APPD Market Report Article
SydneyFebruary 28, 2023
Anthony Corbett, Managing Director - Head of Hotels & Hospitality, Valuations Advisory, Australia
Domestic and international visitor arrivals continue to recover
- Demand continues to be led by domestic leisure, however the return of major events, and steady recovery in corporate/MICE demand and international air capacity have resulted in strong demand growth over 4Q22. Sydney Airport reported that the total passenger traffic for December has more than doubled since the same period in 2021, recovering to 78.3% of pre-COVID-19 levels (December 2019).
- Occupancy as at YTD December 2022 improved to 62.1% y-o-y versus 34.9% for the same period the previous 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 85.6% for the same period in 2019.
No new hotels open over 4Q22
- A total of 378 rooms opened in the 12 months to December 2022, representing 1.7% of total room stock. These included the Porter House Hotel-MGallery by Sofitel (121 rooms) in the CBD, and the Ace Hotel Sydney (257 rooms) situated in Surry Hills. More recently Oxford House (56 rooms) in Paddington also opened its doors to the market after a significant refurbishment and rebranding.
- Seven new hotels are currently under construction in Sydney CBD and surrounding fringe suburbs, representing a net increase of 1,497 rooms or 6.9% on existing stock. Given increasing construction costs and interest rate rises, future new development activity is expected to be relatively subdued over the near term.
RevPAR recovery supported by strong ADR growth
- As at YTD December 2022, revenue per available room (RevPAR) increased to sit at AUD 184, which represents a 136% increase from the previous year, and continues to be heavily driven by strong ADR growth in the market (33% y-o-y). Despite this, RevPAR remains 15% down on pre-COVID-19 levels (YTD December 2019).
- EBITDA continues to recover, largely on the back of improving revenue and significant cost savings achieved by owners over the last two years. Whilst the direct effect of COVID-19 has eased, the market is now facing other concerns such as staffing, supply chain disruption, the inflationary environment and increasing interest rates.
Outlook: Despite economic headwinds, market recovery to accelerate
- Trading conditions in Sydney are expected to remain somewhat constrained over the short term, as international and Chinese visitation and corporate/MICE demand steadily return. Despite this, Sydney is anticipated to benefit from a significant events calendar for 2023, which should continue to support improving occupancy levels and strong ADRs.
- Investment appetite in Sydney remains strong but selective, with a number of significant transactions settling over the second half, led by the record sale of the Hilton Sydney. Over the near term, investors are expected to continue to seek acquisition opportunities for trophy assets or non-performing assets with upside potential, especially while sub-optimal trading conditions exist.