The Sydney hotel market is the largest in the country with excellent fundamentals.
Melbourne’s strong calendar of events and appeal to both international and domestic visitors has ensured hotel supply is quickly absorbed by the market.
But how has 2019 ended and what can we expect in 2020 and beyond?
We asked Jones Lang LaSalle for their market wrap-up.
SYDNEY – Andrew Langsford, Senior Vice President, Investment Sales
Throughout the year Sydney’s ADR has come slightly off all time highs. Despite a small drop in occupancy, market RevPAR performance continues to be the strongest in the country.
Limited transaction activity reflects the strength of the current trading environment and outlook for the city, as most incumbent owners choose to hold their assets.
Strong ADR levels have spurred several new hotel developments, particularly in the 5-star segment, however, these should strengthen Sydney’s guest offering. Notably, it is anticipated that constraints to development will see demand continue to outpace supply, particularly in proximity to the CBD.
The city saw some new additions to the room supply, lead by the Meriton on Sussex Street and the Vibe Hotel Darling Harbour at the southern end of the CBD. The remaining entrants to the market were on a small scale and consisted of boutique operations.
Investor interest in Sydney remains extremely high, and a lack of quality stock on the market has forced frustrated capital to look across the wider metropolitan and regional areas for suitable opportunities.
Outlook
- Supply pipeline to lose momentum – feasibility gap, lower RevPAR growth, tighter lending rules, strong office, weak residential
- Continued high occupancies across all sectors in the market – mid 80’s and higher
- Gateway status, relatively limited supply additions and size of market will ensure longer term growth
Click here to download the full 2-page summary.
Email: Andrew.Langsford@ap.jll.com
MELBOURNE – Peter Harper, Executive Vice President, Hotels & Hospitality Group
The first three quarters of 2019 were relatively quiet from both a trading and investment perspective.
For year-to-date September 2019, the Melbourne hotel trading market has largely outperformed expectations recording an Average Daily Rate of $193 and an occupancy of 82.4%. This equates to a RevPAR of $160 which when compared against the same period last year is only a very minor decrease of 1.0%.
This trading performance comes during a time of several new hotel openings and when other capital city markets across the country have experienced more pronounced RevPAR declines.
Melbourne’s new supply pipeline remains active with 18 hotels currently under construction across the CBD, Southbank and Docklands, reflecting an increase in supply of around 20%. This activity is in many ways due to the strong fundamentals the Melbourne market has demonstrated for a number of years and its expected positive long term outlook.
Whilst global investor interest remains high in 2019, transaction activity has been limited with just over $300 milion of hotel real estate deals exchanging across Melbourne’s CBD and suburbs. This has been almost entirely due to a pronounced scarcity of investment grade stock being available on the market for sale.
Outlook
Based on the current construction pipeline, we expect the market will experience an annual average increase in supply of 5.5% per annum over the next five years, up from an annual average of approximately 4.0% over the past ten years.
Notably, several hotels have or will come out of the market such as the Mercure Spring Street and Novotel St Kilda, while increased competition moving forward will see the highest and best use for some secondary assets swing in favour of alternative asset classes, particularly residential and commercial. This will obviously lessen the impact of the new supply pipeline over the long term.
Click here to download the full 2-page summary.
Email: Peter.Harper@app.jll.com
Point Polaris currently has more than 1,100 hotel rooms under management. This includes delivery of Melbourne’s largest new build hotel – Hilton Melbourne Square – for OSK Property, and Melbourne’s largest new dual-branded hotel at 539-545 Flinders Lane for The Ormond Group.
