Cost of a room for the night to climb

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Australian Financial Review, 24 May 2011

Business and conference travel might be back in the corporate diary, but executives are starting to pay a lot more to bed down at night.

And it’s likely to get worse, particularly in resource-rich Western Australia. Room rates and occupancies in Perth are predicted to outstrip those of the eastern seaboard states by next year.

“The bad news for the business traveller is his/her hotel room will increasingly get more expensive, and until we see the emergence of new supply it will keep getting more expensive,’’ said Rutger Smits, Deloitte’s national leader of tourism, hospitality and leisure.

“The reality is that over the last number of years hotel room rates have not kept up with inflation and that’s one of the reasons why there’s been no new supply. You will not see new hotels come onto the market until profit margins are sustainable, so it’s chicken and egg.’’

Sydney’s average occupancy year round is 87 per cent, according to the Deloitte Hotel Market Outlook Q2 report, released yesterday.

“That is extraordinary and longer term potentially unsustainable,’’

Mr Smits said. “You are wearing out an asset. Essentially, Monday to Friday you can’t get a room. If you go on wotif.com hotels are selling rooms for $1000 a night because the general economy is doing so well.’’

Sydney room rates are expected to rocket next year. Deloitte predicts 14 per cent growth in 2012, taking them to an average $222. Revenue per available room should jump 14.5 per cent to $193.

Melbourne hotel occupancies and room rates are forecast to increase from 79.8 per cent to 83 per cent next year. “Average room rates are set for double-digit growth of 11 per cent to $204,’’ Deloitte says.

New hotel construction is not expected until 2014.

In Perth, forecast average room rates and revenue per available room are expected to exceed those of Melbourne and Brisbane next year. “Occupancies may reach 88 per cent, surpassing Sydney’s projected occupancy for year ending 2012,’’ Deloitte says.

Average room rates may grow by close to 20 per cent to $206.

In Brisbane, room rates are expected to increase 7 per cent this year and 10 per cent in 2012 to $189.

Deloitte says the outlook for Brisbane is strong but it is not as positive on the rest of Queensland, which is largely dependent on the leisure market, which has been hit by the high dollar.

“For the Gold Coast and north Queensland it’s a pretty dire situation,’’ Mr Smits said.

“The outlook for the Gold Coast is uncertain. As stage two of the new Hilton enters the market, overall room occupancy is expected to drop by 1.5 per cent to 66.5 per cent,’’ Deloitte says.

However, the opening of the Gold Coast Hilton could help improve room rates, which are predicted to increase for the first time in three years with growth expected at 2 per cent to about $135.

Rutger Smits was the National Leader for Tourism, Hospitality and Leisure at Deloitte until October 2011. He now manages his own hotel consulting business, AHS Advisory

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