailment of resource investment activity following the end of Australia’s resource boom, and increases in room supply.

For the remaining markets, growth in market KPI’s can be attributed to an increase in leisure demand from domestic and international markets, stimulated by a lower Australian dollar and stronger economic activity underpinned by construction and infrastructure projects.

Mr Simpson believes that China is the engine room for visitor night growth in Australia right now, after Australia received over 7.4 million international visitors (up 11.5%) and 251 million international visitor nights (up 3.8%) for the year ended 30 September 2016.

Tourism Research Australia recently released International visitor numbers for CY 2016 which totaled 8.3 million representing a healthy YOY growth of 11%. The New Zealand market continues to contribute the highest number of visitors to Australia. However, the China visitor market recorded YOY growth of 21.9% enabling it to exceed 1 million visitors, who more importantly spend an average of 40 nights in Australia when touring down under. As a result, China produced 43 million room nights representing almost three times the volume produced by New Zealand. The Chinese visitors also tend to spend more per capita compared to other visitors.

Mr. Simpson went on to say that Sydney’s strong performance is set to continue with occupancies reaching capacity during peak holiday and corporate activity periods, providing the opportunity for hoteliers to grow ADR.

“Sydney’s Luxury segment capitalised on the strength of the market achieving an occupancy of 85.9%, and ADR of $339 (up 7%), delivering a RevPAR of $291 (up 5.7%), which exceeded Melbourne’s Luxury segment RevPAR of $271.

“The key factors underpinning Sydney’s current and expected future performance are a combination of buoyant economic metrics, strength in banking, finance, insurance, professional services and construction/ infrastructure projects, which are collectively fueling a tsunami of economic activity and room night demand in Sydney.

“For the next 10 years, Sydney occupancy will remain in the 80th percentile” continued Mr Simpson.

Melbourne is the second highest performing market in CY 2016 with an increase in occupancy for the fourth consecutive year. Conversely, ADR declined marginally suggesting that while occupancy remained strong, hoteliers were unable to grow rate during non-peak periods. As a result RevPAR remained relatively stable in CY 2016, when compared to CY 2015.

Mr Simpson said the inability to significantly grow ADR in CY 2016 is also demonstrated by Melbourne’s Luxury segment which reflected steady YOY market KPI’s, achieving an occupancy of 89.5%, ADR of $302 and delivering a static RevPAR of $271.

“Melbourne’s construction boom of Residential apartments, commercial space and continuing development of Docklands, has also encompassed new hotel development.

“Despite the strength and enduring nature of Melbourne’s events calendar and symbiotic corporate activity Melbourne enjoys with Sydney, we anticipate that Melbourne market KPI’s will be under pressure to match Sydney’s performance in coming years given the relative challenge of delivering new supply in Sydney,” he said.

For more information on the above as well as analysis on other Australian states, please refer to the Savills Australia Hotels Market Report – March 2017.


Key Contacts

Michael Simpson

Michael Simpson

National Head
Hotels & Student Accommodation

Savills Sydney

+61 (0) 2 8215 8831


Jessica Freeman

Jessica Freeman

Director - PR NSW
Corporate Services

Savills Sydney

+61 (0) 2 8913 4826