APPD Market Report Article

Sydney

November 29, 2022

Anthony Corbett, Managing Director - Head of Hotels & Hospitality, Valuations Advisory, Australia

110.4%

AUD 160

RevPAR
Rising

Corporate and international demand recovering

  • Demand continues to be largely domestic led, however the easing of restrictions, return of major events and steady recovery in international air capacity has resulted in strong demand growth over Q3 2022. Sydney Airport recently announced that total passenger traffic has recovered to 72.5% of pre-pandemic levels, prior to the anticipated peak over the September school holiday period.
  • Occupancy as at YTD September 2022 improved to 57.3% y-o-y compared to 36.2% y-o-y for the same period last year. Despite this, market occupancy continued to be materially affected by the ongoing impact of the pandemic, illustrated by a pre-COVID-19 occupancy rate of 85.5% for the same period in 2019.

One new hotel opens over Q3 2022

  • The Porter House Hotel-MGallery by Sofitel opened its doors to the market in September. The 121-room upper upscale CBD hotel marks the second new hotel opening of the year, following the opening of the Ace Hotel Sydney (257 rooms) situated in Surry Hills in the previous quarter.
  • Seven properties are currently under construction in Sydney and in surrounding fringe suburbs, representing a net increase of 1,497 rooms or 6.9% on existing stock. Future development activity is expected to be relatively subdued over the near term, on the back of increasing construction costs and as interest rates rise.

EBITDA continues to improve across the board

  • As at YTD September 2022, revenue per available room (RevPAR) increased to sit at AUD 160, which represents a 110% increase from 2021, heavily driven by strong average daily rate (ADR) growth in the market (33.1% y-o-y). Despite this, RevPAR remains 23% down on pre-COVID levels (YTD September 2019).
  • EBITDA continued to recover on the back of improving revenue and significant cost savings achieved by owners over the last two years. However, economic headwinds are emerging, which include the disruption to global supply chains and production, labour shortages, escalating costs (i.e. inflation) as well as an increasing cost of debt (i.e. rise in interest rates).

Outlook: Market recovery to continue, despite economic headwinds

  • Trading conditions in Sydney are anticipated to remain somewhat constrained over the near term, as the market remains heavily reliant on the steady recovery of international and corporate/MICE demand. Despite this, Sydney is set to benefit from a significant events calendar for 2023, which is expected to support improving occupancy levels and strong ADR’s.
  • Investor demand for Sydney remains strong, with a number of significant transactions finalising over the year, led by the record sale of Hilton Sydney. Over the near term, investors are anticipated to continue to target trophy assets or non-performing assets with upside potential, especially whilst sub-optimal trading conditions exist.

Note: Sydney Hotels refers to all grades of accommodation and includes both hotels and serviced apartments.

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