Australia National Tourism and Hotel Market Outlook
Domestic Economic trend
After the lowest point in 2020, the GDP rebound was strong as the Australian economy grew 3.4% over December 2021. The economic rebound was mainly contributed by strong government and household consumption, particularly on services. Although the national economy is under the pressure of inflation, Deloitte Access Economics expects that we are nearing the inflation peak and after the middle of 2022, inflation in Australia should start to moderate as supply chain issues and global events begin to subside. Overall, Australia is set for another strong year of growth, as shown in Chart below.
(Deloitte Access Economics 2022)
In the absence of lockdowns, the national labour market recovery has been outstanding. Bjorn Jarvis, head of labour statistics at the ABS, said: “With employment increasing by 88,000 people and unemployment falling by 54,000, the unemployment rate fell by 0.4 percentage points, to 3.5% (June 2022). “This is the lowest unemployment rate since August 1974, when it was 2.7%t and the survey was quarterly.”
The Australian intention to spend on travel remains relatively high (52%) despite inflation concerns, likely fuelled by pent up demand for travel given two years of restrictions, higher levels of household savings among some cohorts and perhaps a shift away from travel’s positioning as a discretionary expenditure. Data also indicates that as the confidence travel is growing, there are an increasing proportion of people feeling safe taking a flight and staying in a hotel along with a greater share planning a leisure trip in the next few months. (Deloitte Global State of the Consumer Tracker, April 2022)
Question: To what extent do you agree or disagree with the following statement (% Strongly agree/agree): “I would feel safe flying right now” and “I would feel safe staying in a hotel right now”.
Question: How likely are you to do the following for leisure travel in the next three months? (% Very likely/Somewhat likely)
While business travel is resuming, the recovery of this segment is expected to take longer. In the December 2021 quarter, while leisure travel returned to over 70% of pre-pandemic levels as restrictions eased, business travel was still at half of 2019 levels. After the long pause, the pandemic has resulted in a reconsideration of the need, purpose and approach to business related travel for many organisations. Further, there is a wider acceptance of conducting business meetings virtually, with 16 per cent of business travellers indicating technology has replaced the need to travel, as well as corporates, are now perusing greater emphasis on ESG in their business.
Question: How likely are you to take a business trip in the next three months?
Forecasts for travel to and within Australia
Overall, the return of travel will be patchy with some market segments and regions expected to recover more quickly than others. Holiday and visiting friends and relatives (VFR) segments are expected to lead the recovery of tourism, in particularly, from short haul source markets. The outlook for business travel is weaker, with long haul most likely to take longer to recover compared to short haul business travel.
Expected stability in borders, strong vaccination rates and the reduced severity of Covid-19 infections, have strengthened domestic travel confidence, which will underpin a strong recovery of Australia’s domestic travel sector in 2022 and 2023. Doolittle forecasts the domestic overnight trips in Australia are forecast to grow to 109 million trips in 2022 (94 per cent of 2019 levels). And it is set to forecast to surpass 2019 levels in 2023, reaching 127 million trips (108 per cent of 2019 levels) before growing further to 139 million trips in 2024 (120 per cent of 2019 levels).
Hotel market in Australia
Hotels in Australia’s biggest cities, Sydney and Melbourne, have been disproportionately impacted. In fact, the lockdowns in Sydney and Melbourne pulled down hotel occupancy rates to as low as 20 per cent in August 2021.10 Sydney and Melbourne, as Australia’s most populous cities, contribute a large portion of travel and hotel demand for other cities especially with the international border closed. The lockdowns in both cities stopped nearly half of Australia’s population from travelling, which resulted in average hotel occupancy rates of 32 per cent nationally in August, lowest point in 2021. (STR Global)
As lockdowns lifted and travel restrictions started to ease in late 2021, hotel demand started to return albeit unevenly and, in some markets, quite slowly. In December 2021, before the Omicron related slowdown, occupancy across Australia’s major hotel markets occupancy had climbed to 66 per cent of December 2019, while in March 2022, occupancy had recovered to 76 per cent of March 2019 levels.
By 2021, average room rates had recovered to 2019 levels and average room rates for the first quarter of 2022 had surpassed levels recorded during the same period in 2019. With the easing of domestic travel restrictions and opening of international borders, occupancy levels are showing signs of improvement, tipping over 50 per cent in the first quarter of 2022 (Table i).
Source: Deloitte Access Economics and STR Global data. Share of 2019 level for Jan-March 2022 is based on Jan-March 2019. Markets included are Sydney, Melbourne, Canberra, Darwin, Tropical North Queensland, Perth, Brisbane, Adelaide, Hobart, Western Sydney and Gold Coast
Pipeline of hotel projects
Overall, the pipeline of hotel developments has moderated and pushed further out due to shifts of several projects from hotel to residential and delays in commitment from investors. Further, the collapse of major construction firms in the last year has led to uncertainty around the opening schedules of some hotel projects.
The majority of the new stock remains concentrated in Melbourne, Gold Coast and Sydney, which combined accounts for almost 60 per cent of the anticipated new inventory across the 11 markets. However, relative to existing stock, Adelaide, Western Sydney, Brisbane and Canberra are expected to experience the most significant relative increase with double-digit growth in new stock over the next three years which will place further pressure on occupancy rates in these markets.
Source: Deloitte Access Economics and STR Global Note: Pipeline growth is based on new rooms to be added in each market
Forecast for key hotel markets
The pace of recovery for hotels will vary across the city markets. Hotels in major city centres will continue to face pressure on occupancy levels in 2022 and 2023. The volume and type of new stock expected will shift hotel market dynamics and influence the outlook for prices. The injection of new, high quality room inventory has raised the quality of accommodation in a number of capital cities, enabling hoteliers in general to command higher room rates. Average room rates in 2022 across the 11 markets are expected to be around 10 per cent higher than 2019 levels, with continuing strength across the three-year forecast horizon.