Planning Red Tape Driving Up Hotel Construction Costs

Monday, October 5th, 2015
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Complex planning regulations are adding millions to hotel construction costs even as Australia’s need to build new resorts and accommodation facilities rises, according to a new report.

Prepared by Sydney-based consulting outfit URBIS on behalf of AUSTRADE, the Hotel Development Regulations in Australia report suggests costs associated with regulatory processes relating to hotel developments can amount to several million dollars in major cities.

According to the report, regulatory costs associated with building a 300-room, four-star tourist hotel in a CBD location amount to an average of around $3.5 million, or almost three per cent of overall development costs in Brisbane and around $2 million or 1.5 per cent of overall development costs in Sydney.

For that same hotel, the report says progressing to planning approvals takes up to 35 weeks on average throughout the country – a number that rises to 51 or 87 weeks in Sydney depending on whether a one or two-stage approval process is used.

It recommends providing better guidance information for new and international investors, adopting a flexible approach to design requirements, making ‘fast tracked’ DA processes available for low-risk projects and putting greater emphasis on pre-approval engagement and case management.

The report comes as concern that the complexity associated with navigating the regulatory environment and costs associated with development may be dissuading investment in new resort and accommodation related developments.

Under its long-term strategy for the tourism sector, the Federal Government wants to see the creation of up to 20,000 rooms by 2020 in order to accommodate its target of doubling the annual value of overnight visitor expenditure to between $115 billion to $140 billion.

In light of that, along with expectations that demand for hotel rooms will expand faster than the supply of available rooms amid a sustained recovery in inbound and domestic tourism, expectations of a boom in hotel construction activity are growing.

While the report acknowledges that the magnitude of the impact of regulatory barriers upon new investment in hotels and accommodation is difficult to determine with certainty, however, anecdotal evidence suggests developers are becoming increasingly frustrated and concerned.

Local developer James Baillie, for instance, cited planning complexity and costs as a reason for pulling out of developing a $1,000 per night boutique hotel in Sydney’s The Rocks.

Trade Minister Andrew Robb said the report highlights the need to address inefficiencies within the system and eliminate red tape.

Robb said tourism numbers were at record highs, and that Australia had been successful in attracting a strong pipeline of hotel related investment.

“Now it is time for us to deliver on that pipeline,” he said.

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