What is the current demand for Australian hospitality, and what is its potential for Investment growth?
2020 has been a rough year for everyone, with various industries doing what they can to stay afloat. It is easy to see that Australia follows the trend of hospitality worldwide, showing much lower demand year-over-year than in 2019. However, when restrictions started to loosen up, demand picked up as many Australians decided to holiday domestically, increasing the possibility for investment growth quite dramatically.
This is expected to recur even after the resurgence of lockdown, as analysts have predicted that as case levels rise, occupancy will take another dive until restrictions are loosened again. Numbers for 2019 are proving to only be useful when looking at vague seasonal trends. Forward occupancy, even at peak recovers, rarely got above 20% in all Australian markets during July through September. The numbers for April were slightly lower than May, which sat at 23.2% ADR. The main recovery driver towards the investment market was leisure demand during school holidays, long weekends, and weekends.
Of the sites that showed the greatest potential for investment growth, driveable locations saw the biggest bumps in recovery due to being more accessible. Sydney Surrounding areas saw much larger spikes in recovery than the correlating spikes in Sydney proper, for instance. Places like Hunter Valley, Blue Mountains, Wollongong, and Newcastle each outperformed the Sydney market. The biggest spikes were during the school holiday for New South Wales that lasted from Monday, July 6 to Friday, July 17.
What does the future hold for investment growth in this industry?
The predictions for the future are a bit of a mixed bag as far as an investment opportunity, as forecasting for 2021 still puts occupancy rates below 30%. The lowest business month varies by city, with Melbourne’s being December and Sydney’s being July. This mirrors the downturn in travel as border restrictions continue to be in place and social distancing remains important for public safety. While there will be recovery from the current downturn, the expectation is that it will take several years to start seeing 2019 levels again. It isn’t until 2023 that most markets are predicted to fully catch back up.
This recovery is expected to take longer than the 2007 and 2008 financial crisis due to the specific travel restrictions, social distancing measures, and diminishing consumer confidence. Once the regular growth curves are restored, the country is likely to catch back up to initial long-term predictions of 3.3% RevPAR growth year after year. Both the supply and demand equation is expected to return to positive once occupancy levels recover.
The developers are still working on the development pipeline, and the 57,316 rooms spread over 332 projects that were in the works to go online until 2028 aren’t going anywhere. Long-term investments in the Australian market are still looking promising. The full effects of the ongoing coronavirus pandemic are unknown, but long-term predictions continue to predict growth and recovery.