Tourists, Business Visitors Underpin Room Boom

The Age

Monday February 18, 2008

Philip Hopkins

THE continuing influx of business visitors and tourists into Victoria is creating the best outlook in nearly 20 years for Melbourne's hotel sector.

CB Richard Ellis, in its 2008 market outlook, said Melbourne's accommodation sector was set for some of its best years for close to two decades.

CBRE's executive director of research for the Pacific region, Kevin Stanley, said the demand for hotel rooms continued to grow strongly, especially in Melbourne.

This was despite the fact that for the first time in 20 years, more Australians were going overseas for holidays than tourists were coming here.

"Over the last two years, the rate of growth for hotel rooms has doubled the rate of new rooms coming into the market," he said.

Mr Stanley said new airlines coming to Melbourne were bringing more domestic and international visitors. Budget carrier Tiger Airways now had Tullamarine as its national base and Qantas would bring the massive Airbus A380 to Melbourne by the end of this year.

Also, the State Government was stimulating activity by building the big new convention centre at South Wharf on the Yarra River.

"It already has bookings for over $300 million worth of conventions, yet the opening is not until mid-2009," he said. "It shows the demand is there; you just need to be prepared to support it."

Mr Stanley said as a result, all key hotel performance indicators were looking good. "Occupancy rates are now often over 80% and room rates are growing at 6 to 9% per annum," he said. "It doesn't get much better than this."

Mr Stanley said Melbourne was in fact leading the country in new hotel building. Two major projects - the third hotel at Crown Casino on Southbank and the Hilton at the convention centre - were under way.

"We think the quality and locations of these hotels should see them easily absorbed into the market," he said. "There are other potential hotel sites in Docklands, but they're yet to commence construction."

For investors, CBRE director Scott Callow said purchaser demand was consistently strong, but opportunities were few.

"Yield remains the key factor, with buyers seeking 7 to 8% returns. Investment capital is readily available through institutional and overseas buyers," he said.

Mr Callow said the key element of a successful hotel would always be location. "Proximity to transport hubs, office precincts and shopping centres remain the key drivers to new development," he said. "Interest in this sector has never been stronger."

Mr Callow said three hotels opened in the central business district last year - Oaks on Market, Oaks on Lonsdale and Leo Pacific in Little Bourke Street. the only CBD sales were Shoan Heights Serviced Apartments and the Explorers Inn.

© 2008 The Age

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