thl- quarterly hotel market outlook q2 2011

8/6/2019 THL- Quarterly Hotel Market Outlook Q2 2011

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Australian HotelMarket Outlook

Q22011


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In early February 2011 Deloitte launched

Hotel Market Outlook: 2010 in review; 2011

and beyond, predicting year-end results for 2010

some three months before the Australian Bureau

of Statistics released its ofcial data. We did

this by applying an econometric model, utilising

historic ABS data, combined with the latest

information fromSTR Globalas well as economic

forecasts by Deloitte Access Economics.

We are pleased to note that our forecasts were

highly accurate, within a 0.2% occupancy

and 0.5% average room rate margin in almost

all markets.

The updated economic outlook by Deloitte

Access Economics predicts a softer economic

environment, resulting in downward revisions in

our forecasts for 2011 for both occupancy and

room rates. We also present a rst look at our

projections for year-end 2012.

Subscribe toDeloitte Access Economics

publications online.

The global economy

The key question for global growth was always just

how big a letdown the passing of stimulus would

prove. The early news is excellent talk of a double dip

in the rich world has all but disappeared, albeit partly

because emerging economy policymakers (spooked by

the revolutions which swept through the Arab world)

continue to move far too slowly to rein in their still

galloping growth.

That has extended the stay of industrial commodity

prices in the stratosphere. The latter have hit record

highs and have now been joined there by food

prices as well. With emerging economies seeing their

growth ease slightly and the developed world seeing

its growth strengthen, 2011 and 2012 should see

above trend global growth even though both families

and governments want to save more than they have

been doing.

The Australian economy

While Australians watched horried as oods and

cyclones hit at home and earthquakes and tsunamis

caused tragedies abroad, world prices for the industrial

and farm commodities we have in abundance surged

past the peaks they hit back in mid-2008. That

means the world is begging Australia to grow faster,

throwing enormous sums of money at our export

sector, and expanding our national income fast.

Yet, despite that, the pace of Australias recovery has

stalled of late. In part that reects some two speed

economy negatives: a resource boom brings with it

higher interest and exchange rates, and that mix is

weighing heavily on some sectors. At the same time

it is hard for the key growth positives to gain traction

mining and engineering construction want to grow

very fast, but their expansion is being dogged by slow

bureaucratic and corporate approval processes as well

as by skill shortages.

The latter may become acute over the next two years,

because Australias growth prospects rest on a very

narrow base of sectors, occupations and States,

and because policy moves are making it harder tomigrate here.

The list of good news sectors is small, whereas the bad

news list is long. Most manufacturers are being very

hard hit by the marauding $A and the same currency

questions are also bedevilling foreign student numbers

and the tourism sector.

Consumers are cautious: savings is the new black

as Gen Y realises they havent saved nearly enough

for their burgeoning family responsibilities, while all

generations are feeling the sting of higher interestrates, keeping Australias retailers on the back foot.

Even the public sector looks set to slow as stimulus

measures run their course.

Although itll be a close run thing, we expect the

Reserve Bank will have to push up rates over the

next year (keeping the $A strong) even though many

businesses and families are doing it tough.
http://www.deloitte.com/view/en_AU/au/news-research/public-policy-corporate-strategy/index.htmhttp://www.deloitte.com/view/en_AU/au/news-research/public-policy-corporate-strategy/index.htmhttp://www.deloitte.com/view/en_AU/au/news-research/public-policy-corporate-strategy/index.htm


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Hotel Market Outlook Q2/2011

Economic Impacts for the Tourism, Hospitality

and Leisure sector

The longer the Australian dollar remains close to parity

with its US cousin, the harder it will be for tourism

and international education, two key sectors which

dominate our service export earnings, to make their

sales. Both are on the wrong side of Australias two

speed economy, with higher exchange rates combining

with changed migration rules and a sharp competitive

push from US colleges to generate depressingly large

falls in enrolments in key par ts of Australias international

education sector. At the same time, although numbersof inbound tourists lifted in recent months, it is hard to

see visitor numbers sprinting any time soon, or perhaps

any time that the $A is above US$ parity.

Retail spend is directly related to spending in the

domestic leisure segment. Unfortunately, recent years

saw capital gains from homes and shares falter, and

the global nancial crisis led families to reassess the

sustainability of their saving habits. The good news is

that the worst of the retail downturn is almost over.

2011 wont be a great year for retail, but the swing to

saving that has already occurred has sown the seeds

of better times ahead, because families have already

broken the back of what they were trying to do

get back to sustainable rates of saving. As income levels

continue to grow at comfortable enough rates, greater

retail strength should be more evident by the end of

2011, maturing into more solid recovery in 2012.

Activity levels in the corporate sector are strengthening

as national income leverages the resources boom,

meaning that the local market for mergers and

acquisitions is more active than most. That is

generating good demand for professional services.

However, this is a bellwether sector, and it too is feelingthe two speed strains evident in the wider Australian

economy. Demand for professional services from some

sectors and some States remains patchy.

The combination of a sharp drop in internationalstudents as a result of the loosened link between

studying here and obtaining permanent residency,

and increasing labour cost as the unemployment rate

continues to move down, has dire consequences for

seasonal businesses that are heavily dependent on

casual workers. Not only will labour cost go up, it is

also likely to bring often already poor service standards

further down.

The tourism, hospitality and leisure sector is thus on the

back foot amid a climate of high interest and exchange

rates on the one hand and the national swing to

saving on the other. That combination has produced

a less-than-favourable business backdrop, with more

Australians heading to Bali instead of Broome and

Disneyland instead of Dreamworld and stagnant

numbers of tourists arriving here.

Some of the earlier strength in cafs and restaurants

has faded more recently, and whilst the business trade

is seeing some positives, that lift in business prots is

narrowly based and it isnt driving long liquored-up

lunches on the corporate credit card. Given that the

currency has been continuing to edge upwards of late,

there is probably some bad news still in the pipeline forthis sector. However, it wont last forever. In particular,

the $A may start to lose some altitude as interest

rates go up in the rest of the world though not too

much altitude.

Ironically, whilst everything seems to work against

the resort and leisure sector, our corporate hubs are

blessed with an absence of any notable additions to the

supply of hotel accommodation for more than a decade

now, resulting in unprecedented room occupancy

levels. This opens the door wide for hoteliers to drive

room rate, hard. The two-speed economy thus

applies to the tourism, hospitality and leisure sector

as well, and this seems unlikely to change for the

foreseeable future.

Not only will labour cost go up,it is also likely to bring often

already poor service standardsfurther down.


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Australia

$0

$20

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$100

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$140

$160

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$200

50.0%

52.0%

54.0%

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62.0%

64.0%

66.0%

68.0%

70.0%

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Room Occ% Room Rate Trend RevPAR Trend

Data from the Australian Bureau of Statistics (ABS)

showed a country-wide RevPAR increase of 5.4% to

$88.67 for YE 2010, very close to our forecast of

$89.10. Room occupancy grew by 1.7% to 63.7%,

and average room rates for 2010 grew by 2.6%

to $139.16.

We have softened our outlook for 2011 somewhat,

based on a more reserved growth trend for the main

cities and continued uncertainty for leisure destinations.

Overall room occupancy is now forecasted to remain

relatively constant, showing a marginal decrease of0.2% to 63.5%. Average room rates should grow by

5.2% to $146 with RevPAR estimated to increase by

$4.35 (4.9%) to $93.

Looking ahead to 2012, our model predicts a marginal

increase in occupancy by 0.5% to 64.0%. In the

absence of supply growth, average room rates are set

to increase further by $9.58 (6.5%) to $156, increasing

RevPAR by $6.75 (7.3%) to $100.

Sydney

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90.0%

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RoomOcc% Room Rate Trend RevPAR Trend

Sydney hotels recorded the strongest performance in

the country recording RevPAR growth of 10.8% to

$150.25 for YE 2010. Our occupancy forecast

matched the year-end result of 85.5%, with average

room rates growing by only 4.0% to $175.70 despite

record occupancies.

Sydney surpassed pre-GFC occupancy levels by mid-

2010 and has now also recovered RevPAR in full. The

outlook for Sydney for 2011 is extremely encouraging,

primarily based on continued occupancy growth.

Occupancy for the city is modelled to grow another 1%

to 86.4%, with average room rates forecast to rise by

11% to $195, resulting in a RevPAR increase of 12% to

around $168.

Even with the expected opening of the Meriton

Apartments in Haymarket and the extension of Star City

Casino late in 2011, the forecast for 2012 anticipates

further occupancy growth to 87% and another 14%

growth in room rates to $222. RevPAR should thus

increase by 14.5% to $193.

Melbourne

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66.0%

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76.0%

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84.0%

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90.0%

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RoomOcc% Room Rate Trend RevPAR Trend

RevPAR in Melbourne increased by 5.0% to $138.46 in

2010. Room occupancy exactly matched our forecast at

79.8% with growth of 2.5%, while the average room

rates of $173.44 came very close to our forecasted

growth of 1.6% to $173.14.

The outlook for 2011 is positive with no new supply on

the horizon and occupancies expected to increase afurther 2% to 81.7%. RevPAR is forecasted to increase

by 8.6% to $150 fuelled by growth in average room

rates of 6.1% to $184 which is some $7 lower than our

previous projection as hoteliers are proving to be less

aggressive than expected in raising room rates.

Looking forward to 2012, a little room occupancy

growth is left to reach 83%, with average room rates

set for double-digit growth of 11% to $204, increasing

RevPAR by 12.5% to $169. New supply additions are

not expected until 2014.


5/85


Brisbane

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61.0%

63.5%

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81.0%

83.5%

86.0%

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Brisbane hotels recorded strong RevPAR growth of

9.7% to $126.27 for YE 2010, which is close to the

modelled forecast of $126.75. Forecasted occupancies

exactly matched actual results from ABS, with 4.1%

growth to 78.8%. Average room rates grew by 3.9%

to $160.14.

The outlook for Brisbane remains strong. The city

is expected to see an increase in supply by late

2011 and in 2012 with the opening of the second

Emporium, as well as a Novotel on Elizabeth Street.

Room occupancy will continue to increase however,as demand growth still outstrips supply growth. Our

forecast for 2011 and 2012 is for occupancies of 80%,

down by 2% from our previous prediction. Average

room rates are expected to increase by 7% in 2011 and

10% in 2012 to $172 and $189 respectively. RevPAR is

thus expected to increase by 8.5% in 2011 to $137 and

by 11% in 2012 to reach $152.

Perth

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92.5%

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Perth hotels achieved record room occupancies before

the GFC and remained above 80% throughout. Despite

this, room rates dropped by 3% in 2009 and recovered

by only 1.1% in 2010 to achieve 82.3% by year-end.

Room rate growth of 20% and more before the GFC

stagnated throughout 2009 and recorded only 2%

growth in 2010, closing at $157 for the year, about

$1 shy of our forecast.

The outlook for YE 2011 is good, however, with the

city forecasted to achieve the strongest growth rates

in the country, with no new supply expected to enter

the market in the next three years. Room occupancy

is predicted to increase by 3% to reach 85.6% with

11% rate growth to $174 and RevPAR growing by 16%

to $149.

This growth trend is expected to continue in 2012, with

forecasted average room rates and RevPAR exceeding

Melbourne and Brisbane. Occupancies may reach 88%,

surpassing Sydneys projected occupancy for YE 2012.

Average room rates may grow by close to 20% again to

$206, with RevPAR growth of 23.1% to $183.

Adelaide

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Hoteliers in Adelaide achieved a commendable

occupancy level of 76.6% in 2010, on par with our

forecast. Room rate growth however was only 1.4%

to reach $141.84, falling $1 short of our projected rate.

RevPAR for 2010 was $108.64.

Unlike other cities in Australia, Adelaides outlook

shows a negative trend for the city, based on a soft

economic outlook. Occupancy is projected to decline topre-GF C levels of around 74% with only marginal rate

increases of 1.5% to $144. With the projected decrease

in occupancy and the minimal growth in average room

rates, RevPAR is forecasted to decline by 3% to $106,

the lowest of Australias State capital cities.

Looking forward to 2012, room occupancy is expected

to decline by a further 1% to 73%, with average room

rates projected to increase by just 2.5%, improving

RevPAR by just over $1 to $107.


6/86

Canberra

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Canberra hotels RevPAR growth exceeded Sydney for

YE 2010, with 11.3% growth to $114.50, matching the

modelled forecast rate. Occupancy also grew stronger

than Sydney, with 5.4% growth to 75.9% whilst

average room rates grew 3.4% to $150.95.

Canberras outlook for 2011 was for a weaker year, and

this has been revised further down. Occupancy is now

forecasted to decline by 2.5% to 73.5%, as several

high-prole exhibits and events last year are not

repeated this year. Average room rates are predicted to

increase by 3.5% to $156 with RevPAR growing by only0.3% to $115.

In 2012 occupancy is forecast to decrease a further 1%

to 72.5%. However, in the expectation that hoteliers

will push through a much needed rate hike, average

room rates are predicted to rise by 8% to $169 causing

RevPAR to increase by almost 7% to $123.

Darwin

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RevPAR in Darwin grew 2.4% to $99.38 in 2010.

Occupancy growth remained positive on the back of a

decline in the previous year, with growth of 2.3% to

70.6%. Average room rates decreased marginally by

0.9% to $140.83 inuenced by additions to supply in

the previous year.

Darwins outlook is positive however with no further

supply additions expected. Room occupancy growth

is forecasted to improve by 1.5% to 72% in 2011 with

renewed growth in average room rates by 5% to $148.

RevPAR is expected to increase by 7.5% to $99.

Further ahead, occupancy in 2012 should increase by a

further 1% to 73%, with average room rates increasing

7% to $159 resulting in RevPAR growth of 8% to $116.

Gold Coast

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77.5%

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The resort market on the Gold Coast was predicted to

be slow and actually performed below thoseexpectations. RevPAR improved by 2.4% to $90.13,

against a prediction for $91.34. This was caused by

occupancy only growing 1.8% to 68.2%, whilst

average room rates decreased 0.3% to $132.13 due to

continued discounting.

The outlook for the Gold Coast is uncertain. As Stage

II of the new Hilton enters the market, overall room

occupancy is expected to drop by 1.5% to 66.5%.

As this property will hopefully trade above prevailing

average room rates, market-wide average room rates

are predicted to increase for the rst time in threeyears, with growth expected at 2% to around $135.

RevPAR should hold at $90.

Looking forward to YE 2012, occupancy will hopefully

improve to around 68%, with average room rates

increasing further to $140, resulting in RevPAR

projected to increase by 6% to $95.


7/87


Tropical North Queensland

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Tropical North Queensland (TNQ) hotels performance

was impacted by the devastating natural disasters that

affected the region in late 2010. The continuing rise of

the Australian dollar and global economic uncertainty is

also hitting TNQ hard. RevPAR in 2010 fell 2.2% to

$64.83 in YE 2010, against a forecast of only 0.7%

decline. Occupancy decreased by 0.5% to 54.5%,

with average room rates declining by 1.3% to $119.

TNQs outlook for 2011 remains grim and was revised

further downwards, with occupancies expected to

decrease by a further 1.5% to 53%, and average roomrates reducing by 2% to $117 as hoteliers continue

discounting in an attempt to sell rooms. A lower

RevPAR will follow, with a forecasted decrease of 4%

to $62.

Hopefully a reversal in the A$ exchange rate will see

some growth in 2012, with a predicted increase in

occupancy of 1% to 54%, and average room rates

growing by 1% to $118. This should see RevPAR

improve by 3.5% to $64.

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and changing needs of investors. These include

specialist services focused on:

Administration and recovery

Human capital

Financing

Market and asset due diligence

Pricing and distribution

Market development Branding and online products

Sustainability.

Your business, our team

The THL team is led by industry veterans Rutger

Smits and Ron de Wit, whose long-standing

consulting experience and practical industry

knowledge provide a powerful combination when

supported by Deloittes team of technical experts.

With specialists in all geographies and across

all competencies, we quickly mobilise teams tosupport our clients needs.

Deloitte is recognised as one of the leading

global advisors to the Tourism, Hospitality

and Leisure (THL) industry, with a practice of

more than 2000 professionals. In Australia,

our multidisciplinary group of industry

experts have a deep knowledge of the market

issues and business challenges faced within

the THL industry, both domestically and

internationally.


8/8

This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities(collectively the Deloitte Network) is, by means of this publication, rendering professional advice or services.

Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professionaladviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication.

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of memberfirms, each of which is a legally separate and independent entity. Please see www.deloitte.com/au/about for a detailed description of the legalstructure of Deloitte Touche Tohmatsu Limited and its member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With aglobally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and deep local expertiseto help clients succeed wherever they operate. Deloit tes approximately 170,000 professionals are committed to becoming the s tandard ofexcellence.

About Deloitte Australia

In Australia, the member firm is the Australian partner ship of Deloitte Touche Tohmatsu. As one of Australias leading professional servicesfirms, Deloitte Touche Tohmatsu and its affiliates provide audit, tax, consulting, and financial advisor y services through approximately 5,400people across the country. Focused on the creation of value and growth, and known as an employer of choice for innovative human resourcesprograms, we are dedicated to helping our clients and our people excel. For more information, please visit Deloit tes web site at

www.deloitte.com.au.

Liability limited by a scheme approved under Professional Standards Legislation.

Member of Deloitte Touche Tohmatsu Limited

2011 Deloitte Touche Tohmatsu.

AM_Syd_05/11_044530

Contact us

For further information on how we can support your business needs, please contact:

www.deloitte.com.au

Australia

Rutger Smits

+61 (0) 2 9322 5455

[email protected]

New South Wales

Ron de Wit

+61 (0) 2 9322 5458

[email protected]

Northern Territory

Mark Rowberry

+61 (0) 8 8980 6225

[email protected]

Queensland

Martin Leech

+61 (0) 7 3308 7245

[email protected]

South Australia

Alyson Trottman

+61 (0) 8 8407 7259

[email protected]

Victoria

Andrew Bethune

+61 (0) 3 9671 7968

[email protected]

Western Australia

Gary Doran

+61 (0) 8 9365 7080

[email protected]

Audit & Assurance

Stephen Holdstock

+61 (0) 2 9322 7299

[email protected]

Consulting

Steve Hussenet

+61 (0) 8 8407 7629

[email protected]

Corporate Finance

Andrew Jones

+61 (0) 2 9322 5917

[email protected]

Corporate Reorganisation

John Greig

+61 (0) 7 3308 7108

[email protected]

Deloitte Access Economics

Ric Simes

+61 (0) 2 9322 7772

[email protected]

Deloitte Private

Weng Ching

+61 (0) 2 9322 3513

[email protected]

Tax

Max Persson

+61 (0) 2 9322 7538

[email protected]

Sustainability

Shauna Coffey

+61 (0) 2 9322 3504

[email protected]

thl- quarterly hotel market outlook q2 2011

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