Australia Set for Hotel Construction Boom

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Tuesday, April 7th, 2015
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Australia is set for a decade-long boom in the construction of hotels and accommodation facilities as a sustained recovery in tourism drives long-term demand, a leading research firm says.

Unveiling its latest forecasts at a series of recent conferences around the country, BIS Shrapnel said it expects the dollar value of work commenced on hotel and accommodation related facilities to rise by 49 per cent during the current financial year to reach levels not seen in more than a decade and to remain at historically high levels in 2015/16.

Moreover, BIS senior economist Frank Gelber believes this will be just the start of a boom which is set to last five to 10 years.

He said many of the recent starts for facilities focused around the corporate travel market, and that this segment of the market if considered on its own would be heading into a situation of oversupply in coming years as recent building commencements translate into new supply, but the critical driver of demand will be tourism. The tourism sector is expected to experience growing levels of demand as a lower dollar brings in international holiday makers and encourages locals to travel domestically rather than go abroad. Substantial levels of investment into the sector will be required after weak demand over the past decade saw some hotels close and others pull back on maintenance and upgrades.

“The place where we haven’t started looking at hotels and where there will be enormous activity over the next five to ten years is in the tourism area,” Gelber told one of the conference sessions in Melbourne.

“All of those neglected premises (over the past decade) had no revenue, didn’t even do the maintenance, some of them shut down, others stayed open on a shoestring. Now, as the tourists come back, we’ve got to do them up again and make them attractive destinations and then – as they fill up – build new ones.

“The next building boom – first property, then building boom – will be in the tourism sector. It’s not this year or next year, but over the next five years, you are going to see this come through really strongly.”

Gelber’s comments come amid growing evidence of improving conditions within the tourism sector throughout Australia due in part to a weakening currency after the strong dollar impacted demand throughout most of the past decade. ABS data indicates that the number of short term visitor arrivals into Australia grew by 7.1 per cent in the 12 months to September last year.

Going forward, the Tourism Forecasting Council expects international visitor arrivals to grow by an annual average of 4.5 per cent over the decade to 2022/23, albeit with domestic tourism numbers growing by an average of less than one per cent during that time and outbound departures increasing by 3.8 per cent.

Because of this, Gelber’s optimism is widely shared. Over the five years to 2018/19, the Australian Construction Industry Forum expects the dollar value of work done on the construction of accommodation related facilities to come in at a total of $7.913 billion, up almost 50 per cent over the corresponding period to 2013/14.

Moreover, a good range of potential new developments are already in the pipeline. In Queensland, for example, along with the $4.2 billion Aquis Great Barrier Reef Resort in Cairns, these include the $600 million Capricorn Integrated Resort in Yeppon as well as a massive makeover of the Great Keppel Island Resort and the athletes’ village associated with the Commonwealth Games. Meanwhile, potential developments in New South Wales include a $620 million residential and golf resort in Allendale, a $250 million tourism, commercial and residential development at Lake Jindabyne in the Snowy Mountains and a new $230 million resort at Anna Bay in the Hunter Valley region.

Gelber said much of the capital for these developments will come from overseas. He noted that foreign investors are more inclined to back these kinds of developments compared with domestic investors, and that these foreign investors have continued to pour money into this sector in recent years even as locals sold up.

“Australian investors are gun-shy of hotels but foreign investors love hotels – particularly Asian investors,” he said.

“And they’ve been buying Australian hotels [despite a depressed tourism market] anyway. Even as Australians have sold out their numbers have improved, so there is a large foreign investment component within the Australian market.”

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