This was published 1 year ago
Australia’s hotel boom continues in spite of missing Chinese tourists, but domestic travellers are paying the price
Despite market uncertainty, transaction activity has remained strong in 2022, led by the sale of the Hilton Sydney for $530 million.
Since reopening borders, Australia's international visitor numbers have been more a trickle than a flood, with many key markets, including China, still missing amid lingering COVID-19 controls, inflation and geopolitical concerns.
June data from the Australian Bureau of Statistics reveals outbound travellers are growing at almost three times the rate of inbound, as Australians continue to flock overseas.
And yet a plethora of new hotels continue to spring up along the eastern seaboard – many conceived on the promise of 1.3 million Chinese inbound tourists, a figure that has dropped to virtually zero.
Completion of the The W Sydney hotel has been delayed.Credit: Wolter Peeters
Now a strong domestic market is ensuring hotels not only survive this pandemic rough-patch, but thrive.
Australia's hotel landscape has exploded in recent years; many projects now under construction were green-lit before the pandemic. Some major developments have notably experienced construction setbacks and delays, including W Sydney and Ritz-Carlton Melbourne.
Melbourne is leading the growth, with more than 2500 new rooms under construction, followed by Sydney (1639 rooms) and Brisbane (1386 rooms), according to Jones Lang LaSalle Incorporated (JLL) data.
Development interest isn't waning either. Peter Harper, JLL's head of investment sales Australasia, says that despite market uncertainty, transaction activity has remained strong in 2022, led by the sale of the Hilton Sydney, Australia's largest single asset transaction at $530 million.
"The biggest issues facing hotel investors right now is the increasing cost of debt and considerable labour shortages. The decline in Chinese tourism really isn't featuring in conversations," says Harper.
Of course the lack of inbound visitors isn't doing Australians' holiday budgets any favours, as data reveals domestic travellers are paying for these financial headwinds.
Pent-up demand and government accommodation voucher schemes have helped drive up hotel room rates, with hoteliers pocketing more per room than they were pre-pandemic, helping to counter falling occupancy caused by low visitor numbers.
STR data for July shows that despite Sydney hotel performance dipping from the previous month, average daily room rates were $239.96, up from $197.41 in 2019. In June, Melbourne hotels went for an average daily rate of $210.54 – a significant jump from $168 in 2019.
Tourism Accommodation Australia CEO Michael Johnson says the loss of the China market is "a blow to our industry", and it's unlikely room rates will drop any time soon so long as Australians are still willing to cough up more.
"There are still some voucher systems around the country that the government is subsidising, such as the Stay NSW Voucher scheme. The vouchers have pushed room rates up," said Johnson.
"Once we start to see the market level off, voucher programs cease and more internationals come in – particularly if they're coming through on wholesale rates – then we might see those rates back off a bit."
The Stay NSW Voucher scheme, which lets eligible residents claim $50 towards an accommodation booking, expires on October 9, 2022. The Victorian Travel Voucher Scheme, which let residents claim up to $200 in state-based travel-related expenses, expired in May, 2022.
The tourism sector is now focused on growing new markets, with India, Australia's fastest-growing market for visitor spend in 2019, at the top of the hit-list. Qantas is leading the efforts in the aviation sector with plans to launch a Sydney-Bengaluru service on September 14, 2022, along with a new codeshare partnership with IndiGo. Elsewhere, Australia and India have begun negotiations for a free trade deal, to encourage tourism between the two nations.
But can hotel operators expect a Chinese tourism comeback? China's government has banned all "non-essential travel" under a strict zero-COVID strategy aimed at stamping out the virus.
James Laurenceson, director of the Australia-China Relations Institute, University of Technology Sydney, noted: "Chinese opinion polling conducted last year, even amidst worsening geopolitical tensions, showed that overall the desire to travel to Australia for tourism purposes remained strong."
However, given Beijing's extreme COVID approach, it's unlikely Chinese tourism will return in a significant way this year. Laurenceson says it's a case of waiting for the Chinese government to liberalise outbound tourism flows, "most likely from the second quarter of next year."
See also: Melbourne's new skyscraper hotel makes the most of laneway location
See also: After almost 50 years, Sydney's Hilton evolves again
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