SYDNEY—Hitting the brakes on development has Sydney’s hotel market sitting pretty.
Supply slowed to a crawl during the past few years, according to GMs, hoteliers and others in the city’s hotel sector. There were 8.9 million rooms in the market August year-to-date, up 0.4% from 2009, according to STR Global.
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Sydney Harbour Bridge
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The dearth of supply has helped the market’s performance, hotel experts said. Year-to-date through August, Sydney’s occupancy had increased 9.4% to 82.5%; average daily rate was up 3.6% to AUD173.54 (US$168.34); and revenue per available room had jumped 13.3% to AUD$143.22 (US$138.90).
“We really didn’t have much of a downturn,” said Bryon Merzeo, sales manager-Australia for STR Global.
The estimated AUD$6-billion (US$5.4-billion) Barangaroo development, a waterfront urban renewal project which calls for a 250-room luxury hotel to be part of the complex, is about the only major recent development in Sydney, according to John Stawyskyj, who heads up the hotel, tourism and gaming practice at law firm Blake Dawson.
“At the moment it’s stable, and we hope it stays that way,” said Greg Parkes, group operations and sales director for StayWell Hospitality Group.
Still hesitant
Not all hoteliers are as pleased with the market’s across-the-board increases.
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Greg Parkes
group operations and sales director
StayWell Hospitality Group
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“Occupancy is the highest ever in Sydney,” said Franz Donhauser, GM at the Shangri-La Hotel Sydney. “Unfortunately, hotels don’t take advantage of it and rates aren’t high enough, considering that I consider Sydney to be a world-class city.”
One reason supply is slow to grow is because rates are not high enough to guarantee a return on investment, Merzeo said. “There’s a lot of pressure to raise rates,” he said.
Stawyskyj identified a “lack of confidence” among hoteliers despite what the numbers say. “It’s a fairly buoyant market for hotels here,” he said.
Parkes agreed there is hesitancy. “There is still the rogue element out there who will drive rate to get cash flow when it’s not necessarily needed,” he said.
Evolving strategy
StayWell has three properties in Sydney comprising approximately 250 rooms. Strategy at the hotels has evolved with the changing macro economy, Parkes said.
“Twelve months ago it was all about cash flow,” he said. “We had no reason to be positive. It was the end of the (global financial crisis) and everyone was shell-shocked.”
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| Grand Harbour View room at the Shangri-La Sydney. |
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Times have changed. Today, yield is the new goal. “We’re trying to start months with higher occupancy—getting yields up as we get closer to the (guest’s reservation),” Parkes said.
Without citing specific figures, Parkes said occupancy at StayWell’s Sydney hotels is up 20% during the past 12 months while rate has increased by US$15.
And at Shangri-La, the hotel has more aggressively pursued corporate accounts as leisure travel has slowed, Donhauser said.
Given the strengthening of the Australian dollar, it’s no surprise that some source markets, such as the United States, have dried up a bit for Sydney, Parkes said. “Travel from the U.S. is not a big slice of our business, but it’s one we’re trying to grow,” he said.
Australia, however, is a “domestic-driven market,” Merzeo said, so the lack of U.S. visitors hasn’t been a glaring issue.
2011 outlook
2011 should see a continuation of the positive operating metrics recorded during 2010, hotel industry sources said.
“I think we will be moderately aggressive,” Parkes said. “We’re looking at a 5% increase in rate across all markets.”
Occupancy also will continue its upward trajectory, Donhauser said. “The economy is very strong,” he said. “I believe the leisure market will pick up. (And corporate) markets show signs of recovery.”
