People of all backgrounds travel to Australia for an experience they can’t get anywhere else. It is a country with vibrant urban centres, diverse populations, unique wildlife, and outstanding natural beauty. Travellers from around the world have always considered Australia to be a “dream destination” – and in recent years, unprecedented numbers of people are making that dream a reality.
The Australian government recorded just under 5.9 million international arrivals in 2011. In 2018, that number surpassed 9 million. It represents an increase of 30% over a period of seven years, and a current year-on- year (YOY) growth rate of 7.6%. When the numbers are broken down by region, we see that the fastest growing markets for Australian tourism are in Asia – specifically Hong Kong (28% more arrivals from 2017 to 2018), India (+18%) and China (+14%).
Not only are more tourists visiting Australia; they’re also spending more money. A total spend of AUD $42.3 billion was recorded in 2018, up 6% from the previous year. This means each tourist is currently spending around AUD $5,000 on average. Projections from the Australian government, as well as global research firms, predict continued growth in total expenditure per trip, as well as continued growth in the total number of tourists who visit Australia each year.
Why is tourism experiencing such rapid and sustained growth in Australia? There are several reasons. First, there are more direct flights than ever before. China’s HNA Aviation Group and Nanshan Group now own a third of Virgin Australia, collectively. Airplanes are getting bigger, and fares are more accessible.
Second, concentrated efforts have been made – particularly by China and Australia – to promote tourism. The Australian government now offers 10-year visas to Chinese citizens, and has actively promoted a better exchange rate between the Yuan and the Australian dollar.
Third, Australia’s geographical position makes it relatively convenient for growing numbers of Asian tourists, especially when compared to other popular destinations like Europe and North America. Finally, a booming population and a stable economy make Australia a strong bet for attracting tourists and investors alike.
"A booming population and a stable economy make Australia a strong bet for attracting tourists and investors alike."
A rising demand for luxury
According to Matt Bekier, CEO of Star Entertainment Group, Chinese tourists who visit Australia are mostly staying in four- and five-star properties. As other industry experts have pointed out, these visitors are also spending cash on luxury goods. A walk down Castlereagh street in Sydney, or Collins street in Melbourne, will reveal a growing number of high-end boutiques – due in large part to the influx of wealthy international tourists.
But the hotel supply in this category is currently inadequate. Investors are beginning to realise that more luxury hotels are needed in order to seize opportunities over the mid- to long-term.
Asian investors already own the Sheraton Hotel in Sydney, the Park Hyatt in Melbourne, and many other premier Australian hotels. The Star Sydney recently announced plans for a new tower to be operated by Ritz-Carlton, with backing from two Hong Kong-based companies.
In Melbourne, Thai-owned Minor Hotels will soon open the city’s first AVANI Hotel. Other deals that have made headlines include the sale of the iconic The Westin Hotel in Sydney and the Sydney Hilton to respective Asian investment groups.
Will the growth slow down?
Sydney and Melbourne continue to break records in occupancy rates, but strong (and steadily increasing) performance is being observed in several other markets, including Hobart, Cairns, Gold Coast and Adelaide, with Perth and Brisbane still attracting development. The question is, should investors who are more focused on immediate returns enter this market?
The answer is simple: Sustained growth and long- term vision are critical to investors looking to enter the Australian hotel market. This is why statistics like occupancy rates and Revenue Per Available Room (RevPAR) are important. According to figures released by the global research firm Deloitte, the national occupancy rate in Australia reached 71.3% in 2018 (with occupancy rates of more than 90% in Sydney, and comparably high rates in Melbourne). In addition to high occupancy rates, the number of nights people stay in Australian hotels is also increasing by an average of 3% each year.
Given these occupancy rates, the Revenue Per Available Room is naturally strong. Data from STR shows the RevPAR grew by 2.8% in the second quarter of 2018. This is part of a sustained trend in RevPAR growth for Australian hotels, as noted by Deloitte and other researchers. In terms of profit, the Property Council of Australia states that hotels generated overall returns of 22.8% in 2017.
Obviously, investors have taken these promising figures to heart. The hotel supply in Australia is set to significantly increase in the next 2-3 years as new projects are completed and new rooms become available. Deloitte estimates that the demand for hotel rooms in Australia is growing 1.4% faster than supply.
The data is beyond encouraging – but again, seizing these opportunities requires an unwavering commitment to the long term picture despite short-term market fluctuations.
Shaping the guest experience
As investors seek to optimise their holdings in Australian hotels, it is a logical step to evolve hotel service models
toward the preferences of important demographics. On a global scale, the rise of millennials has led to entirely new hospitality models. Likewise, the influx of tourists (especially from China) to Australia is changing how investors think about new hotel projects. In Tasmania, for example, the Beijing-based investor William Wei is buying luxury bed and breakfasts and turning them into comprehensive wedding destinations largely aimed at international tourists.
Another notable example of this trend is the Jackalope Hotel in southern Australia, which combines a modern 46 room hotel with a 144-year-old homestead and vineyard. The $40m development, owned and curated by Louis Li, was named Australia’s best hotel at the 2017 Gourmet Traveller Australian Hotel Guide Awards. Mr Li, a 29 year old entrepreneur with a passion for art and design, is currently expanding his vision to include several properties in Melbourne’s CBD.
Why are these offerings enjoying so much success, so early on? A large part of the reason is that the investors behind these hotels have a clear and defined idea of what they want to bring to the market and they are prepared and willing to wait out short term challenges for a long
Investing in Australian hotels with long-term vision
All economic signs point to a sustained upward trajectory of international tourism to Australia. Hotel investors have a golden opportunity to capture a greater percentage of the global tourist market in the years ahead, but it has to be done with a committed focus on long-term results and performance. In this thriving tourism market, investors with a clearly defined and well-developed offering should see their successes multiply for many years to come.
Investors of course need good advice as well, so if you would like to discuss these opportunities with one of Australia’s leading hotel advisors, please feel free to contact Dean Minett from Minett Consulting Pty Ltd at firstname.lastname@example.org.