Demand for hotel assets increase as travel returns and occupancy levels rise

A rapid increase in domestic and international travel has pushed hotel occupancy rates up sharply and increased demand for hotel assets.

Ray White Commercial, Head of Research, Vanessa Rader said domestic passenger movements were edging towards pre-COVID levels, with 4.52 million passengers carried for the month of June, up 92 per cent on the year and slightly behind the 5 million achieved prior to 2020. 

“These results are encouraging for our domestic hotel market, with most aviation travel being for domestic movements and inbound international passengers, giving our local tourism industry a much needed boost,” Ms Rader said.

Ms Rader said the big increase in travel has had a flow-on effect with higher hotel occupancy rates around the country.

“The improvement in hotel occupancy has been outstanding over the last 12 months, key winter school holiday tourism nodes of Darwin and Cairns saw occupancy grow to 83.5 per cent and 82.8 per cent respectively, after only just achieving over 50 per cent in July 2021,” she said.

“This resulted in strong increases in ADR (average daily rate) of over 24 per cent for each market to $294 per night in Darwin and $263 per night in Cairns. 

“Canberra continues to recover as government activity levels return to pre-COVID-19 levels, together with the burgeoning tourism drive market, resulting in occupancy now at 80.3 per cent, after sitting at 22.4 per cent just 12 months ago, with ADR up 27.8 per cent to $223 per night.”

Despite the cooler weather, Gold Coast and Brisbane also recorded strong occupancy increases, which saw room rates grow by as much as 25 per cent over the same period, with this market benefiting from holidayers as well as those visiting friends and family and the business and conference sectors.

“Sydney was the stand out performer for daily room rate growth, up by 34.7 per cent to $241 per night despite occupancy still being one of the lower of Australian markets at 66.2 per cent,” she said.

“Further recovery in business travel is needed to improve both Sydney and Melbourne vacancy rates, which will in turn boost RevPAR (revenue per available room) levels.”

Ms Rader said the improved segment is continuing to drive demand to purchase hotel assets. 

“Offshore buyers have been active investors into the Australian tourism market, however, after a couple of quiet years for the asset class, investment is tipped to pick up,” she said.

“Remembering that across the country occupancy sits 68.9 per cent, up from 38.5 per cent a year ago, while average daily room rates enjoyed a 22.3 per cent uptick back to above $230 per night. 

“These ongoing improvements in occupancy and revenue, together with improving international aviation and domestic travel statistics, make it an attractive investment choice.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.