Rebounding corporate demand and events schedule fuels recovery

• Sydney’s annual events calendar continues to grow and remains crucial in sustaining the city’s tourism and hotel sector, with peak room night demand occurring during events such as Vivid Sydney, FIFA Women’s World Cup, SXSW and NYE celebrations. While demand has been largely underpinned by domestic leisure, there is now a noticeable rebound in corporate/MICE demand and inbound visitor arrivals.
• Market occupancy as of YTD December 2023 improved to 79.1% y-o-y, versus 61.9% for the same period in 2022, which makes it the highest current occupancy level nationally of any key city market. Despite this ongoing recovery, occupancy remains below pre-pandemic levels, illustrated by a pre-COVID-19 occupancy rate of 85.5% for the same period in 2019.

One new luxury hotel opens in 4Q23

• A total of 816 rooms opened over the year-to-date December 2023, which represents a 3.7% of total room stock. This includes the most recent opening of the luxury 586-room W Sydney. This is the world’s largest W Hotel, which opened in early October after significant delays and the collapse of multiple builders.
• Five new hotels are currently under construction in Sydney CBD and surrounding fringe suburbs, representing a net increase of 855 rooms or 3.8% on existing stock. It is expected that future development activity will be relatively constrained in Sydney, given the limited availability of sites, elevated construction costs, macroeconomic challenges, and the availability of development finance.

Strong RevPAR recovery driven by an uplift in occupancy

• As of YTD December 2023, revenue per available room (RevPAR) increased to sit at AUD 247, which represents a 35% increase from the previous year, and has now recovered to be 14% above pre-pandemic levels (YTD December 2019). This recovery has been driven by strong ADRs and a steady uplift in market occupancy (28% y-o-y), however, occupancy remains 8% down on pre-pandemic levels.
• Sydney remained the largest transaction market nationally over 2023, recording total investment volumes in excess of AUD 640 million in CBD and fringe suburbs (across five deals). This included the landmark transaction and forward funding of the Waldorf Astoria Sydney development project and sale of The Old Clare Hotel.

Outlook: Ongoing market stabilisation anticipated throughout 2024

• Sydney’s ongoing market recovery remains dependent on the steady pick up in corporate and meetings demand, as well as the continued resurgence of international visitors. According to TRA’s latest forecasts, Australia is anticipated to welcome 9.3 million inbound visitors in 2024 (98% of pre-pandemic levels), supported by the ongoing rebound of Australia’s top pre-pandemic source market, China.
• Despite current economic headwinds and the rise in borrowing costs, there continues to be strong investor appetite for Sydney hotels in what is a tightly held market. Currently, capital is primarily focused on targeting aspirational assets, be that trophy or strategic, and assets with value-add potential.