The updated economic outlook by Deloitte Access Economics predicts a softer economic environment, resulting in downward revisions in our forecasts for 2011 for both occupancy and room rates. We also present a first look at our projections for year-end 2012.

1. Q2
2011
Australian Hotel
Market Outlook

2. The Australian economy
In early February 2011 Deloitte launched While Australians watched horrified as floods and
Hotel Market Outlook: 2010 in review; 2011 cyclones hit at home and earthquakes and tsunamis
and beyond, predicting year-end results for 2010 caused tragedies abroad, world prices for the industrial
some three months before the Australian Bureau and farm commodities we have in abundance surged
of Statistics released its official data. We did past the peaks they hit back in mid-2008. That
this by applying an econometric model, utilising means the world is begging Australia to grow faster,
historic ABS data, combined with the latest throwing enormous sums of money at our export
information from STR Global as well as economic sector, and expanding our national income fast.
forecasts by Deloitte Access Economics.
Yet, despite that, the pace of Australia’s recovery has
We are pleased to note that our forecasts were stalled of late. In part that reflects some ‘two speed
highly accurate, within a 0.2% occupancy economy’ negatives: a resource boom brings with it
and 0.5% average room rate margin in almost higher interest and exchange rates, and that mix is
all markets. weighing heavily on some sectors. At the same time
it is hard for the key growth positives to gain traction
The updated economic outlook by Deloitte – mining and engineering construction want to grow
Access Economics predicts a softer economic very fast, but their expansion is being dogged by slow
environment, resulting in downward revisions in bureaucratic and corporate approval processes as well
our forecasts for 2011 for both occupancy and as by skill shortages.
room rates. We also present a first look at our
projections for year-end 2012. The latter may become acute over the next two years,
because Australia’s growth prospects rest on a very
Subscribe to Deloitte Access Economics narrow base of sectors, occupations and States,
publications online. and because policy moves are making it harder to
migrate here.
The list of good news sectors is small, whereas the bad
The global economy
news list is long. Most manufacturers are being very
The key question for global growth was always just
hard hit by the marauding $A and the same currency
how big a letdown the passing of stimulus would
questions are also bedevilling foreign student numbers
prove. The early news is excellent – talk of a double dip
and the tourism sector.
in the rich world has all but disappeared, albeit partly
because emerging economy policymakers (spooked by
Consumers are cautious: savings is the new black
the revolutions which swept through the Arab world)
as Gen Y realises they haven’t saved nearly enough
continue to move far too slowly to rein in their still
for their burgeoning family responsibilities, while all
galloping growth.
generations are feeling the sting of higher interest
rates, keeping Australia’s retailers on the back foot.
That has extended the stay of industrial commodity
prices in the stratosphere. The latter have hit record
Even the public sector looks set to slow as stimulus
highs and have now been joined there by food
measures run their course.
prices as well. With emerging economies seeing their
growth ease slightly and the developed world seeing
Although it’ll be a close run thing, we expect the
its growth strengthen, 2011 and 2012 should see
Reserve Bank will have to push up rates over the
above trend global growth even though both families
next year (keeping the $A strong) even though many
and governments want to save more than they have
businesses and families are doing it tough.
been doing.
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3. Hotel Market Outlook Q2/2011
Economic Impacts for the Tourism, Hospitality
and Leisure sector
The longer the Australian dollar remains close to parity
with its US cousin, the harder it will be for tourism
and international education, two key sectors which
dominate our service export earnings, to make their
sales. Both are on the wrong side of Australia’s two
speed economy, with higher exchange rates combining
with changed migration rules and a sharp competitive
push from US colleges to generate depressingly large
falls in enrolments in key parts of Australia’s international
education sector. At the same time, although numbers The combination of a sharp drop in international
of inbound tourists lifted in recent months, it is hard to students as a result of the loosened link between
see visitor numbers sprinting any time soon, or perhaps studying here and obtaining permanent residency,
any time that the $A is above US$ parity. and increasing labour cost as the unemployment rate
continues to move down, has dire consequences for
Retail spend is directly related to spending in the seasonal businesses that are heavily dependent on
domestic leisure segment. Unfortunately, recent years casual workers. Not only will labour cost go up, it is
saw capital gains from homes and shares falter, and also likely to bring often already poor service standards
the global financial crisis led families to reassess the further down.
sustainability of their saving habits. The good news is
that the worst of the retail downturn is almost over. The tourism, hospitality and leisure sector is thus on the
2011 won’t be a great year for retail, but the swing to back foot amid a climate of high interest and exchange
saving that has already occurred has sown the seeds rates on the one hand and the national ‘swing to
of better times ahead, because families have already saving’ on the other. That combination has produced
broken the back of what they were trying to do – a less-than-favourable business backdrop, with more
get back to sustainable rates of saving. As income levels Australians heading to Bali instead of Broome and
continue to grow at comfortable enough rates, greater Disneyland instead of Dreamworld and stagnant
retail strength should be more evident by the end of numbers of tourists arriving here.
2011, maturing into more solid recovery in 2012.
Some of the earlier strength in cafés and restaurants
Activity levels in the corporate sector are strengthening has faded more recently, and whilst the business trade
as national income leverages the resources boom, is seeing some positives, that lift in business profits is
meaning that the local market for mergers and narrowly based and it isn’t driving long liquored-up
acquisitions is more active than most. That is lunches on the corporate credit card. Given that the
generating good demand for professional services. currency has been continuing to edge upwards of late,
However, this is a bellwether sector, and it too is feeling there is probably some bad news still in the pipeline for
the ‘two speed’ strains evident in the wider Australian this sector. However, it won’t last forever. In particular,
economy. Demand for professional services from some the $A may start to lose some altitude as interest
sectors and some States remains patchy. rates go up in the rest of the world – though not too
much altitude.
Ironically, whilst everything seems to work against
the resort and leisure sector, our corporate hubs are
Not only will labour cost go up, blessed with an absence of any notable additions to the
supply of hotel accommodation for more than a decade
it is also likely to bring often now, resulting in unprecedented room occupancy
levels. This opens the door wide for hoteliers to drive
already poor service standards room rate, hard. The ‘two-speed economy’ thus
applies to the tourism, hospitality and leisure sector
further down. as well, and this seems unlikely to change for the
foreseeable future.
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4. Australia
Australia: Occupancy, Rate and RevPAR Trends Sydney surpassed pre-GFC occupancy levels by mid-
70.0% $200 2010 and has now also recovered RevPAR in full. The
68.0% $180
outlook for Sydney for 2011 is extremely encouraging,
66.0% $160
primarily based on continued occupancy growth.
64.0% $140
Occupancy for the city is modelled to grow another 1%
62.0% $120
60.0% $100
to 86.4%, with average room rates forecast to rise by
58.0% $80 11% to $195, resulting in a RevPAR increase of 12% to
56.0% $60 around $168.
54.0% $40
Even with the expected opening of the Meriton
52.0% $20
50.0% $0
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Room Occ% Room Rate Trend RevPAR Trend
Casino late in 2011, the forecast for 2012 anticipates
further occupancy growth to 87% and another 14%
Data from the Australian Bureau of Statistics (ABS) growth in room rates to $222. RevPAR should thus
showed a country-wide RevPAR increase of 5.4% to increase by 14.5% to $193.
$88.67 for YE 2010, very close to our forecast of
$89.10. Room occupancy grew by 1.7% to 63.7%, Melbourne
Melbourne: Occupancy, Rate and RevPAR Trends
and average room rates for 2010 grew by 2.6% 90.0% $325
to $139.16. 88.0% $300
86.0% $275
84.0% $250
We have softened our outlook for 2011 somewhat, 82.0% $225
based on a more reserved growth trend for the main
80.0% $200
78.0% $175
cities and continued uncertainty for leisure destinations. 76.0% $150
Overall room occupancy is now forecasted to remain 74.0% $125
72.0% $100
relatively constant, showing a marginal decrease of 70.0% $75
0.2% to 63.5%. Average room rates should grow by 68.0% $50
5.2% to $146 with RevPAR estimated to increase by
66.0% $25
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$4.35 (4.9%) to $93. Room Occ% Room Rate Trend RevPAR Trend
Looking ahead to 2012, our model predicts a marginal RevPAR in Melbourne increased by 5.0% to $138.46 in
increase in occupancy by 0.5% to 64.0%. In the 2010. Room occupancy exactly matched our forecast at
absence of supply growth, average room rates are set 79.8% with growth of 2.5%, while the average room
to increase further by $9.58 (6.5%) to $156, increasing rates of $173.44 came very close to our forecasted
RevPAR by $6.75 (7.3%) to $100. growth of 1.6% to $173.14.
Sydney
Sydney: Occupancy, Rate and RevPAR Trends
The outlook for 2011 is positive with no new supply on
90.0% $325 the horizon and occupancies expected to increase a
88.0% $300
further 2% to 81.7%. RevPAR is forecasted to increase
86.0% $275
84.0% $250
by 8.6% to $150 fuelled by growth in average room
82.0% $225 rates of 6.1% to $184 which is some $7 lower than our
80.0% $200
previous projection as hoteliers are proving to be less
aggressive than expected in raising room rates.
78.0% $175
76.0% $150
74.0% $125
72.0% $100 Looking forward to 2012, a little room occupancy
70.0% $75
growth is left to reach 83%, with average room rates
68.0% $50
set for double-digit growth of 11% to $204, increasing
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Room Occ% Room Rate Trend RevPAR Trend
RevPAR by 12.5% to $169. New supply additions are
not expected until 2014.
Sydney hotels recorded the strongest performance in
the country recording RevPAR growth of 10.8% to
$150.25 for YE 2010. Our occupancy forecast
matched the year-end result of 85.5%, with average
room rates growing by only 4.0% to $175.70 despite
record occupancies.
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