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Hotel room rates to soar


HOTEL room rates could increase by up to 45 per cent in major Australian markets during the next three years as the industry enters a golden period of prosperity characterised by high demand and low supply.

Yet analysts say the imminent revenue bonanza -- sparked by occupancy rates regularly topping 80 per cent -- may not be enough to trigger the next hotel development cycle.

That is because construction costs are rising just as quickly, thanks to high land prices and increasingly expensive materials, setting the scene for a remarkable era of stability in a historically volatile industry.

One operator told staff: "All economic indicators suggest that the hotel sector will continue its positive performance for the rest of the decade.

"The era of oversupply that plagued the industry has now balanced out (and there is) a more realistic attitude towards new supply, with the emphasis more on upgrading existing product than building new hotels."

During the March quarter, average room rates rose strongly for the third consecutive quarter.

Perth increased 16 per cent to $127, Canberra 12.8 per cent to $129, Brisbane 9.8 per cent to $137 and Sydney 8 per cent to $182.

Operators said this momentum had continued, although they warned that the poor performance of inbound Japanese tourism will hurt softer markets.

Robert McIntosh, Asia-Pacific director for CBRE Hotels, forecasts that rates in key markets will rise between 10-15 per cent a year, barring any unexpected economic shocks.

He said the average national room rates might reach historic highs within the next 12 months, particularly in the major business markets.

Mr McIntosh said the traditional pattern of room rates lagging occupancy by about 18 months may soon be shattered given the continuing friction between demand and supply.

Karen Wales, vice-president of research at Jones Lang LaSalle Hotels, also see further significant price increases in Sydney, "while obviously Brisbane has been very strong and there's no reason to suggest this is going to change".

Simon McGrath, vice-president Australia, Accor Asia-Pacific, said his company was seeing strong demand around the country.

"In the past 12 months, hotels have generally been getting double-digit room-rate growth across all markets -- now people are confident about asking for $200 or $300 rates or greater," he said.

Mr McGrath said there has been the shift to dynamic room pricing and away from contracted rates with significant allotments to big wholesale or corporate clients. As a result, rather than being set months in advance, rates were flexible depending on demand, which hoteliers were better able to forecast thanks to sophisticated yield management technology.

He said hotels were also looking more critically at their contract business, which in the past could account for up to 50 per cent of occupancy, to free up rooms for higher-rate business.

The nature of contracted business is also changing. "The key in many markets at the moment is inventory -- what are people prepared to pay for access to inventory?" Mr McGrath said.

He believes rates will keep rising strongly, leading to a situation "sooner rather than later" where new hotel development can be justified in key markets.

However, the hotel development community, such as it is, remains cautious.

Dean Dransfield, industry analyst and director of Dransfield Hotels and Resorts, does not believe there will be a rash of new accommodation development any time soon thanks to rising construction costs.

"Every day it gets further away, not closer," Mr Dransfield said, adding that while the property development and investment community was closely monitoring the situation, the numbers never seemed to add up. "They are aware of the potential opportunities, the future of occupancies and room rates, but are very realistic about construction costs -- the dollars are going everywhere but hotels."

Mr Dransfield said the hotel investment and development market had changed dramatically since the last construction cycle.

"You look at the players who did things in the past and they don't exist any more," he said. "It's all fund managers or bankers now, there are not many entrepreneurs left. Conversely, though, there are lots of people looking to invest."

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