final nsw visitor accommodation supply plan … · 1.7 city of sydney supply & demand study ......

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STUDY: PREPARED FOR: DATE:

Visitor Accommodation Supply Study NSW Trade and Investment November 2014

GREATER SYDNEY STUDY (Including Blue Mountains)

Prepared by: JLL Hotels & Hospitality Group Level 25 420 George Street SYDNEY NSW 2000 Ph: (02) 9220 8777 Fx: (02) 9220 8765


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Contents 1 Executive Summary ............................................................................................................................................ 1 1.1 Introduction ............................................................................................................................................................ 1 1.2 Information Relied Upon ........................................................................................................................................ 1 1.3 Sydney Metropolitan Accommodation Market Profile ............................................................................................ 2 1.4 Visitor Night Demand ............................................................................................................................................. 3 1.5 Performance Trends .............................................................................................................................................. 5 1.6 Sydney Metropolitan Accommodation Market Forecast ........................................................................................ 7 1.7 City of Sydney Supply & Demand Study ............................................................................................................. 12 1.8 Backpacker Hostels ............................................................................................................................................. 14 1.9 Blue Mountains .................................................................................................................................................... 14 PART A – Current Market Assessment ......................................................................................................................... 17 2 Sydney Metropolitan Hotel and Tourism Market ............................................................................................ 18 2.1 Profile of the Accommodation Market .................................................................................................................. 18 2.2 Accommodation Used.......................................................................................................................................... 20 2.3 Visitor Night Demand ........................................................................................................................................... 20 2.4 Trading Performance Trends ............................................................................................................................... 25 2.5 Upscale Segment ................................................................................................................................................ 30 2.6 Midscale Segment ............................................................................................................................................... 32 3 Sydney Metropolitan Backpacker/Hostel Segment ........................................................................................ 35 3.1 Profile of the Backpacker/Hostel Market .............................................................................................................. 35 3.2 Visitor Night Demand ........................................................................................................................................... 36 3.3 Trading Performance Trends ............................................................................................................................... 37 4 East Sydney Hotel and Tourism Market .......................................................................................................... 39 4.1 Profile of the Accommodation Market .................................................................................................................. 39 4.2 Accommodation Used.......................................................................................................................................... 41 4.3 Visitor Night Demand in HMGSA ......................................................................................................................... 42 4.4 Trading Performance Trends ............................................................................................................................... 46 5 West Sydney Hotel and Tourism Market ......................................................................................................... 53 5.1 Profile of the Accommodation Market .................................................................................................................. 53 5.2 Accommodation Used.......................................................................................................................................... 55 5.3 Visitor Night Demand in HMGSA ......................................................................................................................... 56 5.4 Trading Performance Trends ............................................................................................................................... 60 6 North Sydney Hotel and Tourism Market ........................................................................................................ 67 6.1 Profile of the Accommodation Market .................................................................................................................. 67 6.2 Accommodation Used.......................................................................................................................................... 69 6.3 Visitor Night Demand in HMGSA ......................................................................................................................... 70 6.4 Trading Performance Trends ............................................................................................................................... 74 7 South Sydney Hotel and Tourism Market ........................................................................................................ 81 7.1 Profile of the Accommodation Market .................................................................................................................. 81


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7.2 Accommodation Used.......................................................................................................................................... 83 7.3 Visitor Night Demand in HMGSA ......................................................................................................................... 83 7.4 Trading Performance Trends ............................................................................................................................... 88 8 Outer Sydney Hotel and Tourism Market ........................................................................................................ 95 8.1 Profile of the Accommodation Market .................................................................................................................. 95 8.2 Accommodation Used.......................................................................................................................................... 95 8.3 Visitor Night Demand in HMGSA ......................................................................................................................... 96 8.4 Trading Performance Trends ............................................................................................................................... 97 9 Blue Mountains Hotel and Tourism Market ................................................................................................... 100 9.1 Profile of the Accommodation Market ................................................................................................................ 100 9.2 Accommodation Used........................................................................................................................................ 102 9.3 Visitor Night Demand in HMGSA ....................................................................................................................... 102 9.4 Visitor Night Demand in Backpacker / Hostels .................................................................................................. 104 9.5 Trading Performance Trends ............................................................................................................................. 106 PART B – Forecasts ...................................................................................................................................................... 111 10 Projected Accommodation Supply ................................................................................................................ 112 10.1 Overview ............................................................................................................................................................ 112 10.2 Projections to 2021 ............................................................................................................................................ 113 10.3 Upturn in Sydney’s Residential Market .............................................................................................................. 116 10.4 Comparison to the Commercial Segment .......................................................................................................... 118 10.5 Projections to 2031 ............................................................................................................................................ 119 10.6 Global Accommodation Supply Trends ............................................................................................................. 121 11 Projected Accommodation Demand .............................................................................................................. 124 11.1 Draft Metropolitan Strategy to 2031 ................................................................................................................... 124 11.2 Tourism Infrastructure Developments ................................................................................................................ 131 11.3 Airport Infrastructure .......................................................................................................................................... 132 11.4 Visitor Night Demand in HMGSA ....................................................................................................................... 134 11.5 Room Night Demand ......................................................................................................................................... 136 12 Sydney Metropolitan Accommodation Market Forecast .............................................................................. 137 12.1 Projections to 2021 ............................................................................................................................................ 137 12.2 Subregion Analysis ............................................................................................................................................ 140 12.3 Projections to 2031 ............................................................................................................................................ 140 12.4 Blue Mountains .................................................................................................................................................. 141 APPENDICES ................................................................................................................................................................. 142 Appendix One – Glossary of Terms & Definitions ..................................................................................................... 143 Appendix Two - Forecast Methodology ...................................................................................................................... 145

NSW Accommodation Supply Study – Part One Page 1 November 2014

1 Executive Summary

1.1 Introduction

JLL's Hotels & Hospitality Group was engaged by NSW Trade and Investment to undertake the NSW Visitor Accommodation Supply Plan.

The Plan is a priority under the NSW Visitor Economy Industry Action Plan and the NSW Economic Development Framework to be delivered in 2014.

The aim of the Plan is to provide updated, sound data on the supply and demand of visitor accommodation and evidence-based, practical recommendations for Government and Industry action. The Plan aims to support a positive planning and investment outlook and encourage a sustainable level of visitor accommodation rooms in NSW for the visitor economy. The NSW Plan will include three supply and demand studies:

Greater Sydney (excludes Sydney City but includes the Blue Mountains) which will focus on factors that influence the provision and development of visitor accommodation, as well as evolving trends and characteristics of visitor accommodation, including hotels, motels, serviced apartments and backpacker hostels; and

Two regional NSW locations which will also focus on factors that influence the provision and development of visitor accommodation, as well as evolving trends and characteristics of visitor accommodation, including hotels/resorts, motels, serviced apartments, backpacker hostels, camps/caravan parks and holiday rentals.

A key component of this work is to understand recent industry performance trends and barriers to investment/development in New South Wales.

1.2 Information Relied Upon

Statistics pertaining to the supply, demand and performance of Sydney Metropolitan and the Blue Mountains accommodation markets have been sourced from the Australian Bureau of Statistics’ (ABS) Survey of Tourist Accommodation (STA), Tourism Research Australia’s National and International Visitor Surveys and STR Global as follows:

The Survey of Tourist Accommodation is conducted on an annual basis and data is available from 1998 to June 2013 for hotels, motels, guesthouses and serviced apartments (HMGSA) for Sydney Metropolitan, the subregions and the Blue Mountains. We note there have been a number of changes to statistical boundaries and reporting regions within this timeframe and therefore some breaks in the time series exist;

The National and International visitor surveys are conducted on a quarterly basis and data in the current format is available from 2005 to March 2014. We have relied upon calendar year data to 2013 for our assessment of visitor night demand in the HMGSA and backpacker/hostel segments; and

Five year trend reports have been purchased from STR Global for a basket of hotels, serviced apartments, motels and guesthouses (where available) to provide an indication of recent trading performance trends in Sydney Metropolitan, the subregions, segment (upscale/midscale) and the Blue Mountains.


1.3 Sydney Metropolitan Accommodation Market Profile

Sydney Metropolitan comprises Sydney Tourism Region less Sydney City Local Government Area. The area stretches from Windsor and the Hawkesbury in the north-west to Cronulla in the South, Wollondilly in the south-west and to Penrith in the west.

Sydney Metropolitan is the third largest accommodation market in Australia with around 15,243 rooms operational in 2014 but comprises a series of micro markets. Changes in market conditions can therefore be magnified at the local level. Sydney Metropolitan is approximately 60% of the size of Sydney City’s accommodation market.

Sydney Metropolitan’s accommodation market has a higher proportion of motel rooms and lower proportion of hotel rooms when compared to Sydney City. Across all product types the market is weighted towards the 4-star segment with very few rooms graded 5-star and below. There is also a considerably higher proportion of rooms graded 3-star and below than in Sydney City, albeit with this grade of accommodation dominated by older motel stock as shown in the chart following. There are a similar proportion of serviced apartments when compared to Sydney City although we note that this is low by Australian standards with this type of accommodation having dominated accommodation development in recent times.

Sydney Metropolitan Accommodation Market Profile 2014

Source: JLL

The majority of accommodation rooms are located in West Sydney (5,258 rooms or 34.5% of total supply) and North Sydney (4,253 rooms or 27.9% of total supply). The accommodation markets in South and East Sydney are considerably smaller.

East and South Sydney have the most diverse accommodation market with properties of all grades represented. This in part reflects the close proximity of these markets to Sydney CBD and the Sydney International Airport precinct. Outer Sydney has the least diverse accommodation market with properties all graded 4-star and below.

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Sydney Metropolitan

Accommodation Market Profile 2014

Source: JLL

North Sydney has the lowest proportion of select service rooms (i.e. graded 3-star and below) at only 15.7% of total supply and Outer Sydney has the highest at 67.5%. East Sydney is the only market which has a luxury accommodation offering being the InterContinental Double Bay (due to re-open in November 2014). The 5-star property in South Sydney is self-rated 5-star and its’ facilities and standards are more akin to an upscale product. On the whole there are few premium sites in Sydney Metropolitan which would be regarded suitable for luxury hotel development. Typically a 5-star hotel would require a historically or contemporary significant building with impressive architectural design and be located in a major metropolitan area in close proximity to key demand generators.

1.4 Visitor Night Demand

According to Tourism Research Australia, the majority of visitor nights spent in Sydney Metropolitan are spent in the home of a friend or relative with this accommodation accounting for 52% of total visitor nights in the region in 2013. This compares to 34.0% in a rented house or apartment, 7.6% in hotels, motels, guesthouses and serviced apartments (HMGSA) and 1% respectively in a backpacker/hostel and camping/caravan.

The rented house / apartment market has recorded the strongest growth over the past eight years with growth averaging 9.7% per annum. Growth for rented houses & apartments has been strongest in the domestic segment, increasing on average by 15.0% per annum. This compares to growth of 9.5% per annum in the international segment.

Total visitor nights spent in rented accommodation has doubled over the past decade which indicates a high degree of seepage from traditional accommodation types. This compares to growth of 4.3% per annum for the HMGSA segment and 0.7% per annum for backpackers.

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Sydney Metropolitan 2005 to 2013

Visitor Night Demand Profile by Purpose of Visit and Origin of Visitor

Source: JLL

A total of 3.4 million visitor nights were spent in Sydney Metropolitan’s HMGSA segment in 2013 which represented the third highest year between 2005 and 2013. Key trends include:

The domestic segment dominates accounting for 66.8% of all visitor nights in HMGSA in 2013 and having averaged 63.3% over the past eight years. This compares to around 50% of visitor nights in Sydney CBD.

Asia is the largest international source region accounting for around 14.3% of total visitor nights in 2013. Korea and China are the dominant source markets. Europe accounts for a further 7.6% of total visitor nights and with the United Kingdom contributing 4.2% of the total in 2013 (boosted by the British and Irish Lions tour).

Growth is being underpinned by the domestic business and leisure segments, accounting for 30.1% and 26.8% of total visitor nights spent in Sydney Metropolitan in 2013. It is worth noting that visitor nights do not equate to occupied room nights given the room density factor and the proportion of business room nights is therefore more likely to be in the order 50-60%.

Growth in the midscale segment has been double the rate achieved for upscale HMGSA.

A total of 0.5 million (20.6% of Sydney Metropolitan) visitor nights were spent in East Sydney in 2013 – the fourth lowest year of the eight year period.

The domestic segment dominates accounting for 61.4% of all visitor nights spent in paid accommodation in 2013 and having averaged 53.0% over the past eight years.

Europe is the largest source market accounting for around 17.2% of total visitor nights in 2013. The United Kingdom is the dominant source market contributing 9.6% of the total in 2013. Asia accounted for a further 8.4% of total visitor nights in 2013.

Growth is being underpinned by the domestic and international business segments. Notwithstanding the leisure segment still dominates accounting for 46.0% of visitor nights in 2013.

A total of 1.1 million (32.0% of Sydney Metropolitan) visitor nights were spent in West Sydney in 2013 – the third highest level of the eight year period.

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Asia is the largest international source region accounting for around 14.9% of total visitor nights in 2013. Korea and Hong Kong are the dominant source markets. Europe accounts for a further 5.7% of total visitor nights, dominated by the United Kingdom at 3.6% of the total.

Growth is being underpinned by the domestic leisure and business segments. The leisure segment still dominates accounting for 44.6% of visitor nights in 2013.

A total of 1.0 million (29.0% of Sydney Metropolitan) visitor nights were spent in North Sydney in 2013 – the highest level of the eight year period.


Asia is the largest source region accounting for around 11.6% of total visitor nights in 2013. China and Japan are the dominant source markets. Europe accounts for a further 6.5% of total visitor nights in HMGSA, dominated by the United Kingdom at 4.7% of the total.

Growth is being underpinned by the domestic leisure and business segments. The leisure segment still dominates accounting for 43.0% of visitor nights in 2013.

A total of 0.35 million (10.4% of Sydney Metropolitan) visitor nights were spent in South Sydney in 2013 – the fourth lowest of the eight year period.


Asia is the largest source region accounting for around 14.8% of total visitor nights in 2013. China and Korea are the dominant source markets. Europe accounts for a further 7.4% of total visitor nights in HMGSA.

Growth is being underpinned by the international leisure segment. The leisure segment dominates overall accounting for 49.7% of visitor nights in 2013.

1.5 Performance Trends

According to the Australian Bureau of Statistics, there were 167 establishments with 13,432 rooms at the end of June 2013 in the Sydney Metropolitan area. This represents 39.8% of Sydney Tourism Region’s total accommodation supply. Data is available for the ten calendar years to 2012.

Over the ten years to 2012, Sydney Metropolitan’s accommodation market has recorded strong RevPAR growth increasing on average by 5.0% per annum. Higher room rates have been the primary driver with ADR increasing 3.2% per annum, up from $111 in 2002 to $153 in 2012.

Hotel room supply has recorded slight growth increasing on average by 0.4% per annum and with four years of decline recorded in 2003 and consecutively between 2009 and 2011. This in part reflects the higher returns available from alternate use, notably residential, which has resulted in some hotels closing for conversion. Demand has increased at a higher rate increasing on average by 2.1% per annum. Accordingly occupancy levels have increased, up from 60.3% in 2002 to 71.3% in 2012 to be at the highest level ever recorded. The Sydney


Metropolitan accommodation market has matured considerably over the past decade with the growth in satellite accommodation and corporate centres across the metropolitan area.

The market has been on a very strong growth trajectory over the past three years with RevPAR growth averaging 9.1% per annum. Growth has continued into the first six months of 2013 with RevPAR increasing 9.1% year-on-year and despite a slight increase in room supply not being matched by demand which saw occupancy levels moderate slightly. Notwithstanding ADR growth has remained robust increasing 9.8% over the same period in 2012 to $162.

Sydney Metropolitan – Historical Performance Trends by Precinct 2002 to 2012

2012 Growth 2002-2012 Grade Rooms Occ % ADR RevPAR Occ ADR RevPAR

East 1,501 74.7% $163 $122 1.8% 3.0% 4.8%

West 4,926 69.7% $127 $89 2.6% 2.8% 5.5%

North 3,616 72.7% $157 $114 1.2% 1.3% 2.5%

South 2,948 75.5% $140 $106 2.1% 2.5% 4.7%

Outer 545 51.4% $123 $63 0.3% 3.1% 3.4%

Metropolitan 13,432 71.2% $153 $109 1.7% 3.2% 5.0%

Sydney City 20,369 84.6% $195 $165 1.6% 3.4% 5.1%

Source: ABS, JLL

Comparison of the near term historical trading performance (2008 to 2012) to Sydney City highlights how Sydney Metropolitan’s RevPAR has traded on average at an index of 0.63. The RevPAR index remained consistent at 0.62 between 2008 and 2011 but increased to 0.66 in 2012. This highlights the current strength in the Sydney Metropolitan accommodation market with high levels of spill-over demand from the constrained CBD, as well as inherent demand growth.

West Sydney has recorded the strongest growth over the past ten years with RevPAR increasing on average by 5.5% per annum. This is followed by East and South Sydney at 4.8% and 4.7% per annum respectively. RevPAR in 2012 was highest in East and North Sydney and lowest in West and Outer Sydney with both markets trading at sub-$100. At this level it would be very hard to make hotel development stack up. Occupancy levels in these two sub-regions also averaged below 70% in 2012 which indicates on the whole there is not currently a need for new accommodation product. We note however that micro markets may achieve a higher occupancy rate given their proximity to demand generators.

1.5.1 Near Term Performance Trends

To provide an assessment of recent trading performance, we have purchased a five year trend report from STR Global for a basket of properties in each sub-region and by segment (upscale & midscale). The baskets include the majority of branded competitive supply.

Nominal RevPAR (moving annual average) in the Sydney Metropolitan is currently upwards having troughed in September 2009 at $105 and again in May 2012 at $121. For the purposes of this analysis we have calculated growth relative to the 2009 trough rather than the moderation which occurred in most sub-regions in 2012.

RevPAR in Sydney Metropolitan over the year to June 2014 is 26.3% higher than the 2009 trough level. Occupancy levels averaged 77.6% over the year to June 2014 to be at the highest level ever recorded whereas room rates averaged $148. Occupancy levels are 11.3% above the June 2009-trough and room rates 14.4%


above the January 2010-trough. This highlights how room rates lagged the occupancy cycle by around seven months during the most recent downturn in Sydney Metropolitan and highlights the improved responsiveness of the accommodation market to the changing demand environment.

Growth relative to the trough has been strongest in West Sydney (+39.9%) and in the midscale segment (+31.3%) which is in line with visitor night demand trends. On the contrary growth in the East and North has moderated through 2014 with occupancy levels currently below the recent peak. Both markets are absorbing recent, albeit fairly small, additions to supply with new rooms opening in Bondi and North Ryde over the past year. This highlights the sensitivity of the sub-regions to new supply given the considerably smaller size of the accommodation markets and greater reliance on the performance of prominent micro-markets.

Sydney Metropolitan sub-regions – Peaks & Trough Comparison (Moving Annual Average)

Market No. of Rooms

Current RevPAR Trough Variance

Trend

East 1,996 $176 $148 18.9% Slowing

West 3,640 $115 $82 39.9% Increasing

North 2,662 $133 $104 27.6% Slowing

South 2,395 $124 $102 21.9% Increasing

Upscale (All areas) 5,732 $141 $113 24.6% Increasing

Midscale (All areas) 4,039 $117 $89 31.3% Increasing

Metropolitan 10,693 $133 $105 26.3% Increasing

Source: STR Global, JLL

1.6 Sydney Metropolitan Accommodation Market Forecast

JLL’s accommodation market projections represent our forecast of the most likely outcome given past trends, current information and the impact of policy and industry changes. Supply, demand and pricing forecasts are developed using an iterative process based on econometric and time series models and an assessment of past relationships, noting that output variables are inextricably linked and that changes in one can have a material impact on the others particularly over a long horizon.

1.6.1 Future Accommodation Supply

The hotel development process is multi-dimensional; driven by a combination of market dynamics (supply, demand and the potential performance of the asset), land and development costs, and selection of the appropriate type of facility and brand under which the hotel will operate. No one aspect of development can be considered in isolation and regard needs to be given to the other aspects.

JLL tracks accommodation projects as they are mooted, proposed, under construction, completed or taken out of the market with projects graded in accordance with their current stage in the development process and our opinion about the likelihood that they will progress. An element of unanticipated supply is also included in our accommodation market forecasts, which recognises that we do not have complete visibility of all near term development projects and gives regard to development feasibility and hotel and property market cycle trends over the longer term.


Sydney Metropolitan Accommodation Supply

Actual and Forecast Growth 2007 to 2031

Source: JLL, Note: Annualised supply (i.e. takes regard of opening date within any given year)

Having regard to known projects and our expectations for the hotel property market cycle, JLL expects accommodation room night supply in Sydney Metropolitan to increase at an average rate of 3.2% per annum to 2031 with growth averaging 3.4% per annum between 2014 and 2021 and 3.0% per annum between 2021 and 2031. This equates to an increase of 4,099 rooms over the period to 2021 and 5,935 rooms between 2021 and 2031. Projections assume that hotel development activity will peak through 2016 to 2019 before moderating again and that another development cycle will occur some eight years later towards the latter part of the forecast. Expectations are broadly consistent with those included in the City of Sydney Supply & Demand Study although we note that supply increases are coming earlier in the Sydney Metropolitan area compared to Sydney City spurred by record low interest rates, a strong residential market triggering hotel/SA components, site availability and cost compared to CBD locations and high capital inflows.

Known Projects

Our enquiries indicate that there are 55 accommodation projects with a net total of 6,630 rooms mooted for Sydney Metropolitan’s accommodation market over the period to 2021, as well as our projection that two hotels would likely be built as part of the proposed Western Sydney Airport precinct. Estimations also include the closure of two hotels (-442 rooms).

Of the basis of known projects, development activity over the period to 2021 is expected to be greatest in South and West Sydney sub-regions with around 2,465 rooms and 2,338 rooms mooted respectively in each. Development activity is focussed around the Airport precinct, Parramatta, Liverpool and to a lesser extent Burwood. Very few projects are currently planned in East Sydney except for those which are already under construction. Approximately 1,488 net rooms are mooted for North Sydney with development activity centred in North Ryde/ Macquarie Park, Chatswood and to a lesser extent North Sydney. Both East and North Sydney face competition for sites from alternate uses notably residential apartments although in some instances this is actually motivating new accommodation supply (e.g. mixed use).

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Sydney Metropolitan Accommodation Supply – Known Projects Forecast Growth by Sub Region to 2021

Source: JLL, Note: Annualised supply (i.e. takes regard of opening date within any given year)JLL

Of the basis of known projects, development activity is likely to be greatest in the upscale & above segment with around 75% of mooted rooms proposed to be graded 4-star and above and the remaining 25% graded 3-star and below. Of those upscale projects, only one project is proposed to be of a luxury standard, being the InterContinental Sydney. On the whole, Sydney Metropolitan does not have sites which meet the specifications (proximity to demand/access/amenity/views etc) required to support luxury hotel development.

New projects are therefore not in keeping with recent demand trends with strongest growth evident in the midscale segment. This indicates that either market participants are not giving sufficient regard to accommodation room night demand or that external factors are influencing the accommodation development decision e.g. being developed as part of a mixed use development or achieving a higher grading due to newness.

Unanticipated Supply

Our forecasts assume that a further 1,161 rooms of assumed or unanticipated supply will be developed over the period to 2021, notably towards the end of the forecast period. This takes regard of the fact that despite our best efforts we do not have complete visibility of the market as outlined in the Methodology in Appendix Two as well as a range of inter-related assumptions. These include stage in the property and hotel market cycles, infrastructure investment, development feasibility and competing alternate uses. Development is expected to be fairly evenly distributed across the four precincts albeit with highest proportion of rooms in the West and North having regard to current mooted projects.

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1.6.2 Future Accommodation Demand

JLL expects accommodation room night demand in Sydney Metropolitan to increase at an average rate of 3.0% per annum over the period to 2031 with growth averaging 3.6% per annum between 2014 and 2021 and 2.6% per annum between 2021 and 2031.

Near term growth is projected to be quite strong, averaging 4.5% per annum between 2014 and 2017 which would represent a considerably higher rate of growth than the 0.9% per annum which was achieved between 2008 and 2013. Improving corporate demand and emerging inbound tourism markets will underpin growth as well as recovery from traditional inbound source markets. Sydney Metropolitan is also expected to continue to benefit from overflow accommodation demand from the constrained city with few additions to CBD supply anticipated over the next three years. The expansion and decentralisation out of city core is also expected to continue whilst being further supported by the development of new accommodation product over the next few years.

Growth is expected to moderate through the medium term to average 3.1% per annum between 2018 and 2021 as capacity constraints in the CBD abate and demand is pulled back to the city with the opening of major new infrastructure projects such as the Sydney International Convention Exhibition and Entertainment Precinct from 2017, as well as the staged completion of Barangaroo.

1.6.3 Projections to 2021

Historically, Sydney Metropolitan’s accommodation market has experienced cycles of around nine years with real RevPAR growth averaging 1.5% per annum over the past 25 years (1983 to 2013). Supply has been the major influence on the level of volatility with increases averaging 2.3% per annum. Demand has been much more stable, generally demonstrating consistent and reliable growth patterns, increasing on average by 3.0% per annum and having only recorded four years of decline in 1997, 2001, 2008 and 2009. Room rates have recorded slight growth in real terms (2013$), up from $125 in 1983 to an estimated $156 in 2013.

Going forward we expect the market to build towards a peak in 2015 before moderating over the next three years as new supply comes on line in the metropolitan area and as capacity constraints in Sydney City abate. This would result in a hotel market cycle of nine years. The level of real growth on the upswing is forecast to be 17.2% which is in line with the previous cycle. The reduction in real RevPAR over the downturn is however expected to be lower with improving demand prospects across the metropolitan area. Supply increases are expected to remain broadly in check given a general lack of hotel development feasibility but some projects will progress in close proximity to demand generators. On the whole however higher returns from competing alternate land uses e.g. residential apartments is also expected to result in strong completion for sites and some existing hotels may be closed for conversion in high-density residential areas (notably East, North and to a lesser extent South Sydney). Greater site availability in Sydney Metropolitan does mean that the supply backdrop could alter quickly should the outlook for the residential sector moderate.

Sydney Metropolitan’s accommodation supply is expected to increase on average by 3.4% per annum to 2021 with the addition of around 4,099 rooms. This is three times the rate of growth which was recorded between 2003 and 2013. Short term supply is forecast to increase on average by 5.3% per annum to 2017 with the addition of around 2,547 rooms with new supply limited to known projects.


Sydney Metropolitan Accommodation Market Forecast

Actual and Forecast Performance to 2031

Source: ABS, JLL

Additional projects are likely to be held back by a general lack of feasibility and competition from alternate uses. We do note however that there has been an increasing trend for developers to include a short stay component in mixed use developments as some developers believe such projects are viewed more favourably by planners and thus through inclusion there is a greater likelihood that the overall development will proceed. We note that projects which have not been designed to meet an identified accommodation need or been properly assessed against local market conditions may struggle to achieve the desired level of operational viability, particularly those with smaller (higher fixed cost) room counts.

Supply projects are expected to moderate through the second half of the forecast period as the probability of all existing mooted and new projects advancing is low as feasibility hurdles will become more challenging as construction and proposed projects advance. Operating performance within Sydney Metropolitan varies significantly with the feasibility of any individual project having a greater regard to the immediate location. Viability can therefore increase significantly if a property is well-located to tourism demand generators and in some instances this could even make accommodation product the highest and best use of land. The trend towards mixed-use developments is also likely to result in more projects being progressed whereas serviced apartment projects are likely to emerge in areas where the residential market is strong. Between 2018 and 2021 Sydney Metropolitan room supply is forecast to increase at an average rate of 1.7% per annum with focus shifting back to the CBD in line with the completion of major infrastructure projects.

Demand growth is forecast to increase on average by 3.6% per annum to 2021 as domestic and international tourism markets recover and demand normalises. Demand growth is expected to outpace supply increases through the early forecast period and occupancy levels will increase, reaching historic highs by 2015. Displaced demand from Sydney CBD and the continued regeneration of Metropolitan areas (population growth, urban sprawl, economic redevelopment etc.) is likely to result in occupancies increasing above previous highs as Sydney Metropolitan becomes more geographically diverse, although we note that demand will likely be pulled back to the city as capacity constraints alleviate.

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Actual Supply Forecast Supply Actual Demand Forecast Demand

Actual Real ADR Forecast Real ADR Actual Real RevPAR Forecast Real RevPAR


As occupancy levels reach the market ceiling over the next couple of years, ADR growth will increase. Occupancy levels declined more sharply in 2009 in Sydney Metropolitan than in the CBD but with strong growth over the past few years. In periods of low demand, operators have fewer channels available by which to direct demand to hotels within the metropolitan area given the lack of demand generators which results in a reduced impetus to visit.

ADR is forecast to increase on average by 3.7% per annum to 2021 with stronger growth averaging 5.0% per annum over the next few years whilst the market remains constrained and as occupancy levels reach new highs. Similar to Sydney City, the introduction of dynamic pricing may also see rates increase at a higher rate than in the past. Accommodation market responsiveness has also improved considerably with rates lagging the monthly occupancy cycle by between only four and seven months during the most recent downturn.

RevPAR growth in Sydney Metropolitan is forecast to average 3.9% per annum to 2021 with nominal RevPAR increasing from an estimated $113 in 2013 to $153 in 2021. This represents an increase of 36.0% and reflects the continued maturation of the Sydney Metropolitan accommodation market.


Longer term projections have been made having regard to historical averages as well as the key assumption that supply increases will continue to be the main driver of overall market performance. JLL expects accommodation room night supply in Sydney Metropolitan to increase at an average rate of 3.0% per annum between 2021 and 2031. This equates to an increase of 5,935 rooms. Projections assume that hotel development activity will remain largely subdued until 2027 when another construction cycle will occur.

Room night demand is expected to remain on an upward trend in line with the higher levels of visitation which are projected across Australia. Growth over the period to 2031 has been smoothed to be in line with the historical average whilst taking account of changes in accommodation room supply and the fact that the Australian economy is likely to experience a recession or downturn over the long term, with such events having occurred around every eight years over the past four decades. The tourism industry has also experienced a series of demand shocks over the past ten years ranging from terrorist attacks to bird flu, impacting global or domestic demand. Demand growth between 2021 and 2031 is therefore projected to average 2.6% per annum.

Occupancy levels are expected to peak in 2026 around 74.4% which represents a slightly higher level than over the past few years and reflects the continued expansion of decentralisation of the city with more demand displaced across the Sydney Metropolitan area.

ADR growth is projected to be slightly higher than for the earlier decade, increasing on average by 3.8% per annum and largely a function of the timing of market cycles within each forecast period. RevPAR growth is projected to be slightly lower at 3.4% per annum reflecting the timing of new supply.

1.7 City of Sydney Supply & Demand Study

Jones Lang LaSalle was engaged by the City of Sydney to undertake a similar Accommodation Supply & Demand Study in August 2013. A reconciliation of the two studies to 2021 follows.

Expectations for Sydney City and Sydney Metropolitan are broadly consistent although we note that supply increases are coming earlier in the Sydney metropolitan area compared to Sydney City spurred by record low interest rates, a strong residential market triggering hotel/SA components, site availability and high capital inflows.


1.7.1 City of Sydney

The Sydney City accommodation market now comprises around 20,000 accommodation rooms and therefore has greater capacity to absorb supply increases than in previous cycles. Increases are expected to average 2.8% per annum over the period to 2021 with the addition of around 5,759 new rooms. At the time of completing the City of Sydney study, 44% of new rooms were known projects. This is now closer to 60% with more projects being put forward;

Supply increases in City of Sydney are expected to peak through 2018 to 2020, timed to coincide with the completion of new tourism infrastructure. Known projects are predominantly in the western corridor and city core precincts;

Forecast growth in accommodation room supply represents a considerably higher rate of growth than the sub-1% which has been evident in Sydney City over the past decade and highlights how demand-led infrastructure investment is spurring new accommodation supply. This is also underpinning investor confidence and attracting new sources of capital to the sector; and

Demand growth is expected to average 3.7% per annum over the period to 2021, with stronger growth over the latter part of the forecast period once new tourism infrastructure is complete. Monthly seasonality is expected to moderate in line with the changed demand profile, notably events, cruise and growth in Asian association conferencing and incentive travel.

1.7.2 Sydney Metropolitan Area

The Sydney Metropolitan area accommodation market now comprises around 13,500 rooms. This represents 39.8% of Sydney Tourism Region’s total accommodation supply;

Accommodation supply is expected to increase on average by 3.4% per annum to 2021 with the addition of around 4,099 rooms with the greatest number of rooms mooted for the south and west sub-markets. This is three times the rate of growth which was recorded between 2003 and 2013. Operating performance within the Sydney Metropolitan area varies significantly with the feasibility of any individual project having a greater regard to the immediate location. Viability can therefore increase if a property is well-located to tourism demand generators;

Short term supply is forecast to increase on average by 5.3% per annum to 2017 with the addition of around 2,547 rooms, with new supply limited to known projects. Supply projects are expected to moderate through the second half of the forecast period as the probability of all existing mooted and new projects advancing is low as feasibility hurdles will become more challenging as construction and proposed projects advance. Investor focus is also expected to shift back to the CBD in line with the completion of major infrastructure projects; and

Demand growth is expected to average 3.6% per annum to 2021 but with stronger growth over the near term whilst the city remains constrained. The expansion and decentralisation out of the city core is also expected to continue whilst being further supported by the development of new accommodation product.


1.8 Backpacker Hostels

Our analysis (various industry sources) of Sydney Metropolitan’s backpacker/hostel market has identified 15 accommodation establishments with 1,526 beds. The majority of backpacker/hostel establishments are located in the East and North sub-regions of Sydney (85.5% of total supply) due to their proximity to the ocean, Sydney CBD and popular Sydney nightlife precincts, which is integral for the younger backpacker demographic.

A total of 0.5 million visitor nights spent were spent in Sydney Metropolitan backpacker hostels in 2013.

The international segment dominates accounting for 92.2% of all visitor nights spent in backpacker hostels in Sydney Metropolitan in 2013 and having averaged 91.9% over the past eight years.

Europe is the largest source region accounting for around two thirds of total visitor nights in 2013. United Kingdom is the dominant source market accounting for 36.3% of all visitor nights in backpacker hostels in 2013. North America accounts for a further 9.0% of total visitor nights and Asia 7.1% of total visitor nights. Hong Kong and Korea are the dominant Asian source markets with very low take up by Chinese visitors.

The international leisure segment accounted for two thirds of visitor nights in 2013 and having averaged 72.9% over the past eight years. Growth is being underpinned by the international other segment notably education and employment visitors with these groups increasingly staying in backpacker/hostels upon arrival in Australia.

According to the ABS, there were 18 backpacker establishments in Sydney Metropolitan with 1,681 beds at the end of June 2010. This represents 19.6% of Sydney Tourism Region’s total backpacker bed supply with the majority of backpacker hostels located in Sydney City. Data is only available for calendar years 2005 to 2009 with no official statistical data available beyond this date.

Over the five years to 2009, Sydney Metropolitan’s backpacker hostels recorded strong RevPAB growth increasing on average by 4.7% per annum. Higher bed rates have been the primary driver with bed rates increasing 3.3% per annum, up from $23.60 in 2005 to $26.87 in 2009.

Bed supply declined during this time reducing on average by 0.7% per annum and with three years of decline recorded between 2007 and 2009. This is thought to reflect the higher returns available from alternate use, notably residential, which has resulted in some backpacker hostels closing for conversion. Whilst supply has contracted, demand has increased, growing on average by 0.6% per annum. Accordingly occupancy levels have increased, up from 52.1% in 2005 to 55.0% in 2009. Occupancy levels peaked in 2008 at 57.9% before declining over the following year as demand conditions softened. Notwithstanding this still represents a very low occupancy level for a volume-driven accommodation segment.

The backpacker market recorded a sharp decline during the first six months of 2010 with RevPAB reducing 6.9%. This reflects the changed economic conditions in major international source markets at this time.

1.9 Blue Mountains

Our analysis (various industry sources) of Blue Mountain’s accommodation market has identified 27 accommodation establishments with 1,238 rooms (hotels, motels, guesthouses and serviced apartments) including both AAA rated and self-rated hotels.


Hotels are the most common accommodation type in Blue Mountains with fewer motel and guesthouse rooms and very few apartment rooms. Hotel room supply is quite diverse, albeit with no rooms graded 4-star whereas motel and guesthouse stock is graded 3.5-star and below.

The majority of accommodation rooms are located in Katoomba, Leura and Blackheath. Katoomba has the most diverse accommodation offering with a selection of budget (3.5-star & below) and 5-star rooms. Accommodation is Leura is dominated by the Fairmont Resort MGallery (212 rooms) which along with the Waldorf Leura Gardens Resort, are the only two 4.5-star properties in the area.

Blue Mountains Accommodation Market Profile 2014

Source: JLL

According to Tourism Research Australia and in a marked contrast to Sydney Metropolitan, the majority of visitor nights spent in Blue Mountains are spent in a hotel, motel, guesthouse or serviced apartment (HMGSA) with this accommodation type accounting for 35.7% of visitor nights in 2013. This compares to 28.2% in the home of a friend or relative, 21.1% in a rented house or apartment, 8.9% for camping/caravan and 1.8% in a backpacker/hostel.

The rented house / apartment market has recorded the strongest growth over the past eight years averaging 8.2% per annum. Growth has been strongest in the international segment, increasing on average by 18.1% per annum. This compares to growth of 7.1% per annum in the domestic segment.

Total visitor nights spent in rented accommodation has almost doubled over the past eight years which indicates an increasing degree of seepage from traditional accommodation types. This compares to growth of 6.7% per annum the HMGSA segment. This would suggest that visitors are still staying overnight but are seeking a different accommodation experience.

A total of 0.85 million visitor nights were spent in the Blue Mountains HMGSA segment in 2013 which represented the second highest year between 2005 and 2013. Key trends include:


Asia and Europe are the largest international source regions accounting for around 2.9% of total visitor nights in 2013. United Kingdom and China are the dominant source markets.

Growth is being underpinned by the domestic business segment. The leisure segment still dominates overall accounting for 66.6% of visitor nights in 2013, below the eight-year average of 70.2%.

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1.10.1 Accommodation Market Forecast

Accommodation forecasts for the Blue Mountains are inherently risky owing to the small size of the accommodation market. As a result we have limited our forecasts to a ten year horizon with limited information available on which to base longer term forecasts as the accommodation market is not subject to the typical hotel market cycle as outlined for Sydney Metropolitan.

We are aware of two properties which are currently undergoing extension and renovation works in the Blue Mountains. These include a 16-room extension of the Parklands Country Garden & Lodges due for completion in November 2014, as well as the refurbishment of the Hotel. The property is currently closed with the accommodation component scheduled to re-open in December 2014.

The Hydro Majestic Hotel is undergoing an extensive redevelopment programme whereby the accommodation and the food and beverage facilities within the property are being revitalised as well as new retail and food and beverage facilities added. These works are being undertaken to enhance the property’s facilities to include the largest conference and food and beverage facilities within the Blue Mountains tourism region while complimenting the property’s extensive and unique historical identity. The first stage of works will comprise a total of 60 hotel accommodation rooms, as well as 20 student accommodation rooms, extensive food and beverage facilities and conferencing facilities.

A second stage of works is also approved including a new accommodation facility consisting of 140 guest rooms offering views over Megalong Valley and a day spa. We have assumed that this project will progress over the medium term.

With few projects expected outside of these, Blue Mountains accommodation supply is expected to increase on average by 2.0% per annum to 2021 with the addition of around 203 rooms. This represents a marked change to the previous ten years when accommodation room supply declined. Short term supply is forecast to increase on average by 5.0% per annum to 2017 and as a result additions over the longer term are likely to be reduced with little impetus for new development. Additional projects are likely to be held back by a general lack of feasibility and a tightly controlled planning regime owing to the significance of the location.

Room night demand is expected to be lower by comparison with new and refurbished product likely to take market share from existing competing properties rather than attract new visitors to the region. That said, the scope and scale of food, beverage and conference facilities at Hydro Majestic could see MICE demand increase. Demand is projected to grow on average by 2.1% per annum to 2021. This is lower than the forecast growth for Sydney Metropolitan owing to the high domestic and leisure content but higher than the level recorded over the past ten years. Increasingly the Blue Mountains are viewed as a day trip destination by visitors with a reduction in overnight stays over the past decade in HMGSA. A growing Sydney population and higher proportion of international visitors transiting through Sydney is likely to provide some uplift in demand however the region also faces increased competition from the growing holiday rental market. New supply will therefore take time to be absorbed and occupancy levels will likely moderate through the medium term.

ADR is forecast to increase on average by 3.5% per annum to 2021 with market rates expected to be lifted by the refurbished/new product and the provision of additional guest services. RevPAR growth is forecast to average 3.6% per annum to 2021 with nominal RevPAR increasing from an estimated $78 in 2013 to $104 in 2021. This represents an increase of 33.1% and a similar to that which was achieved over the past decade.


PART A – Current Market Assessment


2 Sydney Metropolitan Hotel and Tourism Market

Sydney Metropolitan comprises Sydney Tourism Region less Sydney City Local Government Area.

Statistics pertaining to the supply, demand and performance of Sydney Metropolitan’s accommodation market have been sourced from the Australian Bureau of Statistics’ (ABS) Survey of Tourist Accommodation (STA), Tourism Research Australia’s National and International Visitor Surveys and STR Global as follows:

The Survey of Tourist Accommodation is conducted on an annual basis and data is available from 1998 to June 2013. We note there have been a number of changes to statistical boundaries and reporting regions within this timeframe and therefore some breaks in the time series exist;

The National and International visitor surveys are conducted on a quarterly basis and data in the current format is available from 2005 to March 2014. We have relied upon calendar year data to 2013; and

Five year trend reports have been purchased from STR Global for a basket of hotels, serviced apartments, motels and guesthouses (where available) to provide an indication of trading performance trends over the past year.

2.1 Profile of the Accommodation Market

Our analysis (various industry sources) of Sydney Metropolitan’s accommodation market has identified 188 accommodation establishments with 15,243 rooms (hotels, motels, guesthouses and serviced apartments) including both AAA rated and self-rated hotels. This represents around 45% of the total accommodation supply in Sydney Tourism Region.

Sydney Metropolitan Accommodation Supply By Segment and Product Type

Source: ABS, JLL

2.1.1 Segment Analysis

An appropriate brand and correct positioning are some of the key drivers of success in the hotel industry. Hotel owners may need to reposition when a hotel asset has lost effectiveness in serving its market due to obsolescence or as market dynamics shift in accordance with the changing city landscape.

Hotels are the most common accommodation type in Sydney Metropolitan (8,571 rooms or 56.2% of total room supply) with the majority (652 rooms or 72.1%) being in the upscale category. There are a similar proportion of

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serviced apartment (3,223 rooms or 21.1%) and motel rooms (2,984 rooms or 19.6%) but serviced apartments are predominantly graded 4-star and 4.5-star whereas motels are 3.5-star and below. The remaining product comprises guesthouses (486 rooms or 3.1%) which are also graded 3.5-star and below. Hotels in Sydney Metropolitan have the largest room inventory at 128 rooms. This compares to 87 rooms for serviced apartments, 40 rooms for motels and 38 rooms for guesthouses.

Sydney Metropolitan’s Competitive Supply

Accommodation Rooms by Type & Star Rating – 2014

2-star 3-star 3.5-star 4-star 4.5-star 5-star Total

Motel 760 1561 663 0 0 0 2,984

Hotel 733 494 1461 3768 1661 454 8,571

Apartment 93 194 622 1437 877 0 3,223

Guesthouse 66 238 161 0 0 0 465

Total 1,652 2,487 2,907 5,205 2,538 454 15,243

Percentage 10.8% 16.3% 19.1% 34.1% 16.7% 3.0% 100.0%

Source STR Global Census Database, JLL

2.1.1 Geographic Analysis

The majority of accommodation rooms in Sydney Metropolitan are located in West Sydney (5,258 rooms or 34.5% of total supply) and North Sydney (4,253 rooms or 27.9% of total supply). The accommodation markets in South and East Sydney are considerably smaller. East and South Sydney have the most diverse accommodation market with properties of all grades represented, reflecting the close proximity of these markets to the CBD and Sydney International Airport whereas Outer Sydney has the least diverse accommodation market with properties all graded 4-star and below. North Sydney has the lowest proportion of select service rooms (i.e. graded 3-star and below) at only 15.7% of total supply and Outer Sydney has the highest at 67.5%. East Sydney is the only market which has a luxury accommodation offering being the InterContinental Double Bay (due to re-open in November 2014). The 5-star property in South Sydney is self-rated 5-star and its’ facilities and standards are more akin to an upscale product.

Sydney Metropolitan’s Competitive Supply

Accommodation Rooms by Precinct & Star Rating – 2014

2-star & below

3-star 3.5-star 4-star 4.5-star 5-star Total PPN

East 239 456 287 659 587 140 2,368 15.5%

West 824 974 1.220 1.588 652 0 5,258 34.5%

North 89 577 1,135 2,108 344 4,253 27.9%

South 345 326 240 726 955 314 2,906 19.1%

Outer 155 154 25 124 0 0 458 3.0%

Total 1,652 2,487 2,907 5,205 2,538 454 15,243 100.0%



2.2 Accommodation Used

According to Tourism Research Australia, the majority of visitor nights spent in Sydney Metropolitan are spent in the home of a friend or relative with this accommodation accounting for 52% of the total visitor nights spent in the region in 2013. This compares to 34.0% in a rented house or apartment, 7.6% in hotels, motels, guesthouses and serviced apartments (HMGSA) and 1% respectively in a backpacker/hostel or camping/caravan.

Sydney Metropolitan Accommodation Used 2003 to 2013

Source: Tourism Research Australia, JLL

The rented house / apartment market has recorded the strongest growth over the past eight years with growth averaging 9.7% per annum. Growth has been strongest in the domestic segment, increasing on average by 15.0% per annum. This compares to growth of 9.5% per annum in the international segment. Total visitor nights spent in rented accommodation has doubled over the past decade which indicates a high degree of seepage from traditional accommodation types. This compares to growth of 4.3% per annum for the HMGSA segment and 0.7% per annum for backpackers.


Data pertaining to the historical demand profile in the paid accommodation segment (includes hotels, motels, guesthouses and serviced apartments, HMGSA) has been sourced from Tourism Research Australia’s National and International Visitor surveys and a profile provided for Sydney Metropolitan for the eight years between 2005 and 2013 (latest full year data available).

2.3.1 Hotels Motels, Guesthouses and Serviced Apartments

Visitor nights in Sydney Metropolitan’s HMGSA segment recorded the third highest year of the eight-year period in 2013 and with growth having averaged 4.3% per annum. A total of 3.4 million visitor nights spent were spent in Sydney Metropolitan in 2013. Total visitor nights in HMGSA peaked in 2010 and 2011 at 3.8 million and 3.7 million nights respectively before declining through 2012 in line with demand trends for Sydney City.

The domestic segment dominates accounting for 66.8% of all visitor nights spent in paid accommodation in 2013 and having averaged 63.3% over the past eight years. Domestic visitor nights also peaked in 2011 at 2.4 million and a level which was well above the long term average of 1.9 million. Domestic visitor are predominantly sourced from regional NSW (34.2%), Victoria (20.1%) and Queensland (17.7%) and with all three having recorded growth over the past eight years. Victoria has recorded the strongest growth increasing on average by 8.8% per annum.

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Asia is the largest international source region accounting for around 14.3% of total visitor nights in 2013. Korea and China are the dominant source markets accounting for 2.4% and 2.0% of all visitor nights in paid accommodation respectively in 2013.

Sydney Metropolitan Visitor Night Demand Profile by Origin of Visitor


Europe accounts for a further 7.6% of total visitor nights and with the United Kingdom contributing 4.2% of the total in 2013. We note that visitation from the UK was high in 2013 given the timing of the British and Irish Lions Rugby Tour. Visitor nights from the UK in HMGSA have averaged 2.9% of the total between 2007 and 2012 but 8.8% of the total in 2005 and 2006. This highlights how the United Kingdom market is yet to revert to the historic highs. North America accounted for a further 5.6% of visitor nights in 2013 and New Zealand 4.2%. This highlights the importance of these two source markets to the HMGSA sector.

Analysis of the purpose of visit highlights that growth is being underpinned by the domestic business and leisure segments with growth in visitor nights averaging 8.5% and 3.9% per annum respectively over the eight year period. The domestic leisure segment accounted for 30.1% of visitor nights in 2013 and the domestic business segment a further 26.8% of total visitor nights. It is worth noting that visitor nights do not equate to occupied room nights given the room density factor and the proportion of corporate room nights is therefore more likely to be in the order 50% as corporate guests typically have a lower room density.

Overall leisure visitors accounted for 45.1% of total visitor nights in 2013 and business visitors a further 35.9%. The MICE segment is also quite well represented accounting for a further 7.4% of nights in 2013 and having averaged 8.2% over the past eight years. There is approximately 336,765sqm of hotel meeting space in Sydney Metropolitan.

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Sydney Metropolitan Visitor Night Demand Profile by Purpose of Visit


Tourism Research Australia further segments visitor night data in HMGSA by segment (upscale & standard) and a short summary of this follows.

2.3.2 Upscale Segment

Visitor nights in Sydney Metropolitan’s upscale (4-star & above) HMGSA segment recorded the second highest year of the eight-year period in 2013 with growth having averaged 3.6% per annum over the past eight years.

The domestic segment dominates accounting for 75.1% of all visitor nights spent in paid accommodation in 2013 and having averaged 71.8% over the past eight years. Domestic visitor nights peaked in 2010 at 0.8 million and a level which was above the long term average of 0.6 million. Domestic visitors in upscale accommodation are predominantly sourced from Victoria and to a lesser extent from Sydney, regional NSW and Queensland.

Asia is the largest source region accounting for around 10.6% of total visitor nights in 2013. Korea and China are the dominant source markets accounting for 4.4% and 3.2% of all visitor nights in HMGSA respectively in 2013.

Europe accounts for a further 4.9% of total visitor nights and with the United Kingdom contributing 2.5% of the total in 2013. North America accounted for a further 3.0% of visitor nights in 2013 and New Zealand 4.5%. This highlights the importance of these two source markets to the hotel sector.

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Sydney Metropolitan - Upscale Segment

Visitor Night Demand Profile by Origin of Visitor


The business segment dominates accounting for 47.2% of all visitor nights spent in paid accommodation in 2013 and having averaged 44.0% over the past eight years. This compares to 40.4% in the business segment in 2013 which is below the eight-year average of 43.6%. Notably the education and employment segments (other) have recorded strong growth over the past four years.

Sydney Metropolitan – Upscale Segment Visitor Night Demand Profile by Purpose of Visit


The MICE segment is moderately represented accounting for a further 4.3% of nights in 2013 and having averaged 5.0% over the past eight years.

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2.3.3 Standard Segment

Visitor nights in Sydney Metropolitan’s standard (3-star and above) HMGSA segment recorded the fourth highest year of the eight-year period in 2013 and with growth having averaged 7.0% per annum over the past eight years.

The domestic segment dominates accounting for 76.4% of all visitor nights spent in paid accommodation in 2013 and having averaged 74.6% over the past eight years. Domestic visitor nights peaked in 2011 at 1.4 million and a level which was above the long term average of 1.1 million. Domestic visitors in standard accommodation are predominantly sourced from regional NSW (40%) and Queensland (16.8%).

Sydney Metropolitan – Standard Segment Visitor Night Demand Profile by Origin of Visitor


Asia is the largest source region accounting for around 9.3% of total visitor nights in 2013. Korea, Japan and China are the dominant source markets accounting for 2.8%, 1.8% and 1.4% of all visitor nights in HMGSA respectively in 2013. Europe accounts for a further 4.1% of total visitor nights and with the United Kingdom contributing 1.2% of the total in 2013. North America accounted for a further 4.9% of visitor nights in 2013 and New Zealand 4.5%.

The leisure segment dominates accounting for 47.2% of all visitor nights spent in paid accommodation in 2013 and having averaged 47.0% over the past eight years. This compares to 30.8% in the business segment which is above the eight-year average of 26.8%. The MICE and other (education and employment) segments are also modestly represented accounting for 11.7% and 10.4% of total visitor nights in 2013. The MICE segment has averaged 13.4% over the past eight years and other segment 12.8%.

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Sydney Metropolitan – Standard Segment

Visitor Night Demand Profile by Purpose of Visit


2.4 Trading Performance Trends

According to the ABS, there were 167 establishments with 13,432 rooms at the end of June 2013. This represents 39.8% of Sydney Tourism Region’s total accommodation supply.

Over the ten years to 2012, Sydney Metropolitan’s accommodation market has recorded strong RevPAR growth increasing on average by 5.0% per annum. Higher room rates have been the primary driver with ADR increasing 3.2% per annum, up from $111 in 2002 to $153 in 2012.

Hotel room supply has recorded slight growth increasing on average by 0.4% per annum and with four years of decline recorded in 2003 and consecutively between 2009 and 2011. This in part reflects the higher returns available from alternate use, notably residential, which has resulted in some hotels closing for conversion. Demand has increased at a higher rate increasing on average by 2.1% per annum. Accordingly occupancy levels have increased, up from 60.3% in 2002 to 71.3% in 2012 to be at the highest level ever recorded. The Sydney Metropolitan accommodation market has matured considerably over the past decade with the growth in satellite accommodation and corporate centres across the metropolitan area.

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Sydney Metropolitan

Trading Performance 1998 to YTD June 2013


The market has been on a very strong growth trajectory over the past three years with RevPAR growth averaging 9.1% per annum. Growth has continued into the first six months of 2013 with RevPAR increasing 9.1% year-on-year. A slight increase on room supply was not matched by demand and occupancy levels moderately slightly. Notwithstanding ADR growth has remained robust increasing 9.8% over the same period in 2012 to $162.

Sydney Metropolitan’s Historical Trading Performance 2002 to 2012

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% Change

Actual 2002 4,555 2.8% 2,746 10.1% 60.3% 7.1% $111 -6.6% $67 0.0%

2003 4,456 -2.2% 2,910 6.0% 65.3% 8.3% $110 -1.3% $72 7.0%

2004 4,518 1.4% 3,038 4.4% 67.2% 3.0% $114 3.7% $77 6.8%

2005 4,600 1.8% 3,119 2.7% 67.8% 0.8% $125 9.4% $84 10.3%

2006 4,608 0.2% 3,150 1.0% 68.4% 0.8% $123 -1.4% $84 -0.6%

2007 4,710 2.2% 3,274 3.9% 69.5% 1.7% $130 5.5% $90 7.3%

2008 4,748 0.8% 3,268 -0.2% 68.8% -1.0% $135 3.9% $93 2.9%

2009 4,744 -0.1% 3,096 -5.3% 65.3% -5.2% $128 -4.8% $84 -9.7%

2010 4,738 -0.1% 3,299 6.5% 69.6% 6.7% $134 4.4% $93 11.4%

2011 4,709 -0.6% 3,359 1.8% 71.3% 2.4% $141 5.2% $100 7.7%

2012 4,757 1.0% 3,390 0.9% 71.3% -0.1% $153 8.4% $109 8.3%

CAAG 2002 - 2012 0.4% 2.1% 1.7% 3.2% 5.0%

Source ABS, JLL

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2.4.1 Comparison to Sydney City Accommodation Market

A comparison of trading performance between Sydney Tourism Region, Sydney City and Sydney Metropolitan is provided in the charts following. This shows that trading performance between the three markets has largely tracked in line over the five years to 2012.

Sydney Accommodation Market Performance Comparison

Source: ABS, JLL

As would be expected, Sydney Metropolitan’s accommodation market trades at a discount to Sydney City. Comparison of the near term historical trading performance (2008 to 2012) highlights how Sydney Metropolitan’s RevPAR has traded on average at an index of 0.63 compared to Sydney City. The RevPAR index remained consistent at 0.62 between 2008 and 2011 but increased to 0.66 in 2012. This highlights the current strength in the Sydney Metropolitan accommodation market with high levels of spill-over demand from the constrained CBD as well as inherent demand growth.

Occupancy levels in Sydney Metropolitan are lower than in Sydney City with the index averaging 0.83 over five years to 2012. The gap peaked in 2008 at 0.86 when the city was similarly constrained before moderating over the next few years as the demand environment weakened. In 2012 the occupancy index was 0.84.

Average room rates for Sydney Metropolitan also trade at a discount to Sydney City with an average index of 0.76 over the five years to 2012. In 2012 the index reached its highest level of 0.78 which highlights how ADR growth in the micro markets is being over and above the level in the constrained CBD. We note that a degree of softness became evident in Sydney City’s accommodation market in 2012 with some precincts and segments recording a RevPAR decline albeit with slight growth achieved overall.

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2.4.2 Near Term Trading Performance

To provide an assessment of historical trading performance, we have purchased a five year trend report from STR Global for a basket of properties in Sydney Metropolitan as shown in the following table. The basket of 97 properties comprises 10,693 rooms or approximately 70% of room supply in Sydney Metropolitan and includes the majority of branded competitive supply.

Over the five years to 2013, branded accommodation supply in Sydney Metropolitan has recorded RevPAR growth increasing on average by 1.9% per annum with consecutive gains recorded over the past four years. RevPAR was at the highest level ever recorded in 2013 at $128.

Occupancy levels have recorded marginal growth, increasing at an average rate of 0.7% per annum. Occupancy levels were also at their highest level ever achieved in 2013 at 76.7% and have continued to grow during the first six months of 2014 to average 77.5%. Against this backdrop, ADR growth has been modest with room rates increasing on average by 1.2% per annum. Room rates were also at the highest level ever recorded in 2013 at $167. Growth has continued during the first six months of 2013, increasing 4.9% year-on-year to $171.

Sydney Metropolitan Recent Performance 2008 to YTD June 2014

Source: JLL

2.4.3 Peaks & Troughs

Nominal RevPAR (moving annual average) in the Sydney Metropolitan is currently upwards having troughed in September 2009 at $105 and again in May 2012 at $121. RevPAR over the year to June 2014 is 25.5% higher than the 2009 trough level. Occupancy levels averaged 77.6% over the year to June 2014 to be at the highest level ever recorded whereas room rates averaged $148. Occupancy levels are 11.3% above the June 2009-trough and room rates 14.4% above the January 2010-trough. This highlights how room rates have lagged the occupancy cycle by around seven months during the most recent downturn in Sydney Metropolitan and highlights the improved responsiveness of the accommodation market.

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Sydney Metropolitan Recent Performance 2009 to YTD June 2014

Source: JLL 2.4.4 Seasonality

Analysis of the monthly occupancy levels highlights the moderate degree of seasonality which exists within the Sydney Metropolitan accommodation market with occupancy levels typically ranging between 70% and 85% each year. It also highlights the sharp decline and recovery trends which were evident in 2009 and 2010, as well as the considerably lower occupancy levels through 2012 when demand conditions in Sydney City softened. Occupancy levels through the first six months of 2014 have reached a new high each month except for February.

Higher annual occupancy levels over the past four years are being driven by more months throughout the year achieving occupancy levels above 75% which indicates that demand has recorded a step-change. Occupancy levels in Sydney Metropolitan were above 75% for six months in 2011, five months in 2012 and eight months in 2013. This reflects the current strength of the corporate and leisure segments. Against this backdrop, ADR growth can be achieved.

Sydney Metropolitan Monthly Occupancy Trends 2009 to June 2014

Source: JLL

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ADR (MAA) RevPAR (MAA) Occupancy (MAA)


2.5 Upscale Segment

To provide an assessment of historical trading performance, we have purchased a five year trend report from STR Global for a basket of properties in the upscale segment. The basket of 46 properties comprises 5,732 rooms or approximately three quarters of upscale room supply in Sydney Metropolitan and includes the majority of branded competitive supply.

Over the five years to 2013, the upscale segment has recorded RevPAR growth increasing on average by 1.9% per annum with consecutive gains recorded over the past four years. RevPAR was at the highest level ever recorded in 2013 at $179. Growth has accelerated over the first six months of 2014, up 6.9% year-on-year.

Occupancy levels have recorded marginal growth over the five year period, increasing at an average rate of 0.7% per annum. Occupancy levels were at their highest level ever achieved in 2013 at 76.7% and have also continued to grow during the first six months of 2014 to average 77.5%. ADR growth over the five year period has been modest, increasing on average by 1.1% per annum. Room rates were also at the highest level ever recorded in 2013 at $179. Growth has continued during the first six months of 2013, increasing 2.9% year-on-year to $181.

Upscale Segment Recent Performance 2008 to YTD June 2014

Source: JLL


Nominal RevPAR (moving annual average) in the upscale segment is currently upwards having troughed in September 2009 at $113 and again in April 2012 at $131. RevPAR over the year to June 2014 at $141 is 24.6% higher than the 2009 trough level. Occupancy levels averaged 77.6% over the year to June 2014 to be at the highest level ever recorded whereas room rates averaged $181. Occupancy levels are 11.6% above the June 2009-trough and room rates 14.4% above the January 2010-trough. This highlights how room rates have lagged the occupancy cycle by around seven months during the most recent downturn in the upscale segment and highlights the improved responsiveness of the accommodation market.

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Upscale Segment (Moving Annual Average) Recent Performance 2009 to YTD June 2014

Source: JLL 2.5.2 Seasonality

Analysis of the monthly occupancy levels highlights the moderate degree of seasonality which exists within the upscale metropolitan accommodation market with occupancy levels typically ranging between 70% and 85% each year. It also highlights the sharp decline and recovery trends which were evident in 2009 and 2010, as well as the considerably lower occupancy levels through 2012 when demand conditions in Sydney City softened. Occupancy levels through the first six months of 2014 have reached a new high each month except for February and May.

Higher annual occupancy levels over the past four years are being driven by more months throughout the year achieving occupancy levels above 75% which indicates that demand has recorded a step-change. Occupancy levels in the upscale segment were above 75% for seven months in 2011, five months in 2012 and seven months in 2013. This reflects the current strength of the corporate and leisure segments. Against this backdrop, ADR growth can be achieved.

Upscale Segment Monthly Occupancy Trends 2009 to June 2014

Source: JLL

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Analysis of the daily occupancy levels over the past three years shows how occupancy levels in the upscale segment typically peak on a Wednesday and Saturday when demand from the corporate and leisure segments are highest. Daily occupancy levels for the year ending June 2014 are on average two to four percentage points higher each day with the most pronounced gains evident on a Tuesday to Friday i.e. reflecting the current strength of the corporate segment.

2.6 Midscale Segment

To provide an assessment of historical trading performance, we have purchased a five year trend report from STR Global for a basket of properties in the midscale segment. The basket of 40 properties comprises 4,039 rooms or approximately two thirds of midscale room supply in Sydney Metropolitan and includes the majority of branded competitive supply.

Over the five years to 2013, branded accommodation supply in the midscale segment has recorded RevPAR growth increasing on average by 1.6% per annum and in spite of a slight decline being recorded in 2012. RevPAR was at the highest level ever recorded in 2013 at $111. Growth has accelerated over the first six months of 2014, up 11.6% year-on-year.

Occupancy levels have recorded marginal growth over the five year period, increasing at an average rate of 0.6% per annum. Occupancy levels were at their highest level ever achieved in 2013 at 76.8% and have also continued to grow strongly during the first six months of 2014 to average 78.5%. ADR growth over the five year period has been modest, increasing on average by 1.0% per annum. Room rates were also at the highest level ever recorded in 2013 at $145. Growth has continued during the first six months of 2013, increasing 5.8% year-on-year to $148.

Midscale Segment Recent Performance 2008 to YTD June 2014

Source: JLL

Sun Mon Tue Wed Thu Fri SatJul 11 - Jun 12 61.1% 74.8% 82.5% 82.7% 79.1% 68.9% 78.7%

Jul 12 - Jun 13 61.0% 72.3% 80.7% 81.5% 77.9% 70.9% 80.8%

Jul 13 - Jun 14 63.2% 75.1% 83.7% 84.4% 79.5% 74.0% 83.9%

Upscale SegmentDaily Occupancy Trends

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Nominal RevPAR (moving annual average) in the midscale segment is currently upwards having troughed in September 2009 at $89 and again in July 2012 at $104. RevPAR over the year to June 2014 at $117 is 31.3% higher than the 2009 trough level. Occupancy levels averaged 78.2% over the year to June 2014 to be at the highest level ever recorded whereas room rates averaged $148. Occupancy levels are 12.1% above the July 2009-trough and room rates 15.1% above the November 2009-trough. This highlights how room rates have lagged the occupancy cycle by around four months during the most recent downturn in the midscale segment and highlights the improved responsiveness of the accommodation market and particularly of this segment.

Midscale Segment (Moving Annual Average) Recent Performance 2009 to YTD June 2014

Source: JLL

2.6.2 Seasonality Trends

Analysis of the monthly occupancy levels highlights the moderate degree of seasonality which exists within the midscale segment with occupancy levels ranging between 70% and 85% each year. It also highlights the sharp decline and recovery trends which were evident in 2009 and 2010, as well as the considerably lower occupancy levels which were evident in 2012 when demand conditions in Sydney City softened. Occupancy levels through the first six months of 2014 have reached a new high each month except for February.

Higher annual occupancy levels over the past four years are being driven by more months throughout the year achieving occupancy levels above 75% which indicates that demand has recorded a step-change. Occupancy levels in the midscale segment were above 75% for three months in 2011, four months in 2012 and eight months in 2013. Notably occupancy levels also exceeded 80% for five months in 2013. This reflects the current strength of the corporate and leisure segments across Sydney Metropolitan and high demand for good midscale product. Against this backdrop, strong ADR growth can be achieved.

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Monthly Occupancy Trends 2009 to June 2014

Source: JLL

Analysis of the daily occupancy levels over the past three years shows how occupancy levels in the midscale segment typically peak on a Wednesday and Tuesday when demand from the corporate segment is highest. Saturday night occupancies are high but the midscale segment does not see the same level of take up as the upscale segment for ‘occasion’ stays. Daily occupancy levels for the year ending June 2014 are on average three to five percentage points higher each day with the most pronounced gains evident on a Friday and Saturday.

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Jul 12 - Jun 13 61.8% 72.8% 80.1% 80.2% 77.3% 70.7% 79.3%

Jul 13 - Jun 14 65.3% 75.7% 84.1% 85.1% 80.5% 76.0% 84.6%

Midscale SegmentDaily Occupancy Trends


3 Sydney Metropolitan Backpacker/Hostel Segment

Sydney Metropolitan comprises Sydney Tourism Region less Sydney City Local Government Area.

Statistics pertaining to the supply, demand and performance of Sydney Metropolitan’s backpacker/hostel market have been sourced from the Australian Bureau of Statistics’ (ABS) Survey of Tourist Accommodation (STA) expanded scope and Tourism Research Australia’s National and International Visitor Surveys as follows:

The Survey of Tourist Accommodation expanded scope was conducted on an annual basis between January 2005 and June 2010 before funding for this project ceased. Prior to this data was collected every three years; and

The National and International visitor surveys are conducted on a quarterly basis and data in the current format is available from 2005 to March 2014. We have relied upon calendar year data to 2013.

3.1 Profile of the Backpacker/Hostel Market

Our analysis (various industry sources) of Sydney Metropolitan’s backpacker/hostel market has identified 15 accommodation establishments with 1,526 beds. The majority of backpacker/hostel establishments are located in the East and North sub-regions of Sydney (85.5% of total supply) due to their proximity to the ocean, Sydney CBD, and popular Sydney nightlife precincts, which is integral for the younger backpacker demographic.

Within the sub-regions of the Sydney Metropolitan area, the highest proportion of hostels are found in the suburbs of Bondi (5 hostels, 671 beds, 44.0% of total supply), Coogee (2 hostels, 94 beds, 6.2% of total supply), and Manly (3 hostels, 288 beds, 18.9% of total supply). The accommodation markets in South and West Sydney are considerably smaller due to their lack of tourist engendered infrastructure, while the North Sydney sub region has the most diverse properties, with a combination of 3 to 4 star self-rated hostels as well as one hostel which is not rated. We do note however that East Sydney has 5 properties that have not undertaken a self-rating.

Sydney Metropolitan’s Backpacker/Hostel Competitive Supply

Accommodation Rooms by Subregion – 2014

Not rated 2.5 star 3 star 3.5 star 4 star Total PPN East 475 0 120 0 170 765 50.1%

West 0 69 86 0 0 155 10.2%

South 66 0 0 0 0 66 4.3%

North 54 0 32 114 340 540 35.4%

Total 595 69 238 114 510 1,526 100%

Source Wotif, JLL



Data pertaining to the historical demand profile in the backpacker/hostel segment has been sourced from Tourism Research Australia’s National and International Visitor surveys and a profile provided for Sydney Metropolitan for the eight years between 2005 and 2013 (latest full year data available).

As outlined in Section 3.2, Sydney Metropolitan’s backpacker / hostel segment accounts for around 1% of visitor nights spent in Sydney Metropolitan.

Visitor nights in Sydney Metropolitan’s backpacker segment recorded the fourth highest year of the eight-year period in 2013 with growth having averaged 0.7% per annum. A total of 0.5 million visitor nights spent were spent in Sydney Metropolitan backpackers in 2013. Total visitor nights peaked in 2010 at 0.75 million before declining markedly in 2011 and 2012 as economic conditions in major source markets dampened visitation trends.

The international segment dominates accounting for 92.2% of all visitor nights spent in backpacker hostels in Sydney Metropolitan in 2013 and having averaged 91.9% over the past eight years. International visitor nights also peaked in 2010 at 0.67 million and a level which was well above the long term average of 0.43 million.

Europe is the largest source region accounting for around two thirds of total visitor nights in 2013. United Kingdom is the dominant source market accounting for 36.3% of all visitor nights in backpacker hostels in 2013. We note that visitation from the UK was high in 2013 given the timing of the British and Irish Lions Rugby Tour. Visitor nights from the UK in HMGSA have averaged 28.9% over the eight year period. North America accounts for a further 9.0% of total visitor nights and Asia 7.1% of total visitor nights. Hong Kong and Korea are the dominant Asian source markets with very low take up by Chinese visitors.

Sydney Metropolitan – Backpacker Hostels Visitor Night Demand Profile by Origin of Visitor


Domestic visitor are predominantly sourced from regional NSW (65.9%), Victoria (30%) and South Australia (30%) and with all three having declined over the past eight years.

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Analysis of the purpose of visit highlights the reliance on international segment albeit with no growth recorded over the eight year period. The international leisure segment accounted for two thirds of visitor nights in 2013 and having averaged 72.9% over the past eight years. Growth is being underpinned by the international other segment notably education and employment visitors with these groups increasingly staying in backpacker/hostels upon arrival in Australia.

Sydney Metropolitan – Backpacker Hostels Visitor Night Demand Profile by Purpose of Visit



According to the ABS, there were 18 backpacker establishments in Sydney Metropolitan with 1,681 beds at the end of June 2010. This represents 19.6% of Sydney Tourism Region’s total backpacker bed supply with the majority of backpacker hostels located in City of Sydney. Data is only available for calendar years 2005 to 2009.

Over the five years to 2009, Sydney Metropolitan’s backpacker hostels recorded strong BedPAR growth increasing on average by 4.7% per annum. Higher bed rates have been the primary driver with bed rates increasing 3.3% per annum, up from $23.60 in 2005 to $26.87 in 2009.

Bed supply declined during this time reducing on average by 0.7% per annum and with three years of decline recorded between 2007 and 2009. This is thought to reflect the higher returns available from alternate use, notably residential, which has resulted in some backpacker hostels closing for conversion. Whilst supply has contracted, demand has increased, growing on average by 0.6% per annum. Accordingly occupancy levels have increased, up from 52.1% in 2005 to 55.0% in 2009. Occupancy levels peaked in 2008 at 57.9% before declining over the following year as demand conditions softened. Notwithstanding this still represents a very low level for a volume-driven accommodation segment.

The backpacker market recorded a sharp decline during the first six months of 2010 with BedPAR reducing 6.9%. This reflects the changed economic conditions in major international source markets at this time.

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Sydney Metropolitan Backpacker Hostels Trading Performance 2005 to YTD June 2010


Sydney Metropolitan’s Backpacker/Hostel Historical Performance 2005 to 2009

RNA

(000’s) %

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% Change

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% Change

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% Change

Actual 2005 706 368 52.1% $23.60 $12.30 2006 706 0.1% 371 0.8% 52.5% 0.7% $24.85 5.3% $13.04 6.0% 2007 703 -0.5% 373 0.7% 53.1% 1.2% $25.58 3.0% $13.59 4.2% 2008 694 -1.3% 402 7.7% 57.9% 9.1% $25.51 -0.3% $14.78 8.8% 2009 686 -1.2% 377 -6.2% 55.0% -5.1% $26.87 5.3% $14.78 0.0%

CAAG 2005 - 2009 -0.7% 0.6% 1.3% 3.3% 4.7%

Source ABS, JLL

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4 East Sydney Hotel and Tourism Market

East Sydney comprises the local government areas of Randwick, Woollahra and Waverley. Local government area inclusions have been kept consistent with previous Studies to ensure a consistent historical data series is available.

Statistics pertaining to the supply, demand and performance of East Sydney’s accommodation market have been sourced from the Australian Bureau of Statistics’ (ABS) Survey of Tourist Accommodation (STA), Tourism Research Australia’s National and International Visitor Surveys and STR Global as follows:



Five year trend reports have been purchased from STR Global for a basket of hotels, serviced apartments and to a lesser extent motels and guesthouses to provide an indication of trading performance trends over the past year.


Our analysis (various industry sources) of East Sydney’s accommodation market has identified 34 accommodation establishments with 2,368 rooms (hotels, motels, guesthouses and serviced apartments) including both AAA rated and self-rated hotels. This represents 15.5% of the total accommodation supply in Sydney Metropolitan area.

East Sydney \Accommodation Supply By Segment and Product Type

Source: ABS, JLL

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Hotels are the most common accommodation type in East Sydney (904 rooms or 38% of total room supply) with the majority (652 rooms or 72.1%) being in the upscale and luxury categories. We note that this includes the Swiss Grand Bondi (202 rooms) and proposed InterContinental Double Bay (140 rooms), both of which are currently closed. The InterContinental Double Bay is undergoing major refurbishment works and is scheduled to re-open in November 2014 whereas the Swiss Grand Bondi is being redeveloped into a mixed use project with the hotel reduced to 84-room 4.5-star product to be operated by Rydges Hotels & Resorts under the QT brand. The hotel is scheduled to open in mid-2015.

East Sydney - Competitive Supply by Product Type


2-star 3-star 3.5-star 4-star 4.5-star 5-star Total Motel 150 236 386

Hotel 81 171 310 202 140 904

Apartment 60 99 349 385 893

Guesthouse 29 139 17 185

Total 239 456 287 659 587 140 2,368

Percentage 10.1% 19.3% 12.1% 27.8% 24.8% 5.9% 100.0%


There are a similarly high proportion of serviced apartments (893 rooms or 37.7%) which are also predominantly graded 4-star and 4.5-star properties. The remaining product comprises motel rooms (386 rooms or 16.3% of total room supply) and guesthouses (185 rooms or 7.8%). Motel and guesthouse rooms are primarily graded 3.5-star & below.

Serviced apartments in East Sydney have the largest average room inventory at 99 rooms (skewed upwards by Meriton Bondi Junction). This compares to 82 rooms for hotels, 48 rooms for motels and 30 rooms for guesthouses.

Comparison to Sydney Metropolitan therefore highlights that East Sydney has a higher proportion of upscale and luxury accommodation product with almost 60% of rooms graded 4-star and above. This compares to 47.4% in Sydney Metropolitan. This is offset by a considerably lower proportion 3.5-star rooms. Comparison by product type highlights a considerably lower proportion of hotel rooms (38.2% compared to 56.2%) and a higher proportion of apartments (37.7% compared to 21.1%), thought to reflect the higher proportion of leisure demand in the area and with a number of hotels and motels on larger land-holdings sold for residential conversion over the past ten years.


The majority of accommodation rooms in East Sydney are located in Bondi (557 rooms), Coogee (472 rooms) and Randwick (18.5%) with 20-25% of the area’s accommodation supply in each area. Bondi has the most diverse accommodation offering with a selection of rooms graded between 2-star and 4.5-star, whereas accommodation in Randwick is predominantly 4-star and below.


East Sydney – Competitive Supply by Location

Accommodation Rooms by Location & Star Rating – 2014

2-star & below


Bondi 130 102 123 202 557 23.5%

Coogee 74 318 80 472 19.9%

Double Bay 39 10 140 189 8.0%

Randwick 66 68 213 90 437 18.5%

Other 43 247 118 305 713 30.1%

Total 239 456 287 659 587 140 2,368 100.0%



According to Tourism Research Australia, the majority of visitor nights spent in East Sydney are spent in a rented house / apartment with this accommodation accounting for 50% of the total visitor nights spent in the region in 2013. This compares to just 6.8% in hotels, motels, guesthouses and serviced apartments (HMGSA).

Northern Region Accommodation Used 2003 to 2013


The rented house / apartment market has recorded the strongest growth over the past eight years averaging 8.5% per annum. Growth has been strongest in the domestic segment, increasing on average by 12.3% per annum. This compares to growth of 8.5% per annum in the international segment. Total visitor nights spent in rented accommodation has almost doubled over the past decade which indicates a high degree of seepage from traditional accommodation types. This compares to growth of 2.5% per annum for the HMGSA segment and 8.3% per annum for backpackers.

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4.3 Visitor Night Demand in HMGSA

Data pertaining to the historical demand profile in the paid accommodation segment (includes hotels, motels, guesthouses and serviced apartments, HMGSA) has been sourced from Tourism Research Australia’s National and International Visitor surveys and a profile provided for East Sydney for the eight years between 2005 and 2013 (latest full year data available).

Visitor nights in East Sydney’s paid accommodation segment recorded the fourth lowest year of the eight-year period in 2013 but with growth averaging 2.5% per annum over the past eight years. A total of 0.5 million visitor nights spent were spent in East Sydney in 2013 which 20.6% of Sydney Metropolitan’s total visitor nights in HMGSA. The proportion of nights spent in East Sydney peaked in 2006 at 25.0% and have averaged 21.2% over the past eight years. This indicates that the accommodation demand in the local area is increasing at a level below the broader Sydney Metropolitan.

East Sydney Visitor Night Demand Profile by Origin of Visitor


The domestic segment dominates accounting for 61.4% of all visitor nights spent in paid accommodation in 2013 and having averaged 53.0% over the past eight years. Domestic visitor nights peaked in 2011 at 0.31 million and a level which was above the long term average of 0.26 million. Domestic visitor are predominantly sourced from regional NSW (31.8%), Queensland (26.8%) and Victoria (15.1%) and with all three having recorded growth over the past eight years.

Europe is the largest source market accounting for around 17.2% of total visitor nights in 2013. The United Kingdom is the dominant source market contributing 9.6% of the total in 2013. Asia accounted for a further 8.4% of total visitor nights in 2013. This compares to 6.7% from North America and 4.8% from New Zealand.

Analysis of the purpose of visit highlights that growth is being underpinned by the domestic and international business segments with growth in visitor nights averaging 21.7% and 3.6% per annum respectively over the eight year period. Notwithstanding the leisure segment still dominates accounting for 46.0% of visitor nights in 2013, which is considerably below the eight-year average of 58.6%. Business visitors accounted for a further 36.4% of nights in 2013, well above the eight-year average of 22.7%. It is worth noting that visitor nights do not equate to

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occupied room nights given the room density factor and the proportion of corporate room nights is therefore more likely to be in the order 50-60% given the room density factor.

The MICE segment is also quite well represented accounting for a further 3.9% of nights in 2013 and having averaged 5.4% over the past eight years. There is approximately 14,727sqm of hotel meeting space in East Sydney which represents around 4.4% of the total meeting space in Sydney Metropolitan. The region attracted 8% of MICE visitor nights in 2013 and has averaged around 11.1% over the past eight years. This indicates a fairly high utilisation of hotel conference space in the East Sydney region. Major conference hotels are limited to the Crowne Plaza Hotel Coogee Beach Sydney and the InterContinental Double Bay when it re-opens in November 2014. This also follows the closure of the Swiss Grand Bondi in mid-2013 which had extensive meeting facilities.

East Sydney Visitor Night Demand Profile by Purpose of Visit




Visitor nights in East Sydney’s upscale (4-star & above) HMGSA segment recorded the third lowest year of the eight-year period in 2013 with growth having averaged 0.6% per annum over the past eight years.

The domestic segment dominates accounting for 63.2% of all visitor nights spent in paid accommodation in 2013 and having averaged 66.2% over the past eight years. Domestic visitor nights peaked in 2006 at 0.16 million and a level which was above the long term average of 0.93 million. Domestic visitors are predominantly sourced from regional NSW and Victoria.

New Zealand was the largest international source market in 2013 accounting for around 13.7% of total visitor nights but having averaged only 4.7% over the past eight years. This compares to 8.4% from Europe in 2013, 6.1% from Asia, 4.9% from North America and 4.6% from New Zealand.

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East Sydney – Upscale Segment Visitor Night Demand Profile by Origin of Visitor


The leisure segment dominates accounting for 46.6% of all visitor nights spent in paid accommodation in 2013 and having averaged 54.5% over the past eight years. This compares to 32.0% in the business segment which is above the eight-year average of 30.9%. Notably the education and employment segments (other) have recorded strong growth over the past two years.

East Sydney – Upscale Segment Visitor Night Demand Profile by Purpose of Visit



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Visitor nights in East Sydney’s standard (3-star and above) HMGSA segment recorded the fifth highest year of the eight-year period in 2013 but with growth averaging 8.9% per annum over the past eight years.

The domestic segment dominates accounting for 78.1% of all visitor nights spent in paid accommodation in 2013 and having averaged 64.1% over the past eight years. Domestic visitor nights peaked in 2012 at 0.19 million and a level which was above the long term average of 0.13 million. Domestic visitors are predominantly sourced from regional NSW and Queensland.

North America was the largest international source region in 2013 accounting for around 9.6% of total visitor nights but having averaged only 8.3% over the past eight years. This compares to 6.1% from Asia, 3.7% from Europe and 1.5% from New Zealand.

East Sydney – Standard Segment Visitor Night Demand Profile by Origin of Visitor


The leisure segment dominates accounting for 46.6% of all visitor nights spent in paid accommodation in 2013 and having averaged 54.5% over the past eight years. This compares to 32.0% in the business segment which is above the eight-year average of 30.9%. Notably the other (education and employment) segments have recorded strong growth over the past two years.


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East Sydney – Standard Segment Visitor Night Demand Profile by Purpose of Visit



According to the ABS, there were 22 establishments with 1,501 rooms at the end of June 2013. This represents 11.2% of Sydney Metropolitan’s total accommodation supply.

Over the ten years to 2012, East Sydney’s accommodation market has recorded modest RevPAR growth increasing on average by 4.8% per annum, slight below the regional average of 5.0%. Higher room rates have been the primary driver of growth in East Sydney with ADR increasing 3.0% per annum, up from $121 in 2002 to $163 in 2012.

Sydney Metropolitan Trading Performance 1998 to YTD June 2013


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Hotel room supply has declined, reducing on average by 1.9% per annum. Room supply peaked in 2001 but steadily declined to 2011. Changes to the statistical boundaries in 2012 resulted in an increase in the supply base. Demand has declined to a lesser extent, reducing on average by 0.2% per annum which indicates that room night demand is actually increasing against a smaller supply base. Accordingly occupancy levels have increased, up from 62.8% in 2002 to 74.7% in 2012. Occupancy levels peaked in 2011 at 76.2% before moderating over the next year. This is line with trends in the Sydney City accommodation market.

East Sydney - Historical Trading Performance 2002 to 2012

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Actual 2002 665 -7.1% 418 -1.5% 62.8% 6.0% $121 -2.8% $76 3.1%

2003 632 -4.9% 445 6.6% 70.4% 12.1% $127 5.0% $90 17.7%

2004 664 4.9% 463 4.0% 69.8% -0.9% $133 4.6% $93 3.7%

2005 651 -1.9% 457 -1.2% 70.2% 0.7% $137 2.6% $96 3.3%

2006 637 -2.2% 462 0.9% 72.5% 3.2% $141 2.8% $102 6.1%

2007 606 -4.8% 447 -3.2% 73.7% 1.7% $150 6.5% $110 8.4%

2008 582 -3.9% 426 -4.6% 73.2% -0.7% $154 3.1% $113 2.4%

2009 536 -7.9% 396 -7.0% 73.9% 1.0% $149 -3.2% $110 -2.3%

2010 485 -9.6% 365 -7.9% 75.3% 1.8% $153 2.3% $115 4.2%

2011 460 -5.1% 351 -3.9% 76.2% 1.2% $161 5.6% $123 6.9%

2012 548 19.0% 409 16.7% 74.7% -1.9% $163 1.0% $122 -0.9%

CAAG 2002 - 2012 -1.9% -0.2% 1.8% 3.0% 4.8%

Source ABS, JLL

The market has reverted to growth over the six months to June 2013 with RevPAR increasing 3.0% year-on-year. Room supply has declined again (-0.5%) whereas demand has increased (+3.3%) and occupancy levels have increased, up 3.8% to 75.9%. Offsetting this was a slight moderation in ADR, reducing 0.8% to $165.

East Sydney has the highest average length of stay of Sydney Metropolitan’s sub-regions averaging 2.75 nights over the 18 months to June 2013 and ranging between 3.5 and 2.5 nights.

4.4.1 Comparison to Sydney Accommodation Market

A comparison of trading performance between Sydney Tourism Region, Sydney City, Sydney Metropolitan and East Sydney is provided in the charts following. This shows that trading performance between the four markets has largely tracked in line over the five years to 2012.

East Sydney’s accommodation market trades at a premium to Sydney Metropolitan’s accommodation market with performance boosted by the close proximity to Sydney CBD, the Eastern suburbs beaches and the corporate centres of Randwick and Bondi Junction.


Comparison of the near term historical trading performance (2008 to 2012) highlights how East Sydney’s RevPAR has traded on average at an index of 1.22 compared to Sydney Metropolitan. The RevPAR index peaked in in 2009 at 1.32 but reduced over the next three years to average 1.12 in 2012.

Occupancy levels in East Sydney are typically higher with the index averaging 1.08 over the past five years. The index peaked in 2009 at 1.13 but has declined over the past three years to 1.05 in 2012. This indicates that East Sydney’s accommodation market is failing to attract its fair share of spill over demand from Sydney City which has buoyed trading across the metropolitan area over the past eighteen months.

Average room rates for East Sydney also trade at a premium to Sydney Metropolitan with an average index of 1.13 over the five years to 2012. The index has remained fairly constant over the four years to 2011 but declined markedly in 2012 to 1.07 when demand conditions across the city softened.

Sydney Accommodation Market Performance Comparison to East Sydney

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Sydney Tourism Region Sydney City

Sydney Metropolitan South West Sydney

Source: ABS, JLL


To provide an assessment of historical trading performance, we have purchased a five year trend report from STR Global for a basket of properties in East Sydney. The basket of 34 properties comprises 1,996 rooms or approximately 85% of East Sydney’s room supply and includes the majority of branded competitive supply as well as a high proportion of motels as shown in the map following.

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1 Bondi Beachside Inn

2 The Plage Bondi Hotel

3 Beach Road Hotel

4 Hotel Bondi

5 Alice Motel

6 Swiss Grand Resort & Spa

7 Ravesi`s Hotel

8 Adina Apartment Hotel Bondi Beach 9 Meriton Serviced Apartments Bondi

Junction

10 Quest Bondi Junction

11 Coogee Bay Hotel

12 Coogee Sands Hotel & Apartments

13 Crowne Plaza Hotel Coogee Beach Sydney

14 Coogee Bay Heritage Hotel

15 Adina Apartment Hotel Coogee

16 Savoy Double Bay Hotel

17 Medina Serviced Apartments Double Bay

18 InterContinental Double Bay

19 Inn Edgecliff

20 Thoroughbred Motel

21 Addisons On Anzac Hotel

22 Glensynd Motor Inn

23 Barker Motor Lodge

24 St Marks Lodge

25 Esron Motel

26 Blenheim Randwick

27 Gemini Hotel Sydney

28 Randwick Lodge

29 High Cross Park Lodge

30 Avonmore On The Park Boutique Hotel

31 Medina Classic Randwick

32 Bayside Apartments

33 Lodge Motel

34 Hughenden Boutique Hotel


Over the five years to 2013, branded accommodation supply in East Sydney has recorded RevPAR growth increasing on average by 1.7% per annum and with two years of decline in 2009 and 2011. RevPAR was at the highest level ever recorded in 2013 at $165. Growth has accelerated over the first six months of 2014, up 11.5% year-on-year.

Occupancy levels have recorded marginal growth over the five year period, increasing at an average rate of 0.4% per annum. Occupancy levels in 2013 averaged 79.7% which represents a slight discount compared to the 2010 high of 82.3%. Occupancy levels have recorded a slight decline during the first six months of 2014 to average 80.0%. ADR growth over the five year period has been modest, increasing on average by 1.3% per annum. Room rates were also at the highest level ever recorded in 2013 at $207. Growth has accelerated during the first six months of 2013, increasing 12.3% year-on-year to $207.

East Sydney Recent Performance 2008 to YTD June 2014

Source: JLL


Nominal RevPAR (moving annual average) in East Sydney is currently upwards having troughed in November 2009 at $148 and again in May 2012 at $151. East Sydney RevPAR has averaged $176 over the year to June 2014 which is approximately 19.0% higher than the 2009 trough level. Occupancy levels averaged 79.5% over the year to June 2014 which is approximately 5.0% below the September 2010 peak. Conversely room rates are at the highest level ever recorded averaging $218 to June 2014 which is 17.1% higher than the 2009-low.

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East Sydney (Moving Annual Average)

Recent Performance 2009 to YTD June 2014

Source: JLL


Analysis of the monthly occupancy levels highlights the moderate degree of seasonality which exists within the East Sydney accommodation market with occupancy levels ranging between 70% and 90% each year. It also highlights the sharp decline and recovery trends which were evident in 2009 and 2010. Occupancy levels through the first six months of 2014 are lower than those achieved in 2010 and 2013 with new supply having opened in mid-2013 which is yet to be fully absorbed.

Whilst occupancy levels are currently depressed compared to the 2010 and 2013 highs, they are still robust with a number of months each year trading in excess of 80% and the level at which strong ADR growth can be achieved. Occupancy levels in East Sydney were above 80% for five months in 2011, three months in 2012 and seven months in 2013. This reflects the current strength of the corporate and leisure segments in East Sydney and the propensity of the sub-region to attract spill-over demand from the CBD.

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Analysis of the daily occupancy levels over the past three years shows how occupancy levels in East Sydney typically peak on a Friday and Saturday when demand from the leisure segment is highest but with high occupancies also achieved midweek. Daily occupancy levels for the year ending June 2014 are on average up to two percentage points lower each day than in the year prior with the most pronounced declines evident on a Thursday, Saturday and Sunday.

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Jul 12 - Jun 13 71.2% 74.3% 78.5% 81.5% 82.1% 83.0% 92.0%

Jul 13 - Jun 14 69.5% 73.6% 79.0% 81.2% 79.8% 82.6% 90.3%

East SydneyDaily Occupancy Trends

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5 West Sydney Hotel and Tourism Market

West Sydney comprises the local government areas of Ashfield, Blacktown, Liverpool, Campbelltown, Parramatta, Penrith and Strathfield. Local government area inclusions have been kept consistent with previous Studies to ensure a consistent historical data series is available.

Statistics pertaining to the supply, demand and performance of West Sydney’s accommodation market have been sourced from the Australian Bureau of Statistics’ (ABS) Survey of Tourist Accommodation (STA), Tourism Research Australia’s National and International Visitor Surveys and STR Global as follows:





Our analysis (various industry sources) of West Sydney’s accommodation market has identified 60 accommodation establishments with 5,258 rooms (hotels, motels, guesthouses and serviced apartments) including both AAA rated and self-rated hotels. This represents 34.5% of the total accommodation supply in Sydney Metropolitan area.

West Sydney Accommodation Supply By Segment and Product Type

Source: ABS, JLL

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Hotels are the most common accommodation type in Western Sydney (3,117 rooms or 59.3% of total room supply) with a fairly diverse spread across all grades. There is also a fairly high proportion of motel rooms (1,304 rooms or 24.8%) when compared to Sydney Metropolitan and a lower proportion of serviced apartments (800 rooms or 15.2%). These two property types are also quite distinct with motels graded 3.5-star and below and apartments graded 3.5-star and above. There are also very few guesthouse rooms in Western Sydney. Comparison to Sydney Metropolitan highlights that Western Sydney has a higher proportion of budget accommodation with 2-star product accounting for 15.7% of the total room supply. This compares to 10.8% in Sydney Metropolitan. This is offset by a lower proportion of 4-star rooms.

West Sydney’s Competitive Supply


2-star 3-star 3.5-star 4-star 4.5-star 5-star Total Motel 303 601 400 1,304

Hotel 484 279 590 1314 450 3,117

Apartment 94 230 274 202 800

Guesthouse 37 37

Total 824 974 1,220 1,588 652 0 5,258

Percentage 15.7% 18.5% 23.2% 30.2% 12.4% 0.0% 100.0%


Hotels and serviced apartments in Western Sydney have the largest average room inventory at 135 and 133 rooms respectively. This compares to 43 rooms for motels and 37 rooms for guesthouses.


The majority of accommodation rooms are located in Parramatta (1,305 rooms or 24.8%), Homebush (829 rooms or 15.8%), and Liverpool (563 rooms or 10.5%) and with considerably smaller accommodation markets in Campbelltown, Blacktown and Ashfield. Parramatta has the most diverse accommodation offering with a selection of rooms graded between 3-star and 4.5-star, whereas accommodation in Liverpool is predominantly graded 4-star and below. Accommodation supply in Homebush is also quite diverse.

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West Sydney’s Competitive Supply


2-star & below


Ashfield 72 87 159 3.0%

Blacktown 21 120 122 263 5.0%

Campbelltown 72 118 24 80 116 410 7.8%

Homebush 156 144 317 212 829 15.8%

Liverpool 140 51 258 104 553 10.5%

Parramatta 94 455 554 202 1,305 24.8%

Other 363 480 363 533 0 0 1,739 33.1%

Total 824 974 1,220 1,588 652 0 5,258 100.0%



According to Tourism Research Australia, the majority of visitor nights spent in West Sydney are spent in the home of friend or relative with this accommodation accounting for 56% of the total visitor nights spent in the region in 2013. This compares to just 30.9% in a rented house or apartment, 8.8% in hotels, motels, guesthouses and serviced apartments (HMGSA), 1.3% in camping/caravan and 0.1% in a backpackers/hostel.

West Sydney Accommodation Used 2005 to 2013


The rented house / apartment market has recorded the strongest growth over the past eight years averaging 12.8% per annum. Growth has been strongest in the domestic segment, increasing on average by 25.8% per annum. This compares to growth of 12.2% per annum in the international segment. Total visitor nights spent in rented accommodation has more than doubled over the past eight years which indicates a high degree of seepage from traditional accommodation types. This compares to growth of 8.6% per annum for home of a friend

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or relative, 6.5% for the HMGSA segment and 13.3% per annum for camping /caravan although we note this still represents only a very small proportion of the total market.


Data pertaining to the historical demand profile in the paid accommodation segment (includes hotels, motels, guesthouses and serviced apartments, HMGSA) has been sourced from Tourism Research Australia’s National and International Visitor surveys and a profile provided for West Sydney for the eight years between 2005 and 2013 (latest full year data available).

Visitor nights in West Sydney’s HMGSA segment recorded the third highest year of the eight-year period in 2013 with growth averaging 6.5% per annum over the past eight years. A total of 1.1 million visitor nights spent were spent in West Sydney in 2013 which represents 32.0% of Sydney Metropolitan’s total visitor nights in HMGSA. The proportion of nights spent in West Sydney has been at a record high over the past two years and having averaged 29.5% over the past eight years. This indicates that the accommodation demand in the local area is increasing at a level above the broader Sydney Metropolitan which is in-keeping with the strong economic growth that is being achieved in parts of Greater Western Sydney.

The domestic segment dominates accounting for 71.0% of all visitor nights spent in paid accommodation in 2013 and having averaged 69.4% over the past eight years. Domestic visitor nights in HMGSA recorded the highest year ever in 2013 at 0.8 million and a level which was above the long term average of 0.6 million. Domestic visitor are predominantly sourced from regional NSW (43.1%) and Victoria (28.5%) and with both having recorded double digit growth over the past eight years.

Asia is the largest source region accounting for around 14.9% of total visitor nights in 2013. Korea and Hong Kong are the dominant source markets. Europe accounts for a further 5.7% of total visitor nights in HMGSA, dominated by the United Kingdom at 3.6% of the total. This compares to 3.6% from North America and 3.6% from New Zealand.

West Sydney Visitor Night Demand Profile by Origin of Visitor


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Analysis of the purpose of visit highlights that growth is being underpinned by the domestic leisure and business segments with growth in visitor nights in HMGSA averaging 7.6% and 7.1% per annum respectively over the eight year period. The leisure segment dominates accounting for 44.6% of visitor nights in 2013 which is above the eight-year average of 39.7%. This compares to 36.1% for the business segment in 2013 which is slightly below the eight year average of 39.4%. It is worth noting that visitor nights do not equate to occupied room nights given the room density factor and the proportion of corporate room nights is therefore more likely to be in the order 60-70% as corporate travellers typically attract lower room densities.

The other (education and employment) and MICE segments are also quite well represented accounting for a further 12.3% and 7.0% of nights respectively in 2013. There is approximately 210,414sqm of hotel meeting space in West Sydney which represents around 62.5% of the hotel meeting space in Sydney Metropolitan however the region only attracted 30% of MICE visitor nights in 2013 and has averaged around 27.4% over the past eight years. This indicates a fairly low utilisation of hotel conference space in the West Sydney region. Major facilities include Novotel Sydney Rooty Hill, The Chifley Penrith Panthers, Novotel Sydney Parramatta, Mercure Liverpool, Rydges Parramatta and Ibis/Pullman Sydney Olympic Park.

West Sydney Visitor Night Demand Profile by Purpose of Visit




Visitor nights in West Sydney’s upscale (4-star & above) HMGSA segment recorded the second highest year of the eight-year period in 2013 with growth having averaged 7.5% per annum over the past eight years.

The domestic segment dominates accounting for 80.2% of all visitor nights spent in paid accommodation in 2013 and having averaged 72.7% over the past eight years. Domestic visitor nights in HMGSA are currently at the highest level ever recorded at 0.23 million and a level which was above the long term average of 0.18 million. Domestic visitors are predominantly sourced from Victoria and to a lesser extent regional NSW and Queensland.

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Asia is the largest source region accounting for around 9.9% of total visitor nights in 2013. Korea and China are the dominant source markets at 4.2% and 3.4% of visitor nights respectively in 2013. Europe accounts for a further 2.6% of total visitor nights in HMGSA but with very low appeal to the United Kingdom source market at 0.2% of the total. This compares to 1.0% from North America and 3.2% from New Zealand.

West Sydney – Upscale Segment Visitor Night Demand Profile by Origin of Visitor


The business segment dominates accounting for 50.8% of all visitor nights spent in paid accommodation in 2013 and having averaged 49.0% over the past eight years. This compares to 37.2% in the leisure segment which is below the eight-year average of 39.0%. The MICE segment is moderately represented accounting for a further 6.1% of nights in 2013 and having averaged 5.0% over the past eight years.

West Sydney – Upscale Segment Visitor Night Demand Profile by Purpose of Visit


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Visitor nights in West Sydney’s standard (3-star and above) HMGSA segment recorded the third highest year of the eight-year period in 2013 but with growth averaging 8.7% per annum over the past eight years.

The domestic segment dominates accounting for 83.8% of all visitor nights spent in paid accommodation in 2013 and having averaged 78.4% over the past eight years. Domestic visitor nights in HMGSA were at the highest level ever recorded in 2013 at 0.48 million and a level which was above the long term average of 0.4 million. Domestic visitors are predominantly sourced from regional NSW.

Asia is the largest source region accounting for around 7.2% of total visitor nights in 2013. Korea and China are the dominant source markets at 1.8% and 1.5% of visitor nights respectively in 2013. Europe accounts for a further 2.6% of total visitor nights in HMGSA. This compares to 2.5% from North America and 3.6% from New Zealand.

West Sydney – Standard Segment Visitor Night Demand Profile by Origin of Visitor


The leisure segment dominates accounting for 54.2% of all visitor nights spent in paid accommodation in 2013 and having averaged 44.7% over the past eight years. This compares to 31.4% in the business segment which is below the eight-year average of 33.8%. The MICE segment is moderately represented accounting for a further 9.6% of nights in 2013 and having averaged 10.7% over the past eight years.

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West Sydney – Standard Segment Visitor Night Demand Profile by Purpose of Visit




Over the ten years to 2012, West Sydney’s accommodation market has recorded strong RevPAR growth increasing on average by 5.5% per annum which is above the level recorded across the broader metropolitan area. Growth has been underpinned by gains in both occupancy and ADR.

West Sydney Trading Performance 1998 to YTD June 2013


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Hotel room supply has increased, growing on average by 4.4% per annum. Changes to the statistical boundaries in 2012 resulted in an increase in the supply base. Demand has increased at a higher rate, increasing on average by 7.7% per annum. Accordingly occupancy levels have increased, up from 53.9% in 2002 to 69.7% in 2012. Occupancy levels are currently at the highest level ever recorded. Against this backdrop room rates have also increased recording growth of 2.8% per annum, up from $97 in 2002 to $128 in 2012.

West Sydney - Historical Trading Performance 2002 to 2012

RNA

(000’s) %

Change RNO

(000’s) %

Change Occ %

% Change

ADR A$

% Change

RevPAR A$

% Change

Actual 2002 1,147 -2.2% 618 7.5% 53.9% 9.9% $97 -5.5% $52 3.8%

2003 1,137 -0.9% 705 14.0% 62.0% 15.0% $97 -0.1% $60 15.0%

2004 1,154 1.5% 752 6.7% 65.2% 5.1% $97 0.2% $63 5.4%

2005 1,181 2.4% 778 3.5% 65.9% 1.1% $99 2.5% $66 3.7%

2006 1,236 4.7% 813 4.5% 65.8% -0.2% $102 2.8% $67 2.6%

2007 1,269 2.7% 842 3.6% 66.4% 0.9% $113 10.4% $75 11.4%

2008 1,302 2.6% 863 2.5% 66.3% -0.1% $117 3.9% $78 3.8%

2009 1,345 3.3% 840 -2.6% 62.5% -5.7% $113 -3.2% $71 -8.7%

2010 1,379 2.5% 910 8.2% 66.0% 5.6% $118 4.3% $78 10.1%

2011 1,374 -0.3% 953 4.8% 69.3% 5.1% $123 4.2% $85 9.5%

2012 1,764 28.3% 1,229 28.9% 69.7% 0.4% $127 3.4% $89 3.9%

CAAG 2002 - 2012 4.4% 7.1% 2.6% 2.8% 5.5%

Source ABS, JLL

The market has continued to grow over the six months to June 2013 with RevPAR increasing 6.9% year-on-year and in spite of occupancy levels recording a slight decline. Offsetting this was strong growth in ADR, increasing 8.1% to $135.

The average length of stay in West Sydney has averaged 2.3 nights over the 18 months to June 2013, ranging between 2.4 and 2.0 nights.


A comparison of trading performance between Sydney Tourism Region, Sydney City, Sydney Metropolitan and West Sydney is provided in the charts following. This shows that trading performance between the four markets has largely tracked in line over the five years to 2012.

West Sydney’s accommodation market trades at a discount to Sydney Metropolitan. Comparison of the near term historical trading performance (2008 to 2012) highlights how West Sydney’s RevPAR has traded on average at an index of 0.84 compared to Sydney Metropolitan. The RevPAR index peaked in in 2009 at 0.85 but has reduced over the next three years to average 0.82 in 2012.

Occupancy levels in West Sydney are slightly lower than in Sydney Metropolitan with the index averaging 0.96 over the past five years. The gap narrowed in 2012 to 0.98 which highlights the growth in demand that has been evident in recent times.

\


Average room rates for West Sydney also trade at a discount to Sydney Metropolitan with an average index of 0.87 over the five years to 2012. The index has remained fairly constant over the four years to 2011 but declined markedly in 2012 to 0.84 when demand conditions across the city softened.

Sydney Accommodation Market Performance Comparison to West Sydney

Source: ABS, JLL


To provide an assessment of historical trading performance, we have purchased a five year trend report from STR Global for a basket of properties in West Sydney as shown in the following table. The basket of 26 properties comprises 3,640 rooms or approximately 70% in West Sydney and includes the majority of branded competitive supply as shown in the following map.

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Sydney Tourism Region Sydney City Sydney Metropolitan West Sydney

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SYDNEY WEST

1 Travelodge Blacktown

2 Comfort Inn & Suites Burwood

3 Ibis Budget Campbelltown

4 Rydges Campbelltown Sydney

5 Quest Campbelltown 6 Ibis Budget Sydney Olympic

Park

7 Ibis Sydney Olympic Park 8 Pullman @ Sydney Olympic

Park

9 Novotel Sydney Olympic Park 10 Quest @ Sydney Olympic

Park

11 Ibis Budget Casula Liverpool

12 Comfort Inn Hunts Liverpool 13 Sunnybrook Hotel &

Convention Center

14 Holiday Inn Parramatta

15 Mantra Parramatta 16 Waldorf Apartment Hotel

Parramatta 17 Meriton Serviced Apartments

Parramatta

18 Novotel Sydney Parramatta

19 Parkroyal Parramatta

20 Mercure Sydney Parramatta

21 Quality Inn Penrith

22 The Chifley Penrith Panthers

23 Novotel Sydney Rooty Hill

24 Rydges Parramatta Sydney

25 Ibis Budget Enfield

26 Ibis Budget Wentworthville

\


Over the five years to 2013, West Sydney has recorded RevPAR growth increasing on average by 3.4% per annum and with only two years of decline in 2009 and 2012. RevPAR was at the highest level ever recorded in 2013 at $107. Growth has accelerated over the first six months of 2014, up 16.0% year-on-year.

Occupancy levels have recorded marginal growth over the five year period, increasing at an average rate of 0.9% per annum. Occupancy levels were at their highest level ever achieved in 2013 at 72.8% and have continued to grow strongly during the first six months of 2014 to average 75.6% (+8.2%). ADR growth over the five year period has been modest, increasing on average by 1.9% per annum. Room rates were also at the highest level ever recorded in 2013 at $148. Growth has continued during the first six months of 2013, increasing 7.1% year-on-year to $152.

West Sydney Recent Performance 2008 to YTD June 2014

Source: JLL


Nominal RevPAR (moving annual average) in West Sydney is currently upwards having troughed in September 2009 at $82 and again in April 2012 at $99. RevPAR over the year to June 2014 at $115 is 39.9% higher than the 2009 trough level. Occupancy levels averaged 75.1% over the year to June 2014 to be at the highest level ever recorded whereas room rates averaged $151. Occupancy levels are 16.7% above the August 2009-trough and room rates 18.7% above the November-2009-trough. This highlights how room rates have lagged the occupancy cycle by around only three months in West Sydney during the most recent downturn and highlights the improved responsiveness of the accommodation market to market conditions.

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West Sydney (Moving Annual Average)


Source: JLL

5.4.4 Seasonality

Analysis of the monthly occupancy levels highlights the high degree of seasonality which exists within West Sydney’s accommodation market with monthly occupancy levels ranging between 60% and 80% over the past year. It also highlights how West Sydney was less impacted by the 2009 downturn than other metropolitan sub-regions given the corporate demand base. Occupancy levels through the first six months of 2014 have reached a new high each month except for in March.

West Sydney Monthly Occupancy Trends 2009 to June 2014

Source: JLL

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Higher annual occupancy levels over the past four years are being driven by more months throughout the year achieving occupancy levels above 75% which indicates that demand has recorded a step-change. Occupancy levels in West Sydney were above 75% for three months in 2011, one month in 2012 and six months in 2013. This reflects the current strength of Sydney’s corporate and leisure segments. Against this backdrop, ADR growth can be achieved.

Analysis of the daily occupancy levels over the past three years shows how occupancy levels in West Sydney typically peak on a Wednesday and Saturday when demand from the corporate and leisure segments are highest. Daily occupancy levels for the year ending June 2014 are on average three to six percentage points higher each day with the most pronounced gains evident on a Tuesday, Wednesday and Saturday.


Jul 12 - Jun 13 54.0% 67.2% 76.3% 77.8% 74.3% 67.9% 77.1%

Jul 13 - Jun 14 58.8% 72.2% 82.0% 83.4% 77.2% 72.6% 83.0%

West SydneyDaily Occupancy Trends

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6 North Sydney Hotel and Tourism Market

North Sydney comprises the local government areas of Lane Cove, Manly, North Sydney, Ryde, Hornsby and Willoughby. Local government area inclusions have been kept consistent with previous Studies to ensure a consistent historical data series is available.

Statistics pertaining to the supply, demand and performance of North Sydney’s accommodation market have been sourced from the Australian Bureau of Statistics’ (ABS) Survey of Tourist Accommodation (STA), Tourism Research Australia’s National and International Visitor Surveys and STR Global as follows:





Our analysis (various industry sources) of North Sydney’s accommodation market has identified 53 accommodation establishments with 4,253 rooms (hotels, motels, guesthouses and serviced apartments) including both AAA rated and self-rated hotels. This represents 27.9% of the total accommodation supply in Sydney Metropolitan area.

North Sydney Accommodation Supply By Segment and Product Type

Source: ABS, JLL

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Hotels are the most common accommodation type in North Sydney (2,265 rooms or 53.3% of total room supply) with a fairly diverse spread across all grades. There is also a fairly high proportion of apartment rooms (1,242 rooms or 24.8%) when compared to Sydney Metropolitan and a lower proportion of motel rooms (503 rooms or 11.8%). These two property types are also quite distinct with motels graded 3.5-star and below and apartments predominantly graded 3.5-star and above. Comparison to Sydney Metropolitan highlights that North Sydney has a considerably higher proportion of 4-star rooms with upscale product accounting for 49.6% of the total room supply. This compares to 36.1% in Sydney Metropolitan. This is offset by a lower proportion of budget rooms.

North Sydney’s Competitive Supply


2-star 3-star 3.5-star 4-star 4.5-star 5-star Total Motel 26 279 198 503

Hotel 30 134 500 1456 145 2,265

Apartment 33 65 293 652 199 1,242

Guesthouse 99 144 243

Total 89 577 1,135 2,108 344 - 4,253

Percentage 2.1% 13.6% 26.7% 49.6% 8.1% 0.0% 100.0%


Hotels and serviced apartments in North Sydney have the largest average room inventory at 107 and 89 rooms respectively. This compares to 39 rooms for motels and 32 rooms for guesthouses.


The majority of accommodation rooms are located in Ryde (1,106 rooms or 26.0%), North Sydney (682 rooms or 16.0%) and Manly (653 rooms or 15.4%) and with considerably smaller accommodation markets in Artarmon, Baulkham Hills (Norwest), Chatswood and St Leonards. Ryde and Manly have the most diverse accommodation offering with a selection of rooms graded between 3-star and 4.5-star, whereas accommodation in North Sydney is predominantly graded 4-star.

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North Sydney’s Competitive Supply


2-star & below


Artarmon 106 106 2.5%

Baulkham Hills 238 238 5.6%

Chatswood 33 30 282 53 398 9.4%

Manly 114 65 394 80 653 15.4%

North Sydney 28 194 460 682 16.0%

Ryde 24 160 683 239 1,106 26.0%

St Leonards 29 100 129 3.0%

Other 56 246 434 180 25 - 941 22.1%

Total 89 577 1,135 2,108 344 - 4,253 100.0%



According to Tourism Research Australia, the majority of visitor nights spent in North Sydney are spent in the home of friend or relative with this accommodation accounting for 48.9% of the total visitor nights spent in the region in 2013. This compares to 36.6% in a rented house or apartment, 8.2% in hotels, motels, guesthouses and serviced apartments (HMGSA) and 1.0% each for camping/caravan and backpackers/hostel.

North Sydney Accommodation Used 2005 to 2013


The rented house / apartment market has recorded the strongest growth over the past eight years averaging 7.0% per annum. Growth has been strongest in the international segment, increasing on average by 7.0% per annum. This compares to growth of 5.9% per annum in the international segment. Total visitor nights spent in rented accommodation has almost doubled over the past eight years which indicates a high degree of seepage

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from traditional accommodation types. This compares to growth of 6.46% per annum for home of a friend or relative and 3.3% for the HMGSA segment. We note the number of visitor nights spent in a backpacker/hostel or camping/caravan have declined over the eight year period.


Data pertaining to the historical demand profile in the paid accommodation segment (includes hotels, motels, guesthouses and serviced apartments, HMGSA) has been sourced from Tourism Research Australia’s National and International Visitor surveys and a profile provided for North Sydney for the eight years between 2005 and 2013 (latest full year data available).

Visitor nights in North Sydney’s HMGSA segment recorded the third highest year of the eight-year period in 2013 with growth averaging 3.2% per annum over the past eight years. A total of 1.0 million visitor nights spent were spent in North Sydney in 2013 which represents 29.0% of Sydney Metropolitan’s total visitor nights in HMGSA. The proportion of nights spent in North Sydney peaked in 2011 at 1.2 million nights but declined in 2012 in line with the Sydney City accommodation market. Visitor night demand in HMGSA has grown over the past year and remains in line with the long term average.

The domestic segment dominates accounting for 73.0% of all visitor nights spent in paid accommodation in 2013 and having averaged 67.5% over the past eight years. Domestic visitor nights in HMGSA recorded the third highest year in 2013 at 0.6 million and a level which was above the long term average of 0.5 million. Domestic visitor are predominantly sourced from regional NSW (22.5%) and Queensland (21.4%) and with both having recorded growth over the past eight years.

Asia is the largest source region accounting for around 11.6% of total visitor nights in 2013. China and Japan are the dominant source markets. Europe accounts for a further 6.5% of total visitor nights in HMGSA, dominated by the United Kingdom at 4.7% of the total. This compares to 5.3% from North America and 2.8% from New Zealand.

North Sydney Visitor Night Demand Profile by Origin of Visitor


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Analysis of the purpose of visit highlights that growth is being underpinned by the domestic business and leisure segments with growth in visitor nights in HMGSA averaging 8.1% and 4.9% per annum respectively over the eight year period. The leisure segment dominates overall accounting for 43.0% of visitor nights in 2013 which is above the eight-year average of 41.5%. This compares to 37.5% for the business segment in 2013 which is slightly above the eight year average of 35.4%. It is worth noting that visitor nights do not equate to occupied room nights given the room density factor and the proportion of corporate room nights is therefore more likely to be in the order 60%.

The other (education and employment) and MICE segments are also quite well represented accounting for a further 12.3% and 7.2% of nights respectively in 2013. There is approximately 70,170sqm of hotel meeting space in North Sydney which represents around 20.8% of the hotel meeting space in Sydney Metropolitan however the region attracted 28.3% of MICE visitor nights in 2013 and has averaged around 35% over the past eight years. This indicates a fairly high utilisation of hotel conference space in the North Sydney region. Major conference hotels include MGSM Executive Hotel & Conference Centre, Crowne Plaza Norwest, Rydges North Sydney, Q Station, Novotel Sydney Manly Pacific and Sebel Manly Beach.

North Sydney Visitor Night Demand Profile by Purpose of Visit




Visitor nights in North Sydney’s upscale (4-star & above) HMGSA segment recorded the second highest year of the eight-year period in 2013 with growth having averaged 4.4% per annum over the past eight years.

The domestic segment dominates accounting for 80.2% of all visitor nights spent in paid accommodation in 2013 and having averaged 68.5% over the past eight years. Domestic visitor nights in upscale HMGSA are currently at the highest level ever recorded at 0.25 million and a level which was above the long term average of 0.17 million. Domestic visitors are predominantly sourced from Queensland and to a lesser extent Victoria and regional NSW.

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Europe is the largest source region accounting for around 7.9% of total visitor nights in 2013. United Kingdom is the dominant source market at 5.2% of visitor nights in 2013. Asia accounts for a further 5.3% of total visitor nights in upscale HMGSA. This compares to 3.8% from North America and 2.2% from New Zealand.

North Sydney – Upscale Segment Visitor Night Demand Profile by Origin of Visitor


The business segment dominates accounting for 53.2% of all visitor nights spent in paid accommodation in 2013 and having averaged 50.0% over the past eight years. This compares to 34.9% in the leisure segment which is below the eight-year average of 37.9%. The MICE segment is moderately represented accounting for a further 2.4% of nights in 2013 and having averaged 5.0% over the past eight years.

West Sydney – Upscale Segment Visitor Night Demand Profile by Purpose of Visit


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Visitor nights in North Sydney’s standard (3-star and above) HMGSA segment recorded the third highest year of the eight-year period in 2013 but with growth averaging 5.2% per annum over the past eight years.

The domestic segment dominates accounting for 84.8% of all visitor nights spent in standard HMGSA in 2013 and having averaged 79.2% over the past eight years. Domestic visitor nights in standard HMGSA totalled 0.29 million in 2013 and a level which was above the long term average of 0.25 million. Domestic visitors are predominantly sourced from regional NSW.

Asia is the largest source region accounting for around 6.5% of total visitor nights in 2013. Japan and Korea are the dominant source markets at 1.3% and 1.1% of visitor nights respectively in 2013. Europe accounts for a further 1.6% of total visitor nights in HMGSA. This compares to 3.2% from North America and 3.8% from New Zealand.

North Sydney – Standard Segment Visitor Night Demand Profile by Origin of Visitor


The leisure segment dominates accounting for 41.0% of all visitor nights spent in paid accommodation in 2013 and having averaged 43.1% over the past eight years. This compares to 28.8% in the business segment which is in line with the eight-year average of 28.1%. The MICE segment is well-represented accounting for a further 14.7% of nights in 2013 and having averaged 19.3% over the past eight years.

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North Sydney – Standard Segment





Over the ten years to 2012, North Sydney’s accommodation market has recorded slight RevPAR increasing on average by 2.5% per annum which represents a considerably lower rate than that which has been achieved across the broader metropolitan area. Growth has been underpinned by gains in both occupancy and ADR.

North Sydney Trading Performance 1998 to YTD June 2013


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Hotel room supply has increased at a high rate, growing on average by 5.0% per annum. Changes to the statistical boundaries in 2012 resulted in an increase in the supply base. Demand has increased at a higher rate, increasing on average by 6.2% per annum. Accordingly occupancy levels have increased, up from 64.6% in 2002 to 72.7% in 2012. Occupancy levels are currently below the 2010 and 2011 highs of 75%. Against this backdrop room rates have also increased, recording growth of 1.2% per annum, up from $138 in 2002 to $157 in 2012.

North Sydney - Historical Trading Performance 2002 to 2012

RNA

(000’s) %

Change RNO

(000’s) %

Change Occ %

% Change

ADR A$

% Change

RevPAR A$

% Change

Actual 2002 809 2.1% 523 5.8% 64.6% 3.6% $138 -3.6% $89 -0.2%

2003 845 4.5% 558 6.7% 66.0% 2.1% $140 1.8% $93 3.9%

2004 892 5.6% 602 8.0% 67.5% 2.2% $136 -3.2% $92 -1.1%

2005 946 6.0% 659 9.5% 69.7% 3.3% $130 -4.2% $91 -1.0%

2006 948 0.2% 658 -0.1% 69.5% -0.3% $139 6.6% $96 6.3%

2007 974 2.8% 695 5.5% 71.3% 2.6% $148 7.0% $106 9.9%

2008 971 -0.4% 666 -4.1% 68.6% -3.7% $152 2.7% $105 -1.1%

2009 931 -4.1% 627 -5.9% 67.4% -1.9% $145 -4.7% $98 -6.5%

2010 910 -2.2% 687 9.5% 75.4% 12.0% $149 2.6% $112 15.0%

2011 939 3.2% 712 3.6% 75.8% 0.4% $157 5.1% $119 5.5%

2012 1,312 39.6% 953 34.0% 72.7% -4.1% $157 0.3% $114 -3.8%

CAAG 2002 - 2012 5.0% 6.2% 1.2% 1.3% 2.5%

Source ABS, JLL

The market has continued to grow over the six months to June 2013 with RevPAR increasing 3.7% year-on-year, primarily driven by increases in ADR, up 2.8% year-on-year to $161. Occupancy levels have also increased marginally to average 72.5% over the six month period.

North Sydney’s accommodation market typically achieves an average length of stay of 2.4 nights with little variation evident between quarters over the past 18 months.


A comparison of trading performance between Sydney Tourism Region, Sydney City, Sydney Metropolitan and North Sydney is provided in the charts following. This shows that trading performance between the four markets has largely tracked in line over the five years to 2012.

North Sydney’s accommodation market trades at a premium to Sydney Metropolitan. Comparison of the near term historical trading performance (2008 to 2012) highlights how North Sydney’s RevPAR has traded on average at an index of 1.15 compared to Sydney Metropolitan. The RevPAR index peaked in 2010 at 1.21 but has reduced over the next three years to average 1.05 in 2012.

Occupancy levels in North Sydney are slightly higher than in Sydney Metropolitan with the index averaging 1.04 over the past five years. The gap peaked in 2010 at 1.08 before declining over the next two years to 1.02 in 2012

\


Average room rates for North Sydney also trade at a premium to Sydney Metropolitan with an average index of 1.10 over the five years to 2012. The index remained fairly constant over the four years to 2011 but declined markedly in 2012 to 1.03 when demand conditions across the city softened.

Sydney Accommodation Market Performance Comparison to North Sydney

Source: ABS, JLL


To provide an assessment of historical trading performance, we have purchased a five year trend report from STR Global for a basket of properties in North Sydney as shown in the following table. The basket of 24 properties comprises 2,662 rooms or approximately two thirds of the rooms in North Sydney and includes the majority of branded competitive supply as shown in the following map.

60%

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Sydney Tourism Region Sydney City Sydney Metropolitan North Sydney

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SYDNEY NORTH

1 Adina Apartment Hotel Norwest

2 Crowne Plaza Norwest

3 Travelodge Manly Warringah

4 Quest Castle Hill

5 Mantra Chatswood

6 Sebel Residence Chatswood

7 Park Regis Concierge Apartments

8 Comfort Inn North Shore 9 Q Station Sydney Harbour National

Park Hotel

10 Novotel Sydney Manly Pacific

11 Quest Grande Esplanade Manly

12 Sebel Manly Beach

13 Quality Hotel Sands

14 Rydges North Sydney

15 Vibe Hotel North Sydney

16 Travelodge Macquarie North Ryde 17 MGSM Executive Hotel &

Conference Center

18 Stamford North Ryde

19 Quest North Ryde 20 Medina Serviced Apartments North

Ryde

21 Courtyard Sydney North Ryde

22 Hotel Urban St Leonards

23 Ibis Sydney Thornleigh

24 Comfort Inn West Ryde

\


Over the five years to 2013, North Sydney has recorded RevPAR growth increasing on average by 2.8% per annum and with only two years of decline in 2009 and 2012. RevPAR was at the highest level ever recorded in 2013 at $131. Growth has moderated over the first six months of 2014, up 2.8% year-on-year.

Occupancy levels have recorded growth over the five year period, increasing at an average rate of 1.5% per annum. Occupancy levels were at their highest level ever achieved in 2013 at 76.8% and have recorded a slight uptick during the first six months of 2014 to average 75.2% (+0.9%). ADR growth over the five year period has been modest, increasing on average by 1.3% per annum. Room rates were also at the highest level ever recorded in 2013 at $171. Growth has continued during the first six months of 2013, increasing 1.8% year-on-year to $172.

North Sydney Recent Performance 2008 to YTD June 2014

Source: JLL


Nominal RevPAR (moving annual average) in North Sydney is currently upwards having troughed in September 2009 at $104 and again in March 2013 at $124 highlighting the w-shaped recovery in Sydney’s accommodation market. RevPAR over the year to June 2014 at $133 is 27.6% higher than the 2009 trough level. Occupancy levels averaged 77.1% over the year to June 2014 with a slight moderation evident over the past three months, whereas room rates averaged $172 and also with a slight moderation over the past month. Occupancy levels in North Sydney are 15.7% above the August 2009-trough and room rates 12.2% above the January 2010 trough. This highlights how room rates have lagged the occupancy cycle by around five months in North Sydney during the most recent downturn and highlights the improved responsiveness of the accommodation market.

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North Sydney (Moving Annual Average)


Source: JLL


Analysis of the monthly occupancy levels highlights the moderate degree of seasonality which exists in North Sydney’s accommodation market with monthly occupancy levels ranging between 70% and 80% over the past year. It also highlights the extent of decline and recovery in 2009 and 2010 as well as the softer trading which was evident across the city in 2012. Occupancy levels through the first six months of 2014 have reached a new high in two months being January and June.

Higher annual occupancy levels over the past four years are being driven by more months throughout the year achieving occupancy levels above 75%. Occupancy levels in North Sydney were above 75% for five months in 2011, four months in 2012 and seven months in 2013. This reflects the current strength of Sydney’s corporate and leisure segments. Against this backdrop, ADR growth can be achieved.

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North Sydney


Source: JLL

Analysis of the daily occupancy levels over the past three years shows how occupancy levels in North Sydney typically peak on a Tuesday and Wednesday reflecting the corporate orientation of the accommodation market, the exception being Manly. Daily occupancy levels for the year ending June 2014 are on average two to four percentage points higher each day with the most pronounced gains evident on a Wednesday, Friday and Saturday.

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Jul 12 - Jun 13 58.5% 73.7% 81.9% 82.0% 76.7% 67.4% 79.0%

Jul 13 - Jun 14 60.2% 76.1% 85.1% 85.7% 79.0% 70.8% 83.0%

North SydneyDaily Occupancy Trends

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7 South Sydney Hotel and Tourism Market

South Sydney comprises the local government areas of Bankstown, Rockdale, Sutherland and Botany. Local government area inclusions have been kept consistent with previous Studies to ensure a consistent historical data series is available.

Statistics pertaining to the supply, demand and performance of South Sydney’s accommodation market have been sourced from the Australian Bureau of Statistics’ (ABS) Survey of Tourist Accommodation (STA), Tourism Research Australia’s National and International Visitor Surveys and STR Global as follows:





Our analysis (various industry sources) of South Sydney’s accommodation market has identified 29 accommodation establishments with 2,906 rooms (hotels, motels, guesthouses and serviced apartments) including both AAA rated and self-rated hotels. This represents 19.1% of the total accommodation supply in Sydney Metropolitan area.

South Sydney Accommodation Supply By Segment and Product Type

Source: STR Global Census Database JLL

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Hotels are the most common accommodation type in South Sydney (2,180 rooms or 75.0% of total room supply). There are considerably fewer motel (457 rooms or 15.7%) and apartment rooms (269 rooms or 9.3%) when compared to Sydney Metropolitan. Hotels include a mix of grades whereas serviced apartments are predominantly upscale and motels midscale or below. The 5-star rooms are one self-rated hotel located within the Sydney Airport precinct and for which the standard and services are arguably more akin to an upscale product standard.

South Sydney Competitive Supply



Hotel 219 200 583 864 314 2,180

Apartment 35 143 91 269

Guesthouse

Total 345 326 240 726 955 314 2,906

Percentage 11.9% 11.2% 8.3% 25.0% 32.9% 10.8% 100.0%


Hotels in South Sydney have the largest average room inventory at 198 rooms. This represents the largest room inventory for the hotel segment in any subregion. This compares to 67 rooms for serviced apartments and 32 rooms for motels.


The majority of accommodation rooms are located in the Airport Precinct (1,734 rooms or 59.7%) and Bankstown (334 rooms or 11.5%) and with considerably smaller accommodation markets in Bass Hill and Cronulla. The Airport precinct has a very diverse accommodation offering with rooms of all grades whereas rooms in Bankstown and Cronulla are predominantly graded 4-star and Bass Hill has a high proportion of budget accommodation.

South Sydney Competitive Supply


2-star & below


Airport 199 91 200 271 659 314 1,734 59.7%

Bankstown 19 315 334 11.5%

Bass Hill 60 38 98 3.4%

Cronulla 25 140 165 5.7%

Other 86 153 40 296 575 19.8%

Total 345 326 240 726 955 314 2,906 100.0%


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According to Tourism Research Australia, the majority of visitor nights spent in South Sydney are spent in the home of friend or relative with this accommodation accounting for 58.8% of the total visitor nights spent in the region in 2013. This compares to 29.1% in a rented house or apartment, 7.5% in hotels, motels, guesthouses and serviced apartments (HMGSA) and 1.3% for camping/caravan.

South Sydney Accommodation Used 2005 to 2013


The rented house / apartment market has recorded the strongest growth over the past eight years averaging 14.8% per annum. Growth has been strongest in the international segment, increasing on average by 15.1% per annum. This compares to growth of 7.2% per annum in the domestic segment. Total visitor nights spent in rented accommodation has tripled over the past eight years which indicates a high degree of seepage from traditional accommodation types. This compares to growth of 5.9% per annum for home of a friend or relative and 3.6% for the HMGSA segment.


Data pertaining to the historical demand profile in the paid accommodation segment (includes hotels, motels, guesthouses and serviced apartments, HMGSA) has been sourced from Tourism Research Australia’s National and International Visitor surveys and a profile provided for South Sydney for the eight years between 2005 and 2013 (latest full year data available).

Visitor nights in South Sydney’s HMGSA segment recorded the fourth lowest year of the eight-year period in 2013 with growth averaging 3.6% per annum over the past eight years. A total of 0.35 million visitor nights spent were spent in South Sydney in 2013 which represents 10.4% of total visitor nights spent in Sydney Metropolitan’s HMGSA. The proportion of nights spent in South Sydney peaked in 2010 at 0.49 million nights but has declined over the past two years albeit still above the long term average of 0.37 million nights.

The domestic segment dominates accounting for 54.5% of all visitor nights spent in paid accommodation in 2013 and having averaged 64.7% over the past eight years. Domestic visitor nights in HMGSA recorded the third lowest year in 2013 at 0.19 million and a level which was above the long term average of 0.23 million. Domestic

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visitor are predominantly sourced from Victoria (32.2%) and Queensland (27.1%) and with both having recorded growth over the past eight years.

Asia is the largest source region accounting for around 14.8% of total visitor nights in 2013. China and Korea are the dominant source markets. Europe accounts for a further 7.4% of total visitor nights in HMGSA. This compares to 9.6% from North America and 8.4% from New Zealand.

South Sydney Visitor Night Demand Profile by Origin of Visitor


Analysis of the purpose of visit highlights that growth is being underpinned by the international leisure segment with growth in visitor nights in HMGSA averaging 10.7% per annum respectively over the eight year period. The leisure segment dominates overall accounting for 49.7% of visitor nights in 2013, above the eight-year average of 43.2%. This compares to 27.9% for the business segment in 2013 which is below the eight year average of 31.9%. It is worth noting that visitor nights do not equate to occupied room nights given the room density factor and the proportion of corporate room nights is therefore more likely to be in the order 50%.

The other (education and employment) and MICE segments are also quite well represented accounting for a further 11.2% and 11.1% of nights respectively in 2013. There is approximately 32,954sqm of hotel meeting space in South Sydney which represents around 9.8% of the hotel meeting space in Sydney Metropolitan however the region attracted 15.6% of MICE visitor nights in 2013 and has averaged around 15% over the past eight years. This indicates a fairly high utilisation of hotel conference space in the South Sydney region. Major conference hotels include Novotel Sydney Brighton Beach, Mercure Sydney International Airport, Rydges Cronulla Sydney, Rydges Bankstown Sydney and Rydges Sydney Airport.

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South Sydney





Visitor nights in South Sydney’s upscale (4-star & above) HMGSA segment recorded the fifth lowest year of the eight-year period in 2013 with growth having averaged 2.1% per annum over the past eight years.

The domestic segment dominates accounting for 55.3% of all visitor nights spent in upscale HMGSA in 2013 and having averaged 68.0% over the past eight years. Domestic visitor nights in upscale HMGSA are currently at the fourth lowest level ever recorded at 0.06 million and a level which was above the long term average of 0.08 million. Domestic visitors are predominantly sourced from Queensland and Victoria.

Asia is the largest source region accounting for around 20.4% of total visitor nights in 2013. China is the dominant source market at 9.5% of visitor nights in 2013. Europe accounts for a further 5.5% of total visitor nights in upscale HMGSA. This compares to 6.1% from North America and 10.0% from New Zealand.

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South Sydney – Upscale Segment



The leisure segment dominates accounting for 56.9% of all visitor nights spent in paid accommodation in 2013 and having averaged 44.6% over the past eight years. This compares to 29.3% in the leisure segment which is below the eight-year average of 40.2%. The MICE segment is not well represented accounting for only 1.6% of nights in 2013 and having averaged 4.2% over the past eight years.

South Sydney – Upscale Segment Visitor Night Demand Profile by Purpose of Visit


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Visitor nights in South Sydney’s standard (3-star and above) HMGSA segment recorded the fourth highest year of the eight-year period in 2013 but with growth averaging 8.6% per annum over the past eight years.

The domestic segment dominates accounting for 61.7% of all visitor nights spent in standard HMGSA in 2013 and having averaged 69.3% over the past eight years. Domestic visitor nights in standard HMGSA totalled 0.13 million in 2013 and a level which was above the long term average of 0.12 million. Domestic visitors are predominantly sourced from Victoria, Queensland and regional NSW.

Asia is the largest source region accounting for around 13.3% of total visitor nights in 2013. China and Japan are the dominant source markets at 3.5% and 2.6% of visitor nights respectively in 2013. Europe accounts for a further 6.9% of total visitor nights in HMGSA. This compares to 9.1% from North America and 8.8% from New Zealand.

South Sydney – Standard Segment Visitor Night Demand Profile by Origin of Visitor


The leisure segment dominates accounting for 48.5% of all visitor nights spent in paid accommodation in 2013 and having averaged 43.7% over the past eight years. This compares to 23.8% in the business segment which is slightly above the eight-year average of 25.0%. The MICE segment is well-represented accounting for a further 16.7% of nights in 2013 and having averaged 14.3% over the past eight years.

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South Sydney – Standard Segment





Over the ten years to 2012, South Sydney’s accommodation market has recorded RevPAR increasing on average by 4.7% per annum which represents a slightly lower rate of growth than for the broader metropolitan area. Growth has been underpinned by gains in both occupancy and ADR.

South Sydney Trading Performance 1998 to YTD June 2013


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Hotel room supply has increased at a high rate, growing on average by 5.8% per annum. Changes to the statistical boundaries in 2012 resulted in an increase in the supply base. Demand has increased at a higher rate, increasing on average by 8.1% per annum. Accordingly occupancy levels have increased, up from 61.1% in 2002 to 75.5% in 2012. Occupancy levels are currently at the highest level ever recorded with high levels of spillover demand from Sydney CBD. The Airport precinct in particular is also undergoing a transformation from industrial manufacturing to corporate and residential centre. Against this backdrop room rates have also increased, recording growth of 2.5% per annum, up from $109 in 2002 to $140 in 2012.

South Sydney - Historical Trading Performance 2002 to 2012

RNA

(000’s) %

Change RNO

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Change Occ %

% Change

ADR A$

% Change

RevPAR A$

% Change

Actual 2002 548 -0.3% 335 -2.9% 61.1% -2.6% $109 1.6% $67 -1.1%

2003 563 2.7% 378 12.7% 67.1% 9.8% $106 -3.1% $71 6.4%

2004 590 4.8% 410 8.5% 69.5% 3.5% $109 3.2% $76 6.9%

2005 590 0.1% 413 0.9% 70.0% 0.8% $113 3.5% $79 4.3%

2006 563 -4.6% 390 -5.7% 69.2% -1.1% $116 2.1% $80 1.0%

2007 562 -0.2% 395 1.4% 70.3% 1.6% $129 11.4% $91 13.2%

2008 579 3.0% 395 0.0% 68.2% -3.0% $136 5.7% $93 2.6%

2009 577 -0.4% 368 -6.9% 63.7% -6.6% $125 -8.2% $80 -14.3%

2010 578 0.2% 389 5.8% 67.3% 5.6% $131 4.7% $88 10.5%

2011 575 -0.5% 401 3.1% 69.7% 3.6% $135 3.0% $94 6.7%

2012 962 67.2% 727 81.3% 75.5% 8.4% $140 4.2% $106 13.0%

CAAG 2002 - 2012 5.8% 8.1% 2.1% 2.5% 4.7%

Source ABS, JLL

The market has continued to grow over the six months to June 2013 with RevPAR increasing 2.8% year-on-year, primarily driven by increases in ADR, up 4.5% year-on-year to $145. This has been offset by a partial moderation in occupancy levels reducing 1.6% to 73.3%.

South Sydney’s accommodation market typically achieves an average length of stay of 1.6 nights, ranging between 1.7 and 1.5 nights over the past 18 months.


A comparison of trading performance between Sydney Tourism Region, Sydney City, Sydney Metropolitan and South Sydney is provided in the charts following. This shows that trading performance between the four markets has largely tracked in line over the five years to 2012.

South Sydney’s accommodation market trades broadly in line with Sydney Metropolitan’s accommodation market. Comparison of the near term historical trading performance (2008 to 2012) highlights how South Sydney’s RevPAR has traded on average at an index of 0.96 compared to Sydney Metropolitan. The RevPAR index peaked in in 2008 at 1.00 before reducing over the next three years. It increased again in 2012 to 0.98.

Occupancy levels in South Sydney are also broadly in line with Sydney Metropolitan with the index averaging 0.99 over the past five years. The gap peaked in 2012 at 1.06 when the South Sydney market recorded demand over and above that which was evident across the broader Metropolitan

\


Average room rates for South Sydney also trade at a slight discount to Sydney Metropolitan with an average index of 0.97 over the five years to 2012 and having slowly declined during this time. The ADR index in 2012 was just 0.92.

Sydney Accommodation Market Performance Comparison to North Sydney

Source: ABS, JLL

7.4.2 Near Term Performance

To provide an assessment of historical trading performance, we have purchased a five year trend report from STR Global for a basket of properties in South Sydney as shown in the following table. The basket of 13 properties comprises 2,395 rooms or approximately 80% of the rooms in South Sydney and includes the majority of branded competitive supply as shown in the following map.

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Sydney Tourism Region Sydney City Sydney Metropolitan South Sydney

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SYDNEY SOUTH

1 Formule 1 Sydney Airport

2 Holiday Inn Sydney Airport

3 Rydges Sydney Airport

4 Ibis Sydney Airport 5 Mercure Sydney International

Airport

6 Stamford Sydney Airport

7 Quest Mascot @ Sydney Airport

8 Travelodge Bankstown

9 Rydges Bankstown Sydney 10 Breakfree Bankstown

International

11 Novotel Sydney Brighton Beach

12 Rydges Cronulla Sydney

13 Quest Cronulla Beach

\


Over the five years to 2013, South Sydney has recorded RevPAR growth increasing on average by 0.9% per annum and with two years of decline in 2009 and 2013. RevPAR peaked in 2012 at $124 but has moderated through 2013 as new supply opened in the Airport precinct. Positive growth has been achieved over the first six months of 2014, up 2.5% year-on-year.

Occupancy levels have recorded little change over the five year period, increasing at an average rate of 0.2% per annum. Occupancy levels peaked in 2012 at 81.1% before moderating through 2013 but have recorded growth during the first six months of 2014 to average 80.2% (+2.4%). Slight ADR growth has been achieved over the five year period, increasing on average by 0.6% per annum. Room rates were at the highest level ever recorded in 2013 at $154. ADR has remained stable during the first six months of 2013, increasing 0.1% year-on-year to $152.

South Sydney Recent Performance 2008 to YTD June 2014

Source: JLL


Nominal RevPAR (moving annual average) in South Sydney is currently upwards having troughed in November 2009 at $102 and again in September 2013 at $122 highlighting the impact of new supply opening in 2013 as well as the w-shaped recovery which was evident in Sydney’s accommodation market.

RevPAR over the year to June 2014 at $124 is 21.5% higher than the 2009 trough level. Occupancy levels averaged 80.8% over the year to June 2014 with a slight moderation evident since peaking in January 2013 at 81.4%, whereas room rates averaged $153 to be at the highest level ever recorded. Occupancy levels in South Sydney are 9.1% above the July 2009-trough and room rates 15.0% above the January 2010 trough. This highlights how room rates have lagged the occupancy cycle by around six months in South Sydney during the most recent downturn and highlights the improved responsiveness of the accommodation market as well as the impact of one new hotel which has opened in the Airport precinct.

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South Sydney (Moving Annual Average) Recent Performance 2009 to YTD June 2014

Source: JLL


Analysis of the monthly occupancy levels highlights the moderate degree of seasonality which exists in South Sydney’s accommodation market with monthly occupancy levels ranging between 70% and 90% over the past year. It also highlights the extent of decline and recovery in 2009 and 2010. Occupancy levels through the first six months of 2014 have reached a new high in just one month being May.

Higher annual occupancy levels over the past four years are being driven by more months throughout the year achieving occupancy levels above 80%. Occupancy levels in South Sydney were above 80% for six months in 2011 and 2012 but only five months in 2013. This reflects the impact of new supply opening of the dominant Sydney Airport precinct. Notwithstanding, against this backdrop, ADR growth can be achieved.

South Sydney Monthly Occupancy Trends 2009 to June 2014

Source: JLL

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Analysis of the daily occupancy levels over the past three years shows how occupancy levels in South Sydney typically peak on a Tuesday and Saturday when demand from the corporate and leisure segments are hgihest. Daily occupancy levels for the year ending June 2014 are on average up to two percentage points higher each day with the most pronounced gains evident on a Friday and Saturday.


Jul 12 - Jun 13 72.6% 76.3% 84.1% 83.6% 83.1% 77.6% 84.7%

Jul 13 - Jun 14 73.0% 76.5% 83.5% 84.0% 83.0% 80.1% 85.8%

South SydneyDaily Occupancy Trends

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8 Outer Sydney Hotel and Tourism Market

The Outer Sydney accommodation market comprises the local government areas of Camden, Hawkesbury, Richmond, Windsor and Wisemans Ferry.

Statistics pertaining to the supply, demand and performance of Outer Sydney’s accommodation market have been sourced from the Australian Bureau of Statistics’ (ABS) Survey of Tourist Accommodation (STA), Tourism Research Australia’s National and International Visitor Surveys and STR Global as follows:



Five year trend reports have been purchased from STR Global for a basket of hotels to provide an indication of trading performance trends over the past year.


Our analysis (various industry sources) of Outer Sydney’s accommodation market has identified 12 accommodation establishments with 458 rooms (hotels, motels, guesthouses and serviced apartments) including both AAA rated and self-rated hotels.

Motels are the most common accommodation type (334 rooms or 72.9% of total room supply). There are considerably fewer hotel (105 rooms or 22.9%) and apartment rooms (19 rooms or 4.1%). Hotel room supply is predominantly in the budget and lower graded categories with only two properties graded 4-star. This includes Sebel Resort & Spa Hawkesbury Valley which is the largest property in the area at 105 rooms. Accommodation spreads are spread across a variety of locations reflective of the disparate nature of the Outer Sydney region although Richmond and Windsor dominate.


According to Tourism Research Australia, the majority of visitor nights spent in Outer Sydney are spent in the home of a friend or relative with this accommodation type accounting for 55.3% of visitor nights in 2013. This compares to 9.0% in camping/caravan, 8.2% in HMGSA and 7.6% in a rented house or apartmnent.

The rented house / apartment market has recorded the strongest growth over the past eight years averaging 27.1% per annum. Total visitor nights spent in rented accommodation has increased six-fold over the past eight years (albeit from a very low vase) which indicates a high degree of seepage from traditional accommodation types. This compares to growth of 4.0% per annum the HMGSA segment.

\


Outer Sydney Accommodation Used 2005 to 2013



Data pertaining to the historical demand profile in the paid accommodation segment (includes hotels, motels, guesthouses and serviced apartments, HMGSA) has been sourced from Tourism Research Australia’s National and International Visitor surveys and a profile provided for Blue Mountains for the eight years between 2005 and 2013 (latest full year data available).

Visitor nights in Outer Sydney’s’ HMGSA segment recorded the fifth highest year of the eight-year period in 2013 with growth averaging 3.8% per annum over the past eight years. A total of 0.11 million visitor nights were spent in Outer Sydney’s HMGSA in 2013.

Outer Sydney Visitor Night Demand Profile by Origin of Visitor


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The domestic segment dominates accounting for 89.9% of all visitor nights spent in paid accommodation in 2013 and having averaged 87.2% over the past eight years. Domestic visitor nights in HMGSA recorded the third highest year in 2013 at 0.1 million and a level which was above the long term average of 0.09 million. Domestic visitor are predominantly sourced from regional NSW and Sydney.

Asia is the largest source region accounting for around 5.1% of total visitor nights in 2013. Hong Kong and China are the dominant source markets. North America accounts for a further 2.2% of total visitor nights in HMGSA, and New Zealand 1.2%.

Analysis of the purpose of visit highlights that growth in 2013 was underpinned by the domestic leisure and business segments. The leisure segment dominates overall accounting for 47.7% of visitor nights in 2013, below the eight-year average of 55.9%. This compares to 33.4% for the business segment in 2013 which is in line with the eight year average of 30.2%. It is worth noting that visitor nights do not equate to occupied room nights given the room density factor and the proportion of corporate room nights is therefore more likely to be in the order 40-50%. The MICE segment is also quite well-represented accounting for a further 16.2% of visitor nights in 2013 and having averaged 7.6% over the past eight years. Major conference hotels are limited to Sebel Resort & Spa Hawkesbury Valley.

Outer Sydney Visitor Night Demand Profile by Purpose of Visit



According to the ABS, there were 14 establishments with 545 rooms at the end of June 2013 which represents 4.1% of the total accommodation supply in Sydney Metropolitan.

Over the ten years to 2012, Outer Sydney’s accommodation market has recorded RevPAR increasing on average by 3.4% per annum which is lower than the growth achieved across the metropolitan area. Higher ADR has been the primary driver with room rates increasing 3.1% per annum, up from $91 in 2002 to $123 in 2012.

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Outer Sydney Trading Performance 1998 to YTD June 2013


Hotel room supply has increased at an average rate of 1.3% per annum. Changes to the statistical boundaries in 2012 resulted in little change to the supply base. Demand has increased at a slightly higher rate, increasing on average by 2.1% per annum. Accordingly occupancy levels have increased, up from 49.8% in 2002 to 51.4% in 2012. The low occupancy level reflects the weekend-break orientation of the Outer Sydney region. Occupancy levels are currently below the levels recorded over the past few years.

Outer Sydney - Historical Trading Performance 2002 to 2012

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Actual 2002 166 0.1% 83 7.9% 49.8% 7.8% $91 10.7% $45 19.4%

2003 163 -2.2% 80 -2.7% 49.5% -0.5% $93 1.9% $46 1.3%

2004 170 4.2% 88 8.8% 51.7% 4.4% $96 3.6% $50 8.1%

2005 192 13.2% 94 6.8% 48.8% -5.6% $104 8.4% $51 2.3%

2006 200 4.5% 98 4.7% 48.8% 0.2% $105 1.3% $51 1.5%

2007 211 5.1% 103 5.4% 49.0% 0.3% $110 4.8% $54 5.1%

2008 204 -3.0% 111 7.3% 54.2% 10.7% $114 3.2% $62 14.2%

2009 193 -5.5% 101 -9.1% 52.1% -3.9% $116 1.4% $60 -2.6%

2010 192 -0.8% 109 8.4% 57.0% 9.3% $122 5.8% $70 15.6%

2011 192 0.3% 119 9.1% 61.9% 8.7% $121 -1.3% $75 7.3%

2012 198 3.2% 102 -14.3% 51.4% -17.0% $123 1.9% $63 -15.4%

CAAG 2002 - 2012 1.8% 2.1% 0.3% 3.1% 3.4%

Source ABS, JLL

The market has declined over the six months to June 2013 with RevPAR reducing 6.0% year-on-year, driven by a reduction in both occupancies and ADR.

Outer Sydney’s’ accommodation market typically achieves an average length of stay of 1.9 nights, ranging between 2.2 and 1.7 nights over the past 18 months.

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A comparison of trading performance between Sydney Tourism Region, Sydney City, Sydney Metropolitan and Outer Sydney is provided in the charts following. This shows that trading performance between the four markets has largely tracked in line over the five years to 2012.

The Outer Sydney market trades at a discount to Sydney Metropolitan. Comparison of the near term historical trading performance (2008 to 2012) highlights how Outer Sydney’s RevPAR has traded on average at an index of 0.69 compared to Sydney Metropolitan. The RevPAR index peaked in 2010 at 0.75 before reducing over the next two years.

Occupancy levels in the Outer Sydney are considerably lower than in Sydney Metropolitan with the index averaging 0.80 over the past five years. The gap peaked in 2011 at 0.87 but reduced over the next two years to average 0.72 in 2012.

Average room rates for the Outer Sydney trade at a discount to Sydney Metropolitan with an average index of 0.86 over the five years to 2012. The gap peaked in 2010 at 0.91 but has widened over the past two years to average 0.81 in 2012.

Sydney Accommodation Market Performance Comparison to Blue Mountains

Source: ABS, JLL

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9 Blue Mountains Hotel and Tourism Market

The Blue Mountains Tourism Region comprises the local government areas of Blackheath, Katoomba, Leura, Lithgow, Oberon and Wentworth Falls.

Statistics pertaining to the supply, demand and performance of Blue Mountains’ accommodation market have been sourced from the Australian Bureau of Statistics’ (ABS) Survey of Tourist Accommodation (STA), Tourism Research Australia’s National and International Visitor Surveys and STR Global as follows:



Five year trend reports have been purchased from STR Global for a basket of hotels to provide an indication of trading performance trends over the past year. Given that only three properties submit data to STR Global, we have included one property in West Sydney to be compliant.


Our analysis (various industry sources) of Blue Mountain’s accommodation market has identified 27 accommodation establishments with 1,238 rooms (hotels, motels, guesthouses and serviced apartments) including both AAA rated and self-rated hotels.

Blue Mountains Accommodation Supply By Segment and Product Type

Source: STR Global Census Database JLL


Hotels are the most common accommodation type in Blue Mountains (578 rooms or 46.7% of total room supply). There are fewer motel (376 rooms or 30.4%) and guesthouse rooms (204 rooms or 16.5%) and very few apartment rooms (80 or 6.5%). Hotel room supply is quite diverse, albeit with no rooms graded 4-star whereas motel and guesthouse stock is graded 3.5-star and below. Hotels have the largest average room inventory at 72 rooms but with only two properties with more than 100 rooms – Fairmont Resort MGallery (212 rooms) and Jenolan Caves Resort (102 rooms). This compares to 31 rooms for motels.

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Blue Mountains’ Competitive Supply



Hotel 102 165 212 99 578

Apartment 80 80

Guesthouse 24 180 204

Total 76 356 415 0 292 99 1,238

Percentage 6.1% 28.8% 33.5% 0.0% 23.6% 8.0% 100.0%



The majority of accommodation rooms are located in Katoomba (408 rooms or 33.0%), Leura (397 rooms or 32.1%) and Blackheath (216 rooms or 17.4%). Katoomba has the most diverse accommodation offering with a selection of budget (3.5-star & below) and 5-star rooms. Accommodation is Leura is dominated by the Fairmont Resort MGallery (212 rooms). This as well as the Waldorf Leura Gardens Resort are the only two 4.5-star properties in the area.

We are also aware of five hostels with around 400 beds.

Blue Mountains’ Competitive Supply


2-star & below


Blackheath 86 130 216 17.4%

Jenolan 102 49 151 12.2%

Katoomba 24 132 153 99 408 33.0%

Leura 52 53 292 397 32.1%

Other 36 30 66 5.3%

Total 76 356 415 0 292 99 1,238 100.0%


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According to Tourism Research Australia and in a marked contrast to Sydney Metropolitan, the majority of visitor nights spent in Blue Mountains are spent in a hotel, motel, guesthouse or serviced apartment (HMGSA) with this accommodation accounting for 35.7% of visitor nights in 2013. This compares to 28.2% in the home of a friend or relative, 21.1% in a rented house or apartment, 8.9% for camping/caravan and 1.8% in a backpacker/hostel.

Blue Mountains Accommodation Used 2005 to 2013


The rented house / apartment market has recorded the strongest growth over the past eight years averaging 8.2% per annum. Growth has been strongest in the international segment, increasing on average by 18.1% per annum. This compares to growth of 7.1% per annum in the domestic segment. Total visitor nights spent in rented accommodation has almost doubled over the past eight years which indicates a high degree of seepage from traditional accommodation types. This compares to growth of 6.7% per annum the HMGSA segment.


Data pertaining to the historical demand profile in the paid accommodation segment (includes hotels, motels, guesthouses and serviced apartments, HMGSA) has been sourced from Tourism Research Australia’s National and International Visitor surveys and a profile provided for Blue Mountains for the eight years between 2005 and 2013 (latest full year data available).

Visitor nights in Blue Mountains’ HMGSA segment recorded the second highest year of the eight-year period in 2013 with growth averaging 6.7% per annum over the past eight years. A total of 0.85 million visitor nights were spent in Blue Mountains’ HMGSA in 2013.

The domestic segment dominates accounting for 91.3% of all visitor nights spent in paid accommodation in 2013 and having averaged 78.1% over the past eight years. Domestic visitor nights in HMGSA recorded the highest year in 2013 at 0.8 million and a level which was above the long term average of 0.5 million. Domestic visitor are predominantly sourced from Sydney (62.2%) and regional NSW (11.4%). Whereas visitation from Sydney has increased over the past eight years, visitation from regional NSW has declined.

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Asia and Europe are the largest international source regions accounting for around 2.9% of total visitor nights in 2013. United Kingdom and China are the dominant source markets. North America accounts for a further 1.5% of total visitor nights in HMGSA, and New Zealand 0.6%.

Blue Mountains Visitor Night Demand Profile by Origin of Visitor


Analysis of the purpose of visit highlights that growth in 2013 was underpinned by the domestic business segment with growth in visitor nights in HMGSA averaging 21.0% per annum rover the eight year period. The leisure segment dominates overall accounting for 66.6% of visitor nights in 2013, below the eight-year average of 70.2%. This compares to 26.7% for the business segment in 2013 which is well above the eight year average of 13.0%. It is worth noting that visitor nights do not equate to occupied room nights given the room density factor and the proportion of corporate room nights is therefore more likely to be in the order 20-30%.

The other (education and employment) and MICE segments are also represented accounting for a further 3.5% and 3.2% of nights respectively in 2013. There is approximately 15,521sqm of hotel meeting space in the Blue Mountains 2013. Major conference hotels include Fairmont Resort Blue Mountains MGallery Collection, Lilianfels Resort Blue Mountains Resort & Spa, Waldorf Leura Gardens Resort and Jenolan Caves House Hotel.

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9.4 Visitor Night Demand in Backpacker / Hostels

As outlined in Section 10.2, Sydney Metropolitan’s backpacker / hostel segment accounts for around 1.8% of visitor nights spent in the Blue Mountains.

Visitor nights in Blue Mountains’ backpacker/hostel segment recorded the second lowest year of the eight-year period in 2013 with visitation having declined over the period at an average rate of 6.3% per annum with the destination increasingly viewed as a daytrip destination. A total of 40,000 visitor nights spent were spent in Blue Mountains’ backpackers in 2013. Total visitor nights peaked in 2010 at 89,000 before declining in 2011 and 2013.

The international segment dominates accounting for 97.6% of all visitor nights spent in backpacker hostels in the Blue Mountains in 2013 and having averaged 69.0% over the past eight years. International visitor nights peaked in 2005 at 54,000, slightly above the long term average of 43,000.

Europe is the largest source region accounting for on average half of all visitor nights over the past eight years. United Kingdom is the dominant source market accounting for 36.3% of all visitor nights in backpacker hostels in 2013. North America accounts for a further 17.3% of total visitor nights in 2013 and Asia 11.7% of total visitor nights. Japan and Hong Kong dominant Asian source markets, with very low take up by Chinese visitors.

Whilst representing only a small proportion of the entire market, domestic visitors are predominantly sourced from Sydney and regional NSW.

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Blue Mountains – Backpacker Hostels



Analysis of the purpose of visit highlights the reliance on the international leisure segment, albeit with no growth recorded over the eight year period. The international leisure segment accounted for around 90% of visitor nights in 2013 and having averaged 60% over the past eight years.

Sydney Metropolitan – Backpacker Hostels Visitor Night Demand Profile by Purpose of Visit


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According to the ABS, there were 23 establishments with 1,249 rooms at the end of June 2013. Over the ten years to 2012, Blue Mountains’ accommodation market has recorded RevPAR increasing on average by 2.9% per annum with gains in predominantly driven by higher ADRs. Room rates have increased from $118 in 2002 to $153 in 2012.

Hotel room supply has recorded little change increasing on average by 0.2% per annum. Changes to the statistical boundaries in 2012 resulted in little change to the supply base. Demand has increased at a higher rate, increasing on average by 0.5% per annum. Accordingly occupancy levels have increased, up from 48.9% in 2002 to 50.2% in 2012. The low occupancy level reflects the weekend-break orientation of the Blue Mountains destination. Occupancy levels are currently below the levels recorded in the early 2000s.

The market has continued to grow over the six months to June 2013 with RevPAR increasing 24.5% year-on-year, primarily driven by increases in ADR, up 21.5% year-on-year to $173. Occupancy levels also increased up 2.4% to 49.8%.

Blue Mountains Trading Performance 1998 to YTD June 2013


We note that trading performance statistics for the backpacker/hostel segment have not been reported for the Blue Mountains in order to protect confidentiality.


A comparison of trading performance between Sydney Tourism Region, Sydney City, Sydney Metropolitan and Blue Mountains is provided in the charts following. This shows that trading performance between the four markets has largely tracked in line over the five years to 2012.

The Blue Mountains accommodation market trades at a discount to Sydney Metropolitan. Comparison of the near term historical trading performance (2008 to 2012) highlights how Blue Mountains’ RevPAR has traded on average at an index of 0.70compared to Sydney Metropolitan. The RevPAR index peaked in in 2009 at 0.79 before reducing over the next two years. It increased again in 2012 to 0.71.

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Occupancy levels in the Blue Mountains are considerably lower than in Sydney Metropolitan with the index averaging 0.68 over the past five years. The gap narrowed in 2009 to 0.74 when the Sydney accommodation market contracted sharply during the global financial crisis

Average room rates for the Blue Mountains trade at a slight premium to Sydney Metropolitan with an average index of 1.04 over the five years to 2012 and having slowly declined since peaking in 2011 at 1.11. The ADR index in 2012 was just 1.00.

Sydney Accommodation Market Performance Comparison to Blue Mountains

Source: ABS, JLL

9.5.2 Near Term Performance

To provide an assessment of historical trading performance, we have purchased a five year trend report from STR Global for a basket of properties in the Blue Mountains and (one in Penrith to be compliant). The basket of four properties comprises 565 rooms and includes the majority of branded upscale competitive supply.

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SYDNEY BLUE MOUNTAINS

1 Redleaf Lodge

2 Gardners Inn

3 Jemby Rinjah Eco Lodge

4 The Clarendon

5 Hotel Imperial

6The Metropole Guesthouse Hotel

7 St Mounts Boutique Hotel

8 Jenolan Caves House Hotel

9 Mountain Heritage Hotel

10 Carrington Hotel

11 Jenolan Caves Resort

12 Fairmont Resort Blue Mountains MGallery Collection

13 Lilianfels Resort Blue Mountains Resort & Spa

14 Echoes Resort Blue Mountains

15 Sky Rider Motor Inn

16 Leisure Inn Spires

17 St Elmo Heritage Motel

18 Where Waters Meet Motel

19 High Mountains Motor Inn

20 Blackheath Motor Inn

21 Redleaf Resort Blue Mountain

22 Best Western Alpine Motor Inn

23 3 Sisters Motel

24 Echo Point Motor Inn

25 Katoomba Colonial Motor Inn

26 Resteasy Motel

27 Waldorf Leura Gardens Resort

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Nominal RevPAR (moving annual average) in the Blue Mountains is currently upwards having averaged $109 over the year to June 2014 with strong gains in occupancy since the end of 2012. Occupancy levels averaged 67.0% over the year to June 2014, which is approximately 11.8% above the recent low. ADR growth has been less robust with room rates averaging $163 to June 2014. This represents an increase of 1.0% on the recent low.

Blue Mountains (Moving Annual Average) Recent Performance January 2013 to June 2014

Source: JLL

9.5.4 Seasonality

Analysis of the monthly occupancy levels highlights the moderate degree of seasonality which exists in the Blue Mountains accommodation market with monthly occupancy levels ranging between 55% and 70% over the past year. Occupancy levels for the first six months of 2014 have reached a new high each month which we understand is attributable to the improved performance at one particular property which is having flow-on effects for the rest of the region.

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PART B – Forecasts

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10 Projected Accommodation Supply

The hotel development process is multi-dimensional; driven by a combination of market dynamics (supply, demand and the potential performance of the asset), land and development costs, and selection of the appropriate type of facility and brand under which the hotel will operate. No one aspect of development can be considered in isolation and regard needs to be given to the other aspects. Of further significance is that the various participants in a typical hotel investment/development project do not usually have the same goals or interests. Most - with the exception of the owner - are geared toward up-front fees, short-term benefits, and maximising annual fees based on total revenue rather than toward the profitability of the asset.

This Section of the report outlines our expectations for accommodation supply in Sydney Metropolitan and the Blue Mountains to 2031 whilst highlighting some of the factors and global trends which will underpin and shape the future accommodation profile. This is consistent with our expectations for Sydney City.

10.1 Overview

As outlined in the Methodology in Appendix Two, JLL tracks accommodation projects as they are mooted, proposed, under construction, completed or taken out of the market with projects graded in accordance with their current stage in the development process and our opinion about the likelihood that they will progress. An element of unanticipated supply is also included which recognises that we do not have complete visibility of all near term development projects and gives regard to development feasibility and hotel and property market cycle trends over the longer term.

Having regard to known projects and our expectations for the hotel property market cycle, JLL expects accommodation room night supply in Sydney Metropolitan to increase at an average rate of 3.2% per annum to 2031 with growth averaging 3.4% per annum between 2014 and 2021 and 3.0% per annum between 2021 and 2031.

Sydney Metropolitan Accommodation Supply Actual and Forecast Growth 2007 to 2031

Source: JLL, Note: Annualised supply (i.e. takes regard of opening date within any given year)

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This equates to an increase of 4,099 rooms over the period to 2021 and 5,935 rooms between 2021 and 2031. Projections assume that hotel development activity will peak through 2016 to 2019 before moderating again and that another development cycle will occur some eight years later towards the latter part of the forecast. This is consistent with our expectations for Sydney City.

10.2 Projections to 2021

Near term growth is projected to be quite strong with increases averaging 5.3% per annum between 2014 and 2017. This represents a considerably higher rate of growth than the 0.5% per annum which was achieved between 2008 and 2013 and is largely based on known projects. Increases are expected to remain largely benign until 2016 before increasing sharply between 2016 and 2019.

10.2.1 Known Projects

JLL is aware of four accommodation projects which have opened in the Sydney Metropolitan area over the past year, namely Adina Bondi beach (111 rooms, June 2013), Atura Blacktown (122 rooms, October 2013) Meriton Serviced Apartments North Ryde (199 rooms, December 2013) and Meriton Bondi Junction (Q1 2014, 123 rooms). These projects were offset by the closure of the Swiss Grand Bondi (-203 rooms, September 2013). Together these five projects total an additional net 352 rooms which represents an increase of 2.6% on the June 2013 base stock.

We are aware of a further eight accommodation projects comprising 1,096 rooms which are under construction due for completion over the next two years, as well as the planned closure of two hotels in North Sydney. The majority of construction projects are located in West Sydney (65% of new rooms) but with projects also underway in the Airport Precinct and Double Bay.

We are also aware of a further 11 proposed projects where JLL has determined that construction is imminent. Proposed projects are primarily located in South Sydney, notably the Airport precinct, and North Sydney, notably North Ryde, Macquarie Park and North Sydney. As outlined in Section 12.1, the NSW Government is committed to enhancing the role of the Central Sydney subregion as Sydney’s global economic driver. The Central subregion encompasses Global Sydney and the Global Economic Corridor which extends from Sydney International Airport to North Ryde / Macquarie Park business park precinct. The NSW Government is targeting an additional 135,000 jobs in this subregion over the period to 2021. This area is also the current focus for hotel development.

Sydney Metropolitan – Summary of Known Projects

Subregion Recently

Completed Under

Construction Proposed Mooted

Total

East 31 224 170 0 654

West 122 435 250 1,443 2,268

South 0 135 735 1,595 2,783

North 199 -120 805 803 2,260

Total 352 674 1,960 3,865 6,630

Source: Industry sources, JLL

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Construction and proposed projects will increase supply by approximately 2,634 rooms over the next three years which once complete will represent an increase of 19.1% in accommodation room supply. It is also worth noting that a further 3,865 rooms (+23.5%) are mooted for the Sydney Metropolitan area. Mooted projects include those where a Development Application (DA) for accommodation rooms has recently been submitted or is under review, although there is no guarantee that such projects will progress. This differs to proposed projects where the DA has been approved and JLL has determined that construction is imminent.

We think it unlikely that all projects will proceed given the prevailing lack of stand-alone hotel development feasibility, competition from alternate uses, notably residential and with a number of projects having already progressed in areas where trading performance has been identified as strong and/or new infrastructure has been developed (e.g. Airport Precinct, North Ryde, Bondi and Parramatta). Ultimately micro market dynamics will determine which projects progress. JLL analysis of Australia’s accommodation market over the past twenty years has shown that around 40-50% of proposed accommodation rooms actually progress to completion.

This reflects the underlying principle that the starting point for the accommodation development decision is the fundamentals i.e. supply, demand and pricing dynamics in any given market but that the ultimate driver will be the extent to which an investor can underwrite the upside for example by being the newest product in the market or by gaining a competitive advantage from being located in close proximity to a new demand generator.

Sydney Metropolitan Accommodation Supply – Known Projects Forecast Growth by Subregion to 2021

Source: JLL, Note: Annualised supply (i.e. takes regard of opening date within any given year)JLL

On the basis of known projects and contrary to stakeholder expectations as outlined in Section 2.0, the majority of development activity is targeting the upscale or above segment with around 2,399 rooms planned representing approximately 80% of the current accommodation development pipeline. This compares to midscale and below segment where 539 rooms are currently planned as shown in the chart following.

New projects are therefore not in keeping with recent demand trends as outlined in Part A. This indicates that either market participants are not giving sufficient regard to accommodation room night demand trends or that external factors are influencing the accommodation development decision.

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Sydney Metropolitan Accommodation Supply – Known Projects Forecast Growth by Segment to 2021

Source: JLL

10.2.2 Unanticipated Supply

Our forecasts assume that a further 1,161 rooms of assumed or unanticipated supply will be developed over the period to 2021, notably towards the end of the forecast period. This takes regard of the fact that despite our best efforts we do not have complete visibility of the market as outlined in the Methodology in Appendix Two as well as a range of inter-related assumptions. These include stage in the property and hotel market cycles, infrastructure investment, development feasibility and competing alternate uses. Development is expected to be fairly evenly distributed across the four precincts albeit with highest proportion of rooms in the West and North having regard to current mooted projects.

Sydney Metropolitan Accommodation Supply – Assumed Supply Forecast Growth by Precinct to 2021

Source: JLL

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Forecasts also assume that a higher proportion of projects will be directed towards the upscale segment during the latter part of the forecast period which gives regard to the scope and scale of development applications which have been submitted and that new product which opens can often achieve a higher star rating than existing product due to newness. It is likely therefore that developers will look to achieve a 4-star rating / room rate but with a 3-star build cost.

Sydney Metropolitan Accommodation Supply – Assumed Supply Forecast Growth by Segment to 2021

Source: JLL

10.3 Upturn in Sydney’s Residential Market

According to JLL’s residential team, the Sydney residential market is in the midst of an upturn. Rising demand from prospective home-owners and investors, including many offshore-investors, is colliding with a long-term under-supply of accommodation, to drive up dwelling prices and, lift auction clearance rates to the highest level recorded in a decade last year.

The recovery follows a long period of underperformance. Matching the slow growth of the New South Wales (NSW) economy, Sydney established house prices rose by 19% between 2006 and 2011, compared with the national average of 30%. Since December 2011, however, Sydney house prices are up 9% compared with 6% nationally, and the pace of activity seems to be accelerating.

The residential market is currently under-supplied and construction activity is finally starting to pick up. In the past five financial years, private sector dwelling completions in Greater Sydney have totalled 79,500, well below estimated underlying demand of 122,900 dwellings, a shortfall of 43,400 dwellings.

Demand is being boosted by mortgage rates at multi-decade lows. Buyers in the Sydney housing market are interest rate sensitive because Sydney is still the most expensive residential market in Australia despite a decade of under-performance, and therefore home mortgages tend to be large. The recovery in the share market has further bolstered household balance sheets, encouraging Australians to revisit residential property as an investment option.

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This is being further boosted by international immigrants. Sydney has always been a magnet for international migration. Net overseas migration has been a key contributor to population growth over the past two years, accounting for almost 70% of net population growth. There has also been a substantial growth in overseas students completing qualifications in Australia, with strong projected increase in the next 20 years. As a result, the two residential sub-markets likely to show most activity over the next few years are the Outer Fringes, where house-and-land packages make entry to Sydney’s housing market relatively affordable, and inner Sydney, where the young demographic tend to congregate.

The ‘grey’ cohort (people aged 65 years and over) is also growing and at a rate which is over and above the general population. The number of grey residents has increased at almost twice the rate of the overall population in Sydney over the past decade. This trend is expected to continue over the next decade as the population ages, driving demand for housing in locations with good access to retail and medical amenities, along with transport infrastructure.

10.3.1 Impact on the Accommodation Sector

As resident population growth increases, the demand for sites pushes up underlying land values. Furthermore, for assets experiencing a level of structural vacancy (i.e. where financial performance reduces to a level where the asset becomes functionally obsolete, usually over a three year horizon), the highest and best use will become a conversion to residential use particularly older style assets on under-utilised sites with view corridors.

This has been a noticeable trend in Sydney’s East and North regions over the past decade with a number of hotels closed for residential conversion. We are aware of two hotels which are currently expected to close over the coming year, one being in North Ryde and the other in North Sydney. South Sydney is also evolving from an industrial precinct to a residential area. High-density residential precincts centred on train and retail hubs have replaced traditional warehouse space and local council LEP changes have prompted the emergence of high-density suburbs like Wolli Creek and Mascot. In 2013, Botany Bay Council proposed to amend the LEP to increase high-density residential development around the Mascot Station Precinct. The proposed zoning will alter existing industrial zoning. Demand for sites from residential developers has increased with enquiry levels on the rezoned area at a very high level. Speculative purchasing of industrial stock by developers within the proposed rezone is also underway.

Pinpointing the likely time that this may occur is complex and thus we have not included an estimation of additional closures in our forecasts other than for those projects which are already known or estimated. Needless to say the growing demand for residential housing in inner city locations will result in some hotels closing for conversion to alternate use.

The natural attrition of hotel room supply is as critical as new accommodation development if the market is to remain efficient as a whole. This permits the conversion of obsolete or old and aging room stock to alternate higher uses and enables the remaining stock to more effectively increase rates, improving the overall development feasibility equation.

On the flipside, anecdotally, we are aware of some residential developers who are considering including a short term accommodation component in residential developments as they believe such projects are viewed more favourably by local planning authorities. We note however that projects which have not been designed to meet an identified accommodation need or been properly assessed against local market conditions may struggle to achieve the desired level of operational viability.

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10.4 Comparison to the Commercial Segment

Predicting the impact of changing office dynamics on Sydney Metropolitan’s accommodation market is complex. The underlying demand for commercial real estate is projected to be lower over the next decade. Deloitte Access Economics projects base office demand across CBD office markets will increase by an average of 1.9% per annum between 2012 and 2022. To put this figure in context, base office demand increased by 2.5% per annum between 2002 and 2012, a period which covered the reduction in white collar employment over the financial crisis. Furthermore, a number of organisations are seeking to make efficiency gains across their real estate portfolios and to reduce workspace ratios.

Whilst demand for office real estate may reduce, the number of visitors to those offices (requiring an overnight stay) may actually increase whilst also being highly dependent on the tenant profile within any given tower. For example, company global or national headquarters tend to attract a higher level of room night demand given the greater propensity for visiting global and inter-state workers. Similarly, certain industries, for example financial & insurance services and banking, have a greater propensity to generate higher levels of room night demand. Notwithstanding, international and national business leaders have a tendency to stay in their luxury hotel of choice rather than the hotel in closest proximity to their place of work. Offsetting these demand drivers is the trend towards more flexible working and out-of-office and meeting technology solutions e.g. video-conferencing, as well as the growth in ‘in-office’ catering and hospitality services.

A snapshot of the near term outlook for the major commercial office precincts in Sydney Metropolitan follows:

Chatswood - new office supply is expected to remain subdued in the short to medium term due to the current low demand environment. Chatswood is unlikely to have any additions to stock over 2014-2015, with no projects currently in the planning or approval stage.

Homebush / Rhodes - Stage One of The Avenue at Site 4B Herb Elliott Drive, Homebush Bay was completed during 2Q14 contributing 8,500 sqm of vacant space to the office market. There is currently one development under construction: 3 Murray Rose Avenue, Sydney Olympic Park (12,900 sqm), which has pre-commitment by Samsung. This project is scheduled for completion in 2016. There are two further developments with development approval: AXIS at Sydney Olympic Park, which encompasses 2 Australia Avenue, 6 Australia Avenue and 2 Herb Elliot Drive, Homebush Bay; and Site 8C, Murray Rose Avenue, Sydney Olympic Park. These two speculative developments will contribute 47,500 sqm to office stock progressively between 2015 and 2016.

Macquarie Park - there were two completions in 2Q14 adding 24,000 sqm to total stock, both by Goodman Group. Firstly, the 11,500 sqm Macquarie View Estate at 118 Talavera Road reached practical completion in April. Major pre-lease tenant Fujitsu absorbed 9,500 sqm, leaving 2,000 sqm of untenanted floor space available for lease. Additionally the completion of the 12,500 sqm ‘The Park’ at 5 Talavera Road, with 84% pre-commitment by Canon, also added an additional 2,000 sqm of vacant space to total stock. There is currently 78,600 sqm of developments with DA approval in the pipeline and a further 30,000 sqm at the proposed stage. However, there are currently no projects under construction with pre-commitment remaining the catalyst for future construction commencement.

North Sydney - a number of projects are due to begin construction in 2014, indicating the supply cycle is about to move into an upswing. Leighton Holdings’ 177 Pacific Highway began demolition in 1Q14 with construction on track to commence in 3Q14. This project will add an additional 39,249 sqm of prime office space to the market, and is 77% pre-committed to Leighton Holdings. Other major projects

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in the supply pipeline include a 38 storey commercial tower at 90-100 Mount Street, which is expected to complete early in 2017 dependent on securing tenant pre-commitments. A number of withdrawals that occurred in 1Q14 will offset the increase in supply upon completions in 2016.

Norwest - new supply into the market will be slow in the next couple of years, as there are no projects currently under construction. The Norwest precinct is recovering from a period of oversupply. It is therefore unlikely that the three office projects with development approval (DA) totalling 28,000 sqm will progress without significant tenant pre-commitment. The North West Rail link is expected to be the catalyst for growth of the Norwest precinct over the long-term, with significant residential development and population growth along the rail corridor. This is expected to deepen the available labour pool and provide an attractive employment location for white collar professionals seeking to work closer to home in North West Sydney.

Parramatta - Crown International Holdings’ Macquarie Place mixed-use residential tower development, currently under construction at 45 Macquarie Street, has withdrawn a proposed 3,000 sqm of office space from their development plan. The supply has been redirected to the residential market due to increased demand. There are four development sites identified with either development approval (DA) or at the planning stage. These projects are expected to add 78,000 sqm of office space upon completion; however 20,000 sqm is currently on hold. Additionally, Parramatta Square development will add 173,000 sqm upon completion, which will comprise retail, residential and office space.

South Sydney - the major refurbishment of Airport Central located at 241A O’Riordan Street, Mascot is currently the only development under construction in South Sydney. Completion is expected towards the end of 2014 and will contribute 21,334 sqm to total stock when introduced back to the market. There are a further two developments with planning approval or with plans submitted which collectively could add 19,300 sqm to the South Sydney office market. However, there are also three projects, which are currently on hold (62,600 sqm) and are unlikely to commence without significant pre-commitment.

St Leonards - supply in St Leonards has been subdued over the previous two years. Difficulty securing pre-commitment has led to the delay of many projects. In addition, a number of commercial buildings have been withdrawn from stock for residential conversion as well as refurbishment. The only project in the pipeline which has approval in St Leonards is a 26,500 sqm commercial tower at 88 Christie Street, due for completion in 2017. However, this project is not likely to proceed unless sufficient pre-commitment is secured. Plans have been submitted to refurbish and convert 100 Christie Street, St Leonards to a mixed-use space of majority residential apartments with a small component of office space (3,300 sqm). The majority of this space is occupied by Sinclair Knight Merz, with their lease expiry not due until 2019, thus any development works are not likely to proceed until then. Plans have also been approved for the mixed use development at 472-520 Pacific Highway which will add a proposed 7,800 sqm of commercial space upon completion.


Longer term projections have been made with regard to such factors as site availability, city rejuvenation projects and property and hotel market cycles. JLL expects accommodation room night supply in Sydney Metropolitan to increase at an average rate of 3.0% per annum between 2021 and 2031. This equates to an increase of 5,935 rooms. Projections assume that hotel development activity will remain largely subdued until 2027 when another

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development cycle will occur. This is consistent with our current expectations for Sydney City. We have also assumed that two new hotels will open ahead of this timing to support the new airport at Badgery’s Creek.

Broadly, we expect hotel development between 2021 and 2031 to be directed towards the West and North subregions as shown in the chart with a greater availability of sites and in line with planned major infrastructure projects over the long term. Higher alternate uses, notably residential as outlined in Section 11.3, in East, North and South Sydney are expected to continue to thwart new accommodation development. Any material change in trading performance, construction costs or other sectors could see this outlook alter considerably although this seems unlikely at this time.

Sydney Metropolitan Accommodation Supply – Assumed Supply Forecast Growth by Subregion to 2031

Source: JLL

We also expect a greater proportion of new rooms to be built in the midscale as the market rebalances as it expands west where land is cheaper and room rates are lower although this may well change given the extent of planned infrastructure in Western Sydney.

Sydney Metropolitan Accommodation Supply – Assumed Supply Forecast Growth by Segment to 2031

Source: JLL

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10.6 Global Accommodation Supply Trends

A summary of recent global accommodation trends and there possible application to Australian accommodation market is provided in the table below.

Global Accommodation Supply Trends and Application to the Sydney Market

Trend

Likelihood

Description

Mixed Use Developments

High

Hotels have a long tradition of incorporating a mix of different uses within the one building, particularly larger high-end product. They are also suitable for high growth or emerging locations as a project with multiple uses is less reliant on one income stream which can help to reduce risk. For investors and developers, mixed use projects can bring improved returns, spread risks, generate synergies between complementary occupiers and attract potential purchasers from a wider variety of market sectors.

Limited Service Hotels

High

Over the last twenty years, the fastest growing hotel segment has been ‘limited service’ estimated to have accounted for 40-45% of new openings. Growth is being spurred by the consumer’s drive for affordable accommodations that still offer the necessary or most frequently utilised creature comforts of the full-service hotel. Smaller than their full-service counterparts limited service hotels typically have 100-200 rooms and incorporate fewer ancillary spaces like meeting rooms and restaurants, making them more efficient to develop & operate. Operational efficiencies create attractive investment opportunities for hotel owners and the rollout of product has also been underpinned by the use of the franchise model.

Lifestyle brands

High

With the recent success of boutique hotels globally, hotel operating companies are introducing lifestyle brands which seek to combine the design sensibility and character of boutique hotel with the marketing and operational advantages of a brand. These are being developed in both the full-service and select-service segments. Examples include W, Aloft, Hotel Indigo, Hyatt Place and Atura. Other groups have collaborated with designers in an attempt to create a similar point of differentiation e.g. the Bulgari collection Operated by Marriott).

No frills accommodation

High

No frills hotels are a growing global trend which target the budget traveller by offering a basic room type and a user pays system for additional services. Examples include easyHotel, Yotel and Tune Hotels. Many of these operators have or are considering developments in Australia but are faced with the same challenges as traditional operators as well as a lack of brand reach across the country which has resulted in some investors shying away from these concepts.

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Trend

Likelihood

Description

White label hotel management

Medium

As we have seen with the separation of hotel real estate and operations, models are emerging which separate operations from brand. Hotel operators are investing heavily in their brand portfolios in an attempt to meet and exceed consumer expectations, establish brand loyalty and market share. Arguably this has shifted their focus from operations to distribution & marketing which combined with their explosive global growth and different contracting options is resulting in the emergence of new white label hotel management providers. These companies offer hotel management services (operations, finance & sales and marketing) at a discount when compared to an international brand for example. Hotels may then have a separate franchise agreement with a known brand.

Branded Residential

Low

While receiving considerable interest from the development community, branded residential developments have struggled to gain traction in Australia. Brand penetration by international luxury brands has been limited as the market is quite small. Low luxury ADRs and high operating costs (license fees) could mean that any increase in development profit may be offset by lower investment returns for the hotel. The lack of development feasibility over recent years has also meant that few new rooms have been developed.

Sustainability Low

Sustainability is a growing real estate trend but to date the “greening” of hotels in Australia has lagged other property assets classes as the age of Australian hotel room stock means that implementing sustainability initiatives can be costly and companies have focussed on cost-saving initiatives.

As communities increasingly embrace concepts such as the triple bottom line and demand that a company be responsible to stakeholders (anyone who is influenced either directly or indirectly by the actions of the firm) rather than shareholders (with the aim of maximising owner profit), government has the power to promote and support sustainability issues by offering incentives to existing hotels which undertake sustainability improvement programs or the conversion of obsolete office or heritage buildings to short term accommodation use.

Boutique brands

Low

Popularised in North America and the United Kingdom to describe small-scale luxurious or “quirky” hotel environments, boutique hotels differentiate themselves from larger chain/branded hotels by providing personalised accommodation and services / facilities. Boutique hotels are quite small and often furnished in a themed, stylish and/or aspirational manner. Examples in Australia are

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Trend

Likelihood

Description

however limited with hoteliers faced with high operating and construction costs and low average market room rates which given the small size of boutique properties has made it hard for such properties to achieve sufficient economies of scale to be operationally viable.

Source: JLL

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11 Projected Accommodation Demand

Over the decades, tourism has experienced continued growth and deepening diversification to become one of the fastest growing economic sectors in the world. Modern tourism is closely linked to development and encompasses a growing number of new destinations and is a driver for socio- economic progress. It is therefore highly competitive.

Investment in the development of hard tourism infrastructure (demand generators) which is appealing to target markets will help to diversify Sydney Metropolitan’s tourism offering and likely spur new accommodation development.

This Section of the report outlines our expectations for visitor night and room night demand to 2030 whilst highlighting some of the factors and global trends which will underpin and shape the future demand profile in Sydney Metropolitan.

11.1 Draft Metropolitan Strategy to 2031

The Draft Metropolitan Strategy sets the framework for Sydney’s growth and prosperity to 2031 and beyond. It lays a strong and ambitious strategic planning foundation for all 41 councils in the metropolitan region. The Strategy supports the key goals, targets and actions contained in NSW 2021, the NSW Government’s business plan to make NSW number one. It has been prepared in conjunction with the NSW Long Term Transport Master Plan and the State Infrastructure Strategy to fully integrate land use and infrastructure outcomes.

11.1.1 Sydney in 2031

The Metropolitan Strategy provides the strategic planning foundation to meet changing needs across all of Sydney and gives regard to the following key assumptions:

The population is expected to grow by 1.3 million people, taking the total population in Sydney from 4.3 million to 5.6 million people;

The population profile will alter with 900,000 people aged over the age of 65 by 2031 and more than one million people under 15 years of age;

Greater Western Sydney will be home to more than half of Sydneysiders; and

The economy will continue to shift away from manufacturing to a stronger finance and services focus.

11.1.2 Productivity and prosperity

The Metropolitan Strategy lays the strategic planning foundation to ensure that the city’s economic activity drives productivity, employment growth and accessibility to jobs.

The Strategy’s target of at least 625,000 new jobs across Sydney by 2031 is a substantial increase on previous strategies and is recognised as the most important element of driving Sydney’s economic growth.

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Minimum jobs targets have also been set for the subregions of Sydney. The Strategy specifically targets at least 50 per cent of all new jobs in Western Sydney. This amount of jobs growth is needed to support the population growth that is expected in Western Sydney over the coming years.

The Metropolitan Strategy sets the planning framework to strengthen and extend the Global Economic Corridor. This is the area of intense economic activity that runs from Port Botany and the airport in the south, through the Sydney and North Sydney CBDs, north-west to Macquarie Park. This corridor, which is the engine room for Sydney’s international economic standing, currently provides some 600,000 jobs, attracting people from all over the region and internationally. The Strategy ensures that land use and infrastructure planning and delivery will allow this area to continue to grow as an internationally significant economic hub.

The Metropolitan Strategy in particular, plans for the extension of the Global Economic Corridor to the north-west and to Parramatta. This is expected to capitalise on the strengths of the Corridor to open up new opportunities for investment and jobs in Sydney’s west and build on major government infrastructure initiatives such as the North West Rail Link and Parramatta as Sydney’s second CBD. The Strategy supports the continuing growth of Sydney’s Regional Cities of Parramatta, Penrith and Liverpool — all recognised as vital to Metropolitanwide economic growth and prosperity. These cities will also be supported by the growth of employment-focused Specialised Precincts including Bankstown Airport, Randwick (UNSW and Prince of Wales Hospital), Westmead, Kogarah, Rhodes and Sydney Olympic Park, as well as the large Western Sydney Employment Area currently being examined for future employment growth south west of the M4/M7 junction.

The Metropolitan Strategy for Sydney contains detailed advice for six subregions to provide a direction for subregional planning including metropolitan priorities. This advice guides each subregion in helping to achieve the desired outcomes for Sydney to 2031.

Employment Targets by Subregion

Subregion Current Target to 2021 Target to 2031

Central 998,000 1,113,000 (135,000) 1,228,000 (230,000)

West Central & North 389,000 464,000 (75,000) 531,000 (142,000)

North 186,000 208,000 (22,000) 225,000 (39,000)

West 119,000 138,000 (19,000) 156,000 (37,000)

Southwest 298,000 362,000 (64,000) 432,000 (134,000)

South 183,000 207,000 (24,000) 226,000 (43,000)

Source: Draft Metropolitan Strategy for Sydney

A summary of the key population, housing and employment targets for each Subregion follows as well as a brief overview of the key precincts within each.

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11.1.3 Central Subregion

The Central Subregion includes the suburbs of Ashfield, Botany Bay, Burwood, Canada Bay, Hunters Hill, Lane Cove, Leichhardt, Marrickville, Mosman, North Sydney, Randwick, Ryde, Strathfield, City of Sydney, Waverley, Willoughby and Woollahra.

As outlined above, a key priority is to enhance the role of the subregion as Sydney’s global economic driver, including strengthening connections within the Global Sydney and Global Economic Corridor city shapers.

A summary of the key population, housing and employment targets for the Central Subregion follows:

Central Subregion Key Statistics

Current Target to 2021 Target to 2031

Population 1,144,000 1,280,000 (136,000) 1,385,000 (242,00)

Housing 534,000 616,000 (82,000) 672,000 (138,000)

Employment 998,000 1,113,000 (135,000) 1,228,000 (230,000)


Major precinct priorities in the Sydney Metropolitan area include:

Bondi Junction – enhance primary focus for major retail, office and services provision and retain a commercial core and provide opportunities for new office development with capacity for at least 2,000 additional new jobs to 2031;

Burwood Major Centre – encourage retail, commercial and services growth to serve the inner west with capacity for at least 3,000 additional new jobs by 2031;

Chatswood Major Centre – support its role as major office-based hub for northern Sydney with capacity for at least 8,000 additional new jobs to 2031;

Macquarie Park Specialised Precinct – continue to develop a metropolitan-scale office park with a technology focus in the Global Economic Corridor, supporting and supported by the growth of Macquarie University Research Park, Macquarie Hospital, Macquarie Centre, Macquarie Park and Riverside Corporate Park (and Hospital). Office space will be prioritised over housing to provide capacity for at least 16,000 additional jobs in 2031;

Randwick Education & Health Specialised Precinct – intensity the cluster of education and health activity around the University of NSW, Prince of Wales Hospital and Sydney Children’s Hospital and integrate with multi-functional aspects of Randwick Racecourse. This will include capacity for at least 6,000 additional jobs in 2031 as well as student and short-term housing;

Rhodes Specialised Precinct – support clustering of office-based jobs and medical enterprises associated with concord Hospital and provide a capacity for at least 2,000 additional jobs by 2031;

Sydney Airport – protect and enhance industrial areas related to the economic function of Sydney Airport and to provide capacity for at least 8,000 additional jobs in 2031;

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St Leonards Specialised Precinct – support office-based hub and health education facilities at Royal North Shore Hospital, Royal North Shore Private, Mater Misericordiae Hospital, Northern Sydney TAFE and the emerging technology cluster at Gore Hill and provide capacity for an 8,000 additional jobs to 2031;

Anzac Parade Corridor – facilitate delivery of Urban Activation Precincts at Randwick and Anzac Parade and improve access to the Moore Park sporting and entertainment precinct; and

Parramatta Road Corridor - capitalise on the delivery of the West Connex Motorway and plan for staged urban renewal.

11.1.4 West Central & North West Subregion

The West Central & North West Subregion includes the suburbs of Auburn, Blacktown, Holroyd, Parramatta & The Hills.

As outlined above, a key priority is to support the highly diverse and competitive employment growth opportunities by renewing and growing Parramatta CBD (and its surrounds) and providing higher order services and job opportunities for greater Western Sydney’s growing population.

A summary of the key population, housing and employment targets for the West Central & North West Subregion follows:

West Central & North West Key Statistics


Population 846,000 1,039,000 (192,000) 1,201,000 (355,000)

Housing 302,000 376,000 (74,000) 450,000 (148,000)

Employment 389,000 464,000 (75,000) 531,000 (142,000)


Major precinct priorities include:

Parramatta Premier Regional City and Second CBD – plan as a city shaper and provide capacity for at least 21,000 additional new jobs to 2031;

Blacktown Major Centre – provide capacity for growth in office, retail, entertainment, cultural, public administration and health uses as well as higher intensity residential development. This will include capacity for at least 3,000 additional new jobs to 2031;

Castle Hill Major Centre – continue to plan for office buildings, tertiary education and cultural facilities with residential intensification within 1km of the centre and to include capacity for at least 4,000 additional jobs to 2031;

Rouse Hill Planned Centre – strengthen as a higher intensity mixed-use major centre and to provide capacity for at least 6,000 additional jobs;

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Mount Druitt Potential Major Centre – unlock the potential for renewal of public and private housing areas to reinvigorate and to build on potential employment opportunities;

Norwest Specialised Precinct – enhance its role as a metropolitan-scale business park with an intensification of business uses and provide capacity for at least 15,000 additional jobs by 2031;

Westmead Health Specialised Precinct – take advantage of the opportunities offered from the premier health and biotechnology cluster based around Westmead Hospital, Westmead Children’s Hospital, Cumberland Hospital and Westmead Private Hospital and to provide capacity for at least 7,000 additional jobs;

Sydney Olympic Park Specialised Precinct – strengthen the specialised functions of the precinct as a destination for sport, recreation and events and provide capacity for at least 14,000 more jobs to 2031;

Marsden Park Potential Specialised Precinct – investigate opportunities for concentration of high economic value activity of metropolitan significance to develop within the extensive area zoned for business and industrial purposes; and

Rydalmere Education Potential Specialised Precinct – grow as an education cluster focussed on the expansion of University of Western Sydney Rydalmere campus and associated industries.

11.1.5 North Subregion

The North Subregion includes the suburbs of Hornsby, Kuringgai, Manly, Pittwater & Warringah;

A key priority is to promote the area as a highly accessible and liveable area with outstanding amenity, a growing network of employment area and a prized natural environment.

A summary of the key population, housing and employment targets for the North Subregion follows:

North Key Statistics


Population 529,000 573,000 (44,000) 610,000 (81,000)

Housing 204,000 223,000 (19,000) 241,000 (37,000)

Employment 186,000 208,000 (22,000) 225,000 (39,000)



Brookvale-Dee Why Major Centre – strengthen as a location for integrated retail, office, employment and service centre for the Northern Beaches and provide capacity for at least 3,000 additional new jobs to 2031;

Hornsby Major Centre – enhance as a location for growing retail and office uses for the subregion and a broader catchment extending to Central Coast. This will include capacity for at least 1,000 additional new jobs to 2031; and

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Frenchs Forest Health Potential Specialised Precinct – capitalise on the growing cluster of hospital and health-related uses with associated research/business park opportunities to stimulate local jobs.

11.1.6 West Subregion

The West Subregion includes of Blue Mountains, Hawkesbury & Penrith.

A key priority is to promote as Sydney’s gateway servicing western NSW with nationally significant tourism destinations and a focus for significant employment growth through Penrith Regional City and the Western Sydney Employment Area.

A summary of the key population, housing and employment targets for the West Subregion follows:

West Key Statistics


Population 327,000 372,000 (45,000) 416,000 (89,000)

Housing 127,000 143,000 (16,000) 166,000 (39,000)

Employment 119,000 138,000 (19,000) 156,000 (37,000)



Penrith Regional City – strengthen as the regional hub for office, retail, administration recreation and culture and to provide capacity for at least 8,000 additional new jobs to 2031;

Penrith Education & Health Potential Specialised Precinct – intensify the cluster of health and education enterprises and take advantage of links to Nepean Hospital, University of Western Sydney and TAFE campuses at Kingswood-Warrington;

Western Sydney Employment Area –plan for the expansion and growth of this strategically important area; and

Western Sydney Parklands – plan for the enhancement of this metropolitan-significant park servicing the growing population of Western Sydney for active and passive recreation.

11.1.7 South West Subregion

The South West Subregion includes the suburbs of Bankstown, Camden, Campbelltown, Fairfield, Liverpool and Wollondilly.

A key priority is to support the long-term growth and development that will transform the structure and economy of the subregion through greenfield housing growth and new local employment growth in the South West Growth Centre. This will include strengthening the role of Liverpool as the Regional City and economic hub through enhanced transport connections to other major centres of Campbelltown and Leppington.

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A summary of the key population, housing and employment targets for the South West Subregion follows:

South West Key Statistics


Population 829,000 1,048,000 (218,000) 1,298,000 (469,000)

Housing 286,000 346,000 (60,000) 427,000 (141,000)

Employment 298,000 362,000 (64,000) 432,000 (134,000)



Liverpool Regional City – enhance the role as the subregion’s main centre for commercial, retail, service and entertainment and utilise the Liverpool Hospital precinct for ancillary business clusters. This will include capacity for at least 9,000 additional new jobs to 2031;

Bankstown Major Centre – continued focus for office, retail, entertainment, cultural, public administration services, mixed use and residential development and to include capacity for at least 3,000 additional new jobs to 2031;

Campbelltown-Macarthur Major Centre - continued focus for office, retail, entertainment, cultural, public administration and services development and to include capacity for at least 10,000 additional new jobs to 2031;

Prairiewood Potential Major Centre – integrate existing retail centre with a broader mix of business, community and civic services;

Bankstown Airport / Milperra Specialised Precinct – promote as an aviation centre for Sydney and provide capacity for at least 2,000 additional jobs to 2031;

Leppington Planned Major Centre – provide employment opportunities, retail and services and plan for a capacity of at least 13,000 additional jobs to 2031; and

Fairfield Potential Major Centre – promote office, retail, entertainment, services, civic uses and mixed use growth opportunities.

11.1.8 South Subregion

The South Subregion includes the suburbs of Canterbury, Hurstville, Kogarah, Rockdale & Sutherland.

A key priority is to enhance the subregion’s role in housing and jobs delivery through urban renewal around Major Centres and accessible local centres, while maintaining the values of Sydney’s fringing bushland, coast and waterways.

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A summary of the key population, housing and employment targets for the South Subregion follows:

South Key Statistics


Population 609,000 655,000 (46,000) 685,000 (76,000)

Housing 241,000 263,000 (22,000) 283,000 (42,000)

Employment 183,000 207,000 (24,000) 226,000 (43,000)



Hurstville Major Centre – plan as a primary focus in the subregion for additional office, retail, entertainment, cultural and public administration growth and provide capacity for at least 5,000 additional jobs to 2031;

Kogarah Specialised Precinct – support opportunities for hospital, medical, educational and finance related industries including a focus on St George Hospital as a catalyst for a medical/health precinct. This will include capacity for at least 2,000 additional jobs to 2031; and

Sutherland Potential Major Centre – increase capacity for office, retail, residential, serviced and mixed use development.

11.2 Tourism Infrastructure Developments

Fundamental to hotel development is a complete and comprehensive understanding of the site location process as accommodation is a location-driven business. Hotel siting consists of identifying appropriate market(s) for accommodation development, analysing demand generators within each market to select trade areas that will optimise occupancy potential; and selecting a specific location which provides the greatest possible visibility and accessibility for potential guests. Brand selection and positioning of product relative to industry segmentation have a direct bearing on location strategies.

The location paradigm for accommodation site selection is directly dependent on the proximity of accommodation demand generators located within a one- to five-kilometre radius of a proposed facility as commercial and leisure travellers typically have a reason for traveling to, and the need to stay overnight at accommodation in a given area. Major commercial centres, universities, retail complexes, hospitals, airports, and resort/tourist destinations are all examples of the typical room night generators. In determining location, investors consider not only the existing room base, but also emerging growth markets from those businesses, facilities, or other factors that will draw travellers into the area and result in additional demand for hotel rooms.

Outside of the proposed investment in corporate office and transport infrastructure, there are few tourism infrastructure projects which have recently been completed or are under construction or proposed in the Sydney metropolitan area which will increase the appeal of the area as a tourist destination for leisure, education and business visitors as summarised in the table following.

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Project Description Completed

Royal Randwick Racecourse

Royal Randwick Racecourse now spans more than 200 acres with 15 unique indoor/ outdoor spaces for conference & events. Construction commenced in December 2011 and was competed in August 2013.

Wet n Wild

Construction has commenced on the $115 million Wet’n’Wild theme park. Featuring 42 slides and attractions the park is scheduled for completion in December 2013 and is expected to attract 900,000 visitors a year, including 175,000 interstate and international tourists.

Sydney Cricket Ground

The SCG began work on a state of the art modern pavilion, replacing the existing Noble, Bradman and Messenger stands including more undercover seats, no obstructed views, large video screen and superior dining and bar areas, including a roof terrace. Works commenced in February 2012 and will be finished in January 2014 before the Ashes Test match.

Under Construction Sydney Olympic Park Homebush

By 2030, Sydney’s Olympic Park is expected to accommodate 1.4 million square metres (GFA) of new building space, 6,000 new residential dwellings and improved access to the precinct’s 425 hectares of parklands.

Proposed Western Sydney Theme Park

Proposed Western Sydney Theme Park is set to be a vibrant tourism destination featuring an extensive water park, wildlife park, bowling alley, cinemas, ice skating rink, hotels, restaurants, public parks and nightlife.

Sydney Cricket Ground

Proposed redevelopment of the Churchill, Brewongle & O’Reilly Stands, as well as a new public plaza for the area between the SCG & Allianz Stadium that will allow direct access between Paddington and Moore Park. Additionally there are plans for Allianz Stadium to upgrade to an extended or fully covered roof.

Parramatta Park

Parramatta Park will receive $35.4 million over the next four years to reinforce itself as the pre-eminent outdoor music venue in Sydney’s West while also attracting more music events. Works will be undertaken not only to the venue itself, but the surrounding amenities to produce a more family friendly vibe with the anticipation it will compete with The Domain for many public events.

Source Industry Sources, JLL

11.3 Airport Infrastructure

As a remote destination, Australian tourism is heavily dependent on the maintenance of affordable and accessible inbound air services. Sydney is Australia’s premier gateway City, accounting for almost half of all international passenger movements into Australia.

11.3.1 Sydney International Airport

Sydney International Airport is Australia’s busiest attracting more than 37.0 million passenger movements in 2012 with 24.6 million domestic and regional passenger movements (66.6 %) and 12.4 million international passenger movements (33.4%). Over the last five years, other international airports have been developed increasing their market share of international traffic opening up more of Australia to international tourism. Other major points of entry include –Melbourne, Brisbane, Cairns, Perth and Adelaide.

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Sydney Airport is located eight kilometres south of the Sydney CBD and has a good underground rail link to the City centre from the domestic and international terminal. Although the airport is Australia’s largest and busiest airport, it covers only 907 hectares of land, making it the smallest capital City airport in terms of landholding. Sydney Airport is unique among Australian airports in having both a curfew (11.00 pm to 6.00 am) and a cap on hourly aircraft movements which means that the size of morning and evening peaks are therefore crucial. Sydney Airport has undertaken many initiatives to expand its capacity to handle the growth forecast over the next 20 years as the airport is likely to face capacity constraints.

Bureau of Infrastructure, Transport and Regional Economics (BITRE) produces long term forecasts of airport passenger movements, as summarised in the table. Passenger throughput at Sydney International Airport is projected to average 3.1% per annum to 2031, which represents a slightly lower rate of growth than the 4.6% achieved since 1992. Growth will be strongest for international passenger movements at 4.5% per annum including overseas visitor’s growth of 4.7% per annum and Australian residents at 4.3% per annum. Total passenger movements are expected to increase on the current level by 50% by 2022 to total 52.7 million and to have doubled by 2031 to 72 million.

Air passenger movements through Sydney Airport (Thousands)

Year (FY) International Domestic 2011 11,454 24,314 2012 11,871 23,924 2013 12,492 25,180 2014 13,077 26,305 2015 13,688 27,479 2016 14,244 28,373 2017 14,858 29,300 2018 15,518 30,273 2019 16,236 31,273 2020 16,976 32,222 2021 17,737 33,167 2022 18,539 34,139 2023 19,376 35,141 2024 20,258 36,172 2025 21,180 37,234 2026 22,151 38,327 2027 23,165 39,453 2028 24,234 40,612 2029 25,351 41,806 2030 26,522 43,035 2031 27,723 44,255

Source: BITRE, JLL

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11.3.2 Western Sydney Airport

The Australian Government has confirmed that the site for Western Sydney's airport will be Badgerys Creek. The government has suggested that construction is expected to begin in 2016 and will be completed by mid-2020s. During the peak of the construction an estimated will 4,000 jobs will be generated.

The airport at Badgerys Creek is proposed to start out as a smaller sized airport with a single runway which will serve the expected moderate demand in the short term, but eventually will develop into a full scale airport with parallel runways as demand increases.

The predicted initial cost of building the airport will be in the order of $2.4 billion based on estimated in the Joint Study on aviation capacity in the Sydney region, of which the majority of the investment is expected to come from the private sector. The Federal Government is expected to take the lead on facilitating the surrounding infrastructure, primarily focussing on roads. Although the Western Sydney airport will not be fully operational for a decade, planning for the new airport will start immediately and construction should start in 2016 and with the first flights expected in the mid-2020s.

The decision recognises the growth of Western Sydney with the region’s population is expected to grow from two million to three million people over the next 20 years. Western Sydney is already Australia’s third largest economy and fourth largest city (in its own right).


Visitor nights in Sydney Metropolitan’s HMGSA segment are expected to grow by 3.4% per annum to reach 5.0 million by 2023. Sydney Metropolitan’s top six inbound markets (North America, New Zealand, the United Kingdom, China, Korea and Singapore) are expected to provide 54 per cent of the additional 1.3 million visitor nights in HMGSA over this period whereas the domestic segment will contribute a further 35%.

Growth will primarily be underpinned by the international segment with strong growth primarily from emerging Asia. This reflects the strong growth in Asia Pacific tourism demand which is projected and Australia’s proximity to this market. International visitor nights in HMGSA are projected to grow at an average rate of 5.6% per annum. Asia will continue to dominate the international segment.

The Chinese segment will continue to grow at a very strong rate with visitor nights in HMGSA projected to increase on average by 6.9% per annum over the period to 2023. This source market has shown an increasing propensity to utilise the paid accommodation segment over the past decade and these trends are expected to continue as the market shifts from group and education travel to independent business and leisure travel. Other Asian markets are also projected to grow strongly with visitor nights in the paid accommodation segment increasing by 6.9% per annum.

Growth in the traditional markets (North America, UK, Europe, Japan and New Zealand) will be slower by comparison but still robust. This is due to improved economic outlook in some of the key inbound visitor source markets including New Zealand, the United Kingdom, as well as the more positive outlook for inbound aviation capacity to Australia.

The rate of economic growth in developing and newly emerging Middle Eastern and South East Asian nations will also drive changes in the sources of international visitation. Similar to the current robust demand of the Chinese middle class, greater income growth in these countries will drive international visitor numbers to the in the medium to long term.

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Sydney Metropolitan HMGSA Projected Visitor Night Demand by Origin of Guest


Growth in domestic visitor nights will be more muted by comparison to the international segment, increasing on average by 2.0% per annum and projected to reach 2.4 million visitor nights by 2023. The business and holiday segments will continue to dominate, accounting for around 40% and 30% of domestic visitor night demand by 2023. Growth will be strongest in the business segment at 3.9% per annum, whereas holiday/leisure visitor nights will grow at around 0.5% per annum. This reflects the changing economic profile of the Western Sydney region. With strong growth in the resident population, the visiting friends and relatives segment is also expected to remain robust with growth averaging 0.7% per annum although we note that this segment has a lower propensity in HMGSA.

Sydney Metropolitan HMGSA Projected Domestic Visitor Night Demand by Purpose of Visit


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11.5 Room Night Demand

JLL expects accommodation room night demand in Sydney Metropolitan to increase at an average rate of 3.0% per annum over the period to 2031 with growth averaging 3.6% per annum between 2014 and 2021 and 2.6% per annum between 2021 and 2031.


Near term growth is projected to be quite strong, averaging 4.5% per annum between 2014 and 2017 which would represent a considerably higher rate of growth than the 0.9% per annum which was achieved between 2008 and 2013. Improving corporate demand and emerging inbound tourism markets will underpin growth as well as recovery from traditional inbound source markets. Sydney Metropolitan is also expected to continue to benefit from overflow accommodation demand from the constrained city with few additions to CBD supply anticipated over the next three years. The expansion and decentralisation out of city core is also expected to continue whilst being further supported by the development of new accommodation product over the next few years.

Growth is expected to moderate through the medium term to average 3.1% per annum between 2018 and 2021 as capacity constraints in the CBD abate and demand is pulled back to the city with the opening of major new infrastructure projects such as the Sydney International Convention Exhibition and Entertainment Precinct from 2017, as well as the staged completion of Barangaroo.

Reflecting the distribution of future planned accommodation supply and close proximity to the city, room night demand growth is expected to be strongest in East and South Sydney with growth averaging 4.4% and 4.1% per annum respectively to 2021. Room night demand in North Sydney will be adversely impacted by the planned closure of two hotels in the near term but with a number of projects planned thereafter. Demand growth is therefore projected to grow on average by 3.6% per annum. A similar rate of growth is projected in West Sydney.


For the purposes of this project, we have also been asked to project accommodation room night demand to 2031. With limited information sources available upon which to draw, we have adopted the long term historical growth rate for our base forecast and made qualitative adjustments to that base in accordance with the factors outlined in Sections 12.1 to 12.3.

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12 Sydney Metropolitan Accommodation Market Forecast

JLL’s accommodation market forecasts represent the most likely outcome given past trends, current information and the impact of policy and industry changes. Supply, demand and pricing forecasts are developed using an iterative process based on econometric and time series models and an assessment of past relationships, noting that output variables are inextricably linked and that changes in one can have a material impact on the others particularly over a long horizon.


Historically, Sydney Metropolitan’s accommodation market has experienced cycles of around nine years with real RevPAR growth averaging 1.5% per annum over the past 25 years (1983 to 2013). Supply has been the major influence on the level of volatility with increases averaging 2.3% per annum. Demand has been much more stable, generally demonstrating consistent and reliable growth patterns, increasing on average by 3.0% per annum and having only recorded four years of decline in 1997, 2001, 2008 and 2009. Room rates have recorded slight growth in real terms (2013$), up from $125 in 1983 to an estimated $156 in 2013.

Sydney Metropolitan Accommodation Market Forecast Actual and Forecast Performance to 2031

Source: ABS, JLL

Going forward we expect the market to build towards a peak in 2015 before moderating over the next three years as new supply comes on line in the metropolitan area and as capacity constraints in Sydney City abate. This would result in a hotel market cycle of nine years. The level of real growth on the upswing is forecast to be 17.2% which is in line with the previous cycle. The reduction in real RevPAR over the downturn is however expected to be lower with improving demand prospects across the metropolitan area. Supply increases are expected to remain broadly in check given a general lack of hotel development feasibility but some projects will progress in close proximity to demand generators. Higher returns from competing alternate land uses e.g. residential apartments is also expected to result in strong completion for sites and some existing hotels may be closed for conversion in high-density residential areas (notably East, North and to a lesser extent South Sydney).

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Greater site availability in Sydney Metropolitan does mean that the supply backdrop could alter quickly should the outlook for residential sector moderate.

Sydney Metropolitan’s accommodation supply is expected to increase on average by 3.4% per annum to 2021 with the addition of around 4,099 rooms. This is three times the rate of growth which was recorded between 2003 and 2013. Short term supply is forecast to increase on average by 5.3% per annum to 2017 with the addition of around 2,547 rooms with new supply limited to known projects.

Additional projects are likely to be held back by a general lack of feasibility and competition from alternate uses. We do note however that there has been an increasing trend for developers to include a short stay component in mixed use developments as some developers believe such projects are viewed more favourably by planners and thus through inclusion there is a greater likelihood that the overall development will proceed. We note that projects which have not been designed to meet an identified accommodation need or been properly assessed against local market conditions may struggle to achieve the desired level of operational viability.

Supply projects are expected to moderate through the second half of the forecast period as the probability of all existing mooted and new projects advancing is low as feasibility hurdles will become more challenging as construction and proposed projects advance. Operating performance within Sydney Metropolitan varies significantly with the feasibility of any individual project having a greater regard to the immediate location. Viability can therefore increase significantly if a property is well-located to tourism demand generators and in some instances this could even make accommodation product the highest and best use of land. The trend towards mixed-use developments is also likely to result in more projects being progressed whereas serviced apartment projects are likely to emerge in areas where the residential market is strong. Between 2018 and 2021 Sydney Metropolitan room supply is forecast to increase at an average rate of 1.7% per annum with focus shifting back to the CBD in line with the completion of major infrastructure projects.

Demand growth is forecast to increase on average by 3.6% per annum to 2021 as domestic and international tourism markets recover and demand normalises. Demand growth is expected to outpace supply increases through the early forecast period and occupancy levels will increase, reaching historic highs by 2015. Displaced demand from Sydney CBD and the continued regeneration of Metropolitan areas (population growth, urban sprawl, economic redevelopment etc.) is likely to result in occupancies increasing above previous highs as Greater Sydney becomes more geographically diverse, although we note that demand will likely be pulled back to the city as capacity constraints alleviate.

As occupancy levels reach the market ceiling over the next couple of years, ADR growth will increase. Occupancy levels declined more sharply in 2009 in Sydney Metropolitan than in the CBD but with strong growth over the past few years. In periods of low demand, operators have fewer channels available by which to direct demand to hotels within the metropolitan area given the lack of demand generators which results in a reduced impetus to visit.

ADR is forecast to increase on average by 3.7% per annum to 2021 with stronger growth averaging 5.0% per annum over the next few years whilst the market remains constrained and as occupancy levels reach new highs. Similar to Sydney City, the introduction of dynamic pricing may also see rates increase at a higher rate than in the past. Accommodation market responsiveness has also improved considerably with rates lagging the monthly occupancy cycle by between only four and seven months during the most recent downturn.

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RevPAR growth in Sydney Metropolitan is forecast to average 3.9% per annum to 2021 with nominal RevPAR increasing from an estimated $113 in 2013 to $153 in 2021. This represents an increase of 36.0% and reflects the continued maturation of the Greater Sydney accommodation market.

Sydney Metropolitan Accommodation Market, Actual and Forecast Performance 2008 to 2031F

RNA

(000’s) %

Change RNO

(000’s) %

Change Occ %

% Change

ADR A$

% Change

RevPAR A$

% Change

Actual 2008 4,748 0.8% 3,268 -0.2% 68.8% -1.0% $135 3.9% $93 1.6%

2009 4,744 -0.1% 3,096 -5.3% 65.3% -5.2% $128 -4.8% $84 -8.7%

2010 4,738 -0.1% 3,299 6.5% 69.6% 6.7% $134 4.4% $93 10.8%

2011 4,709 -0.6% 3,359 1.8% 71.3% 2.4% $141 5.2% $100 7.1%

2012 4,757 1.0% 3,390 0.9% 71.3% -0.1% $153 8.4% $109 2.3%

2013 4,867 2.3% 3,424 1.0% 70.3% -1.3% $160 5.0% $113 5.2%

CAAG 2008 – 2013 0.5% 0.9% 0.4% 3.5% 4.0%

RNA

(000’s) %

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(000’s) %

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% Change

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% Change

RevPAR A$

% Change

Actual 2014 4,961 1.9% 3,526 3.0% 71.1% 1.1% $168 5.0% $120 6.4%

2015 5,040 1.6% 3,682 4.4% 73.1% 2.8% $180 7.0% $131 8.1%

2016 5,350 6.2% 3,866 5.0% 72.3% -1.1% $187 4.0% $135 5.5%

2017 5,797 8.3% 4,021 4.0% 69.4% -4.0% $195 4.0% $135 5.1%

2018 6,055 4.4% 4,142 3.0% 68.4% -1.4% $200 3.0% $137 5.7%

2019 6,238 3.0% 4,276 3.2% 68.5% 0.2% $206 3.0% $141 2.7%

2020 6,300 1.0% 4,407 3.1% 69.9% 2.1% $211 2.0% $147 1.7%

2021 6,363 1.0% 4,540 3.0% 71.3% 2.0% $215 2.0% $153 3.5%

2022 6,427 1.0% 4,675 3.0% 72.7% 2.0% $219 2.0% $159 3.8%

2023 6,539 1.7% 4,804 2.8% 73.5% 1.0% $228 4.0% $167 5.3%

2024 6,634 1.5% 4,910 2.2% 74.0% 0.7% $239 5.0% $177 2.9%

2025 6,744 1.7% 5,018 2.2% 74.4% 0.5% $254 6.0% $189 7.9%

2026 6,879 2.0% 5,128 2.2% 74.5% 0.2% $269 6.0% $200 9.4%

2027 7,154 4.0% 5,241 2.2% 73.3% -1.7% $280 4.0% $205 3.5%

2028 7,512 5.0% 5,398 3.0% 71.9% -1.9% $288 3.0% $207 2.0%

2029 7,963 6.0% 5,614 4.0% 70.5% -1.9% $297 3.0% $209 1.5%

2030 8,281 4.0% 5,727 2.0% 69.2% -1.9% $303 2.0% $209 2.3%

2031 8,530 3.0% 5,841 2.0% 68.5% -1.0% $312 3.0% $213 0.0%

2013 – 2031 3.2% 3.0% -0.1% 3.8% 3.6%

2013 – 2021 3.4% 3.6% 0.2% 3.7% 3.9%

2021 – 2031 3.0% 2.6% -0.4% 3.8% 3.4%

Source ABS, JLL

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12.2 Subregion Analysis

For the purposes of this Study, we have also produced accommodation market forecasts by subregion to assist with guiding planning policy. We note however that micro market forecasts are inherently more risky given the greater complexities and inter-relationships which exist at a more granular level, as well as the assumptions we have made about the future performance of the market.

RevPAR growth across the various precincts is expected to be broadly aligned over the period to 2021 albeit highest in West and East Sydney with growth expected to average 4.7% and 4.5% per annum respectively. This reflects the anticipated level of investment in infrastructure in these locations as well as the quality of new accommodation product which is being developed. In West Sydney in particular, hotel development remains challenging given the relatively low RevPAR compared to other subregions. RevPAR in West Sydney is expected to have averaged $90 in 2013. This compares to $108 in the South, $117 in the North and $124 in the East. Notwithstanding, performance is likely to be lumpy given the timing and magnitude of new supply when it does occur which will need to allow time for demand to catch up. Such changes will be magnified at the micro market level. Growth in the North and South is expected to be lower by comparison at 3.4% per annum respectively with near term performance weighed down by significant increases in accommodation supply with these two regions the current focus of development activity.


Longer term projections have been made having regard to historical averages as well as the key assumption that supply increases will continue to be the main driver of overall market performance. JLL expects accommodation room night supply in Sydney Metropolitan to increase at an average rate of 3.0% per annum between 2021 and 2031. This equates to an increase of 5,935 rooms. Projections assume that hotel development activity will remain largely subdued until 2027 when another construction cycle will occur. We have also assumed that two new hotels will be built outside of this cycle to service demand within the new Western Sydney airport precinct.

Room night demand is expected to remain on an upward trend in line with the higher levels of visitation which are projected across Australia. Growth over the period to 2031 has been smoothed to be in line with the historical average whilst taking account of changes in accommodation room supply and the fact that the Australian economy is likely to experience a recession or downturn over the long term, with such events having occurred around every eight years over the past four decades. The tourism industry has also experienced a series of demand shocks over the past ten years ranging from terrorist attacks to bird flu, impacting global or domestic demand. Demand growth between 2021 and 2031 is therefore projected to average 2.6% per annum.

Occupancy levels are expected to peak in 2026 around 74.4% which represents a slightly higher level than over the past few years and reflects the continued expansion of decentralisation of the city with more demand displaced across the Sydney Metropolitan area.

ADR growth is projected to be slightly higher than for the earlier decade, increasing on average by 3.8% per annum and largely a function of the timing of market cycles within each forecast period. RevPAR growth is projected to be slightly lower at 3.4% per annum reflecting the timing of new supply.

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12.4 Blue Mountains

Accommodation forecasts for the Blue Mountains are inherently risky owing to the small size of the accommodation market. As a result we have limited our forecasts to a ten year horizon with limited information available on which to base longer term forecasts as the accommodation market is not subject to the typical hotel market cycle as outlined for Sydney Metropolitan.

We are aware of two properties which are currently undergoing extension and renovation works in the Blue Mountains. These include a 16-room extension of the Parklands Country Garden & Lodges due for completion in November 2014, as well as the refurbishment of the Hydro Majestic. The property is currently closed with the accommodation component scheduled to re-open in December 2014.

The Hydro Majestic Hotel is undergoing an extensive redevelopment programme whereby the accommodation and the food and beverage facilities within the property are being revitalised as well as new retail and food and beverage facilities. These works are being undertaken to enhance the property’s facilities to include the largest conference and food and beverage facilities within the Blue Mountains tourism region while complimenting the property’s extensive and unique historical identity. The first stage of works will comprise a total of 60 hotel accommodation rooms, as well as 20 student accommodation rooms, extensive food and beverage facilities and conferencing facilities.

A second stage of works is also approved including a new accommodation facility consisting of 140 guest rooms offering views over Megalong Valley and a day spa. We have assumed that this project will progress over the medium term.

With few projects expected outside of these, Blue Mountains accommodation supply is expected to increase on average by 2.0% per annum to 2021 with the addition of around 203 rooms. This represents a marked change to the previous ten years when accommodation room supply declined. Short term supply is forecast to increase on average by 5.0% per annum to 2017 and as a result additions over the longer term are likely to be reduced with little impetus for new development. Additional projects are likely to be held back by a general lack of feasibility and a tightly controlled planning regime owing to the significance of the location.

Room night demand is expected to be lower by comparison with new and refurbished product likely to take market share from existing competing properties rather than attract new visitors to the region. That said, the scope and scale of food, beverage and conference facilities at Hydro Majestic could see MICE demand increase. Demand is projected to grow on average by 2.1% per annum to 2021. This is lower than the forecast growth for Sydney Metropolitan owing to the high domestic and leisure content but higher than the level recorded over the past ten years. Increasingly the Blue Mountains are viewed as a day trip destination by visitors with a reduction in overnight stays over the past decade. A growing Sydney population and higher proportion of international visitors transiting through Sydney is likely to provide some uplift in demand however the region also faces increased competition from the growing holiday rental market. New supply will therefore take time to be absorbed and occupancy levels will likely moderate through the medium term.

ADR is forecast to increase on average by 3.5% per annum to 2021 with market rates expected to be lifted by the refurbished/new product and the provision of additional guest services. RevPAR growth is forecast to average 3.6% per annum to 2021 with nominal RevPAR increasing from an estimated $78 in 2013 to $104 in 2021. This represents an increase of 33.1% and a similar to that which was achieved over the past decade.

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APPENDICES

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Appendix One – Glossary of Terms & Definitions

Glossary of Terms

ABS – Australian Bureau of Statistics

ADR – Average Daily Rate

BPI – Building Price Index

CAAG – Compound Annual Average Growth

DA – Development Approval

FF&E – Furniture, Fixtures & Equipment

GFA – Gross Floor Area

GFC – Global Financial Crises

GOI – Gross Operating Income

GOP – Gross Operating Profit

GST – Goods & Services Tax

HMGSA – Hotels, motels, guesthouses and serviced apartments

HNWI – High Net Worth Individual

HVI – Hotel Valuation Index

ICCA – International Congress and Convention Association

IRR – Internal Rate of Return

IVS – International Visitor Survey

JLL – Jones Lang LaSalle

LCC – Low Cost Carrier

LPT / REIT – Listed Property Trust or Real Estate Investment Trust

LVR – Loan to Value Ratio

NVS – National Visitor Survey

NYC – New York City

OS&E – Operating Supplies & Equipment

PAR – Per Available Room

POR – Per Occupied Room

RNA – Room Nights Available

RNO – Room Nights Occupied

RevPAR – Revenue per Available Room

TFC – Tourism Forecasting Council

Trophy Assets - a particularly valuable, important or rare hotel asset e.g. Park Hyatt Sydney

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TRA – Tourism Research Australia

SWF – Sovereign Wealth Fund

VFR – Visiting Friends and Relatives

Yield – Income return on an investment

Geographic Areas

East Sydney - comprises the local government areas of Randwick, Woollahra and Waverley;

West Sydney - comprises the local government areas of Ashfield, Blacktown, Liverpool, Campbelltown, Parramatta, Penrith and Strathfield;

North Sydney - comprises the local government areas of Lane Cove, Manly, North Sydney, Ryde, Hornsby and Willoughby;

South Sydney - comprises the local government areas of Bankstown, Rockdale, Sutherland and Botany;

Outer Sydney - comprises the local government areas of Camden, Hawkesbury, Richmond, Windsor and Wisemans Ferry and;

Blue Mountains Tourism Region - comprises the local government areas of Blackheath, Katoomba, Leura, Lithgow, Oberon and Wentworth Falls.

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Appendix Two - Forecast Methodology

Jones Lang LaSalle’s accommodation market forecasts represent the most likely outcome given past trends, current information and the impact of policy and industry changes. Supply, demand and pricing forecasts are developed using an iterative process based on econometric and time series models and an assessment of past relationships, noting that output variables are inextricably linked and that changes in one can have a material impact on the others particularly over a long horizon.

Accommodation Room Night Demand

The first iteration for projecting accommodation room night demand involves the creation of a base forecast using Tourism Research Australia’s ten year visitor night forecasts. Tourism Research Australia (TRA) produces semi-annual ten year forecasts for domestic and international visitor nights for Australia as well as the proportion of visitor nights expected to be spent in Hotels Motels Guesthouses and Serviced Apartments (HMGSA).

Historically, TRA has produced forecasts for international visitor nights to Australia by inbound source market and domestic visitor nights to each state and state capital by motivation to travel. TRA estimates activity and expenditure using a combination of econometric and time series models based on aviation capacity, price, income and seasonality as well as significant events affecting source markets. For the purposes of this analysis, we have used Tourism Research Australia’s TFC Forecasts 2013 Edition 1 which provides an estimation of visitor night demand to 2022.

Historical performance data for Sydney’s paid accommodation (hotels, motels, guesthouses and serviced apartments) is obtained from Tourism Research Australia’s TRA online database, sourced from the quarterly National and International Visitor Surveys.

Combining these forecasts and applying these growth rates to historical performance, Jones Lang LaSalle projects visitor nights in HMGSA (hotels, motels, guesthouses and serviced apartments) and forecasts accommodation room night demand through the application of a room density figure, calculated as visitor nights divided by room nights occupied.

The second iteration involves an interrogative review by senior hotel advisors across a range of business lines, and the application of qualitative adjustments with regard to factors including, but not limited to:

Investment in local tourism demand generators – an estimation is made as to the likely impact of major new tourism infrastructure (either under construction or planned) which has the potential to attract new or additional sources of visitor night demand or redistribute demand across the City precincts (or broader metropolitan area);

Occupancy ceiling – an assumption is made (by reference to historical performance) with respect to the annual average occupancy ceiling which takes account of monthly and weekly seasonality patterns at which point a proportion of room night demand is likely to become frustrated and turn away. For example corporate travellers only require accommodation demand Monday to Thursday. International leisure travellers want to visit Sydney during the summer months and will not change travel plans to visit during June even if offered at a significantly lower price;

Room density factor - whilst aggregated visitor nights (Tourism Research Australia) and room nights occupied (Australian Bureau of Statistics) are highly correlated, growth rates can sometimes appear askew which can

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be partly explained by apparent changes in room density. A comparison of historical visitor nights and room nights occupied in Australia suggests that room density has declined over the past decade from 2.30 persons in 2002 to 1.86 persons in 2012 which reflects structural shifts in the accommodation demand profile with a greater reliance on the domestic corporate segment in recent years. We have typically used the short-run average in our accommodation demand forecasts, whilst also giving regard to the general long term trend;

Supply induced demand – a proportion of additional room night demand will be stimulated by the development of new accommodation product, although not sufficient to warrant new development in the first instance. A qualitative assumptions is made with respect to the likely level of supply induced demand given the prevailing market conditions at that time and nature of the product which h is being developed; and

Tactical marketing - the most recent downturn highlights the extent to which additional demand can be stimulated through the use of tactical marketing and promotions by hoteliers and air carriers during low periods of demand in key city destinations such as Sydney.

The final iteration involves a comparative review by research and advisory business heads across Australia’s major accommodation markets. These senior advisors conduct frequent consultative interactions with a wide range of hotel industry market participants in order to achieve a balanced consensus view of future expectations for Australia’s major accommodation markets.

For the purposes of this project, we have also been asked to project accommodation room night demand to 2030. With limited information sources available upon which to draw, we have adopted the long term historical growth rate for our base forecast and made qualitative adjustments to that base in accordance with the above factors.

Accommodation Room Night Supply The first iteration for projecting accommodation room night supply involves as assessment of accommodation room night supply having regard to known projects at that time. JLL tracks accommodation projects as they are mooted, proposed, under construction, completed or taken out of the market. We obtain information from press, local councils, Cordells construction database, Cityscope, tourism organisations, hotel operators and developers, as well as from local Jones Lang LaSalle’s offices. Where the proposed number of rooms has not been made publically available or where our investigations have not been able to confirm the proposed room count, Jones Lang LaSalle will estimate the likely number of rooms.

Serviced Apartment projects include our current best estimate of the number of apartments which will be included in rental letting pools and offered for short term accommodation stays. Furthermore, some projects originally approved as residential apartments can occasionally evolve to become serviced apartment projects and in light of these factors, this is therefore subject to change.

Accommodation projects are graded in accordance with their current stage in the development process and our opinion about the likelihood that they will progress owing to factors such as the quality of the sponsor and/or project (e.g. mixed use or government mandated), as well as the current and projected trading conditions in the local accommodation market at that time. Broadly we categorise projects into four stages including:

Site speculation – aware a site has been bought and a hotel development is being considered;

Mooted - include those where a Development Application (DA) for accommodation rooms has recently been submitted or is under review. We note that there is no guarantee that these projects will progress;

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Proposed - projects where the DA has been approved and Jones Lang LaSalle expects construction to commence within two years;

Under construction – projects where site works or full construction have commenced; and

Recently opened.

Typically we only include proposed projects (and above) in our five year forecasts, as well as an element of unanticipated supply which accepts that despite our best efforts we do not have complete visibility of all development projects which are being considered at any one time. For the purposes of this project given the longer forecast horizon, we have also included mooted and speculated projects in our analysis.

The second iteration involves an interrogative review by senior hotel advisors across a range of business lines, and the application of qualitative adjustments with regard to factors including, but not limited to:

Hotel and property market cycles - forecasts have been made with regard to our expectations about the length and point in the hotel cycle as well as the impact of or trends within alternate core property segments;

Development feasibility - the hotel industry is cyclical and investment strategy aligned to the various stages in the cycle. RevPAR (Revenue per Available Room) - as an indicator of profitability – can act as a signal for when new hotel development might become feasible. The calculation of a RevPAR development trigger is used to pinpoint at which time new hotel development might become feasible in accordance with the methodology outlined in Appendix Two. This also takes regard of the potential for office conversions;

Differing owner motivations - supply increases will occur even when development is apparently not feasible and the accommodation development trigger has not been met. The range of input variables and differing expectations about market-wide and site specific future trading performance, as well as investment hurdles and other contributing factors can result in some developments progressing outside of the typical development cycle. This can become more pronounced when significant investment in tourism infrastructure or events occurs;

Conversion to alternate uses - when hotel trading performance comes under pressure or other property sectors perform well (most notably the residential sector) it is likely that developers will acquire hotel assets for total or part conversion to an alternate use. Pinpointing the likely time that this may occur is complex and thus we have not included an estimation of likely closures in our forecasts other than for those projects which are already known; and

Liquidity surge - a surge in liquidity (debt or equity, real or perceived) can impact investment hurdles and may lead to an increase in development activity. Examples over the past twenty years in Australia include hotel development which occurred across Australia in the late 1980s, with significant investment by Asian investors and more recently a change to planning legislation to permit strata-titled development.

The final iteration involves a comparative review by research and advisory business heads across Australia’s major accommodation markets. These senior advisors conduct frequent consultative interactions with a wide range of hotel industry market participants in order to achieve a balanced consensus view.

For the purposes of this project, we have also been asked to project accommodation room night demand to 2030. With limited information sources available upon which to draw, we have adopted the long term historical growth rate for our base forecast and made qualitative adjustments to that base in accordance with the above factors.

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Pricing (Average Daily Rates) The first iteration for projecting pricing involves a forecast of average daily rates having regard to the historical relationship between occupancy and ADR, typically lagged by one year. Accommodation markets in Australia have typically exhibited greater downward price elasticity, particularly when faced with significant increases in room supply as evidenced in Sydney in the late 1990s. Over the past decade, the correlation between movements in occupancy and ADR has increased with the advent of online technology and sophisticated distribution systems. This has resulted in lower levels of reliance of contracted business and operators have become better at yielding in accordance with fluctuations in room night demand.

The second iteration involves an interrogative review by senior hotel advisors across a range of business lines, and applying qualitative adjustments with regard to factors outlined throughout this report for example market mix, infrastructure development and the grade and scale of new and competing accommodation supply, as well as consultation with a wide range of hotel industry market participants in order to achieve a balanced consensus view.

Risks to the Forecast There are many factors influencing the accuracy of accommodation trading performance forecasts. Forecast models use historical information to estimate past relationships between the dependent variable (supply & demand) and explanatory variables (e.g. average daily rates). Such relationships may not hold in the future. Further, external shocks to the industry can disrupt these relationships in the short term or lead to structural change. Risks include:

Structural change – forecasting from an uncertain base is inherently risky. The extent to which the global financial crisis and economic slowdown has resulted in a structural break remains to be seen and will only become evident over the next few years. For example historical travel trends and investment drivers may undergo a permanent shift, impacting the extent to which historical time-series and data can be relied upon. Moreover predicting the point in the future at which growth will start to flatten is also inherently difficult whereas economic models tend to assume by their very nature that growth will continue into eternity.

Demand or economic shocks – the Australian economy has suffered a number of recessions or downturns over the past forty years which have occurred around every eight years. The tourism industry has also experienced a series of demand shocks over the past ten years ranging from terrorist attacks to bird flu, impacting global or domestic demand. Predicting the timing of such events is understandably complex particularly over the long term. Our forecasts have not made any such allowance but past experience would indicate that one major shock is likely to occur within the ten year forecast period. This has been reflected in the CAAG i.e. through the use of smoothing in latter parts of the forecast.

final nsw visitor accommodation supply plan … · 1.7 city of sydney supply & demand study ......

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