Hotel Developments in Australia

The high price of land and spiralling construction costs have helped to keep some developers out of the Australian hotel market in recent years. Across Australia, the number of hotel rooms under construction has decreased to the lowest level since Jones Lang LaSalle Hotels commenced the National Hotel Development Register in 2003.

“New hotel room supply is now expected to increase on average by 1.4% per annum to 2010, based on projects currently under construction or deemed likely to proceed,” said Mr David Gibson CEO Asia Pacific, Jones Lang LaSalle Hotels.

“Despite the encouraging RevPAR (Revenue Per Available Room) growth currently being recorded in most major markets, development of hotels in Australia will remain challenging until operators can achieve more significant growth in room rates,” Mr Gibson added. “But even that growth will need to outpace rises in construction costs to make the construction of new hotels viable.”

Also, in many instances, alternative uses such as residential and commercial space are attracting higher sale rates per m2. This is causing developers to pursue those uses over hotels.

As at the end of March 2007, there were 1,774 rooms under construction which when complete will increase room supply across the ten major Australian markets by 2.1%. With a number of projects having recently opened in Cairns, Melbourne and the Gold Coast, this represents a decrease of approximately 35% when compared to the last survey in October 2006.

Development activity is most dominant on the Gold Coast (385 rooms), Darwin (340 rooms), Sydney (300 rooms) and Melbourne (200 rooms). Adelaide and Perth show the lowest levels of development activity with no rooms mooted in Adelaide and only 88 rooms mooted in Perth - this is despite limited total supply growth in recent years.

“Both markets are benefiting from strong demand in line with the resources boom and hoteliers have achieved strong growth in room rates,” said Mr Anthony Corbett, Senior Vice President, Jones Lang LaSalle Hotels. “As hotel development remains constrained in these markets, we expect the favourable trading performance conditions to continue for some time.”

The number of rooms likely proposed has also decreased, albeit to a lesser extent. “The major markets of Brisbane, Melbourne and Sydney continue to favoured markets, accounting for approximately 85% of current proposed new rooms,” Mr Corbett added.

Where serviced apartment development has dominated activity over the last few years, hotel projects now account for more than 60% of proposed rooms with some major projects planned in Melbourne and Brisbane. 

“Room rates in Brisbane have almost increased to a level synonymous with the last cycle peak however they have failed to keep pace with the growth in construction costs, making hotel development feasibility a challenge,” said Mr Gibson. “That said, developers are again sizing up opportunities based on a significant increase in requests for hotel development feasibility work experienced by our offices.”

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