Sydney's new hotels put pressure on occupancy

Sydney, Australia. Photo credit: kitkatty007/Pixabay

New hotel room supply in Sydney has driven declines in both occupancy (despite the increase in demand) and hotel performance, according to a report from Horwath HTL Australia. 

New properties are entering the market after years of a supply slowdown. Sydney has 17 new hotels, which were either opened or extended in 2017. These include the 136-room Mantra Hotel at Sydney Airport, the 209-room Travelodge Mascot, the 590-room Sofitel Darling Harbour, the 182-room Curio Collection by Hilton-West Hotel Sydney, the 119-room Holiday Inn Sydney St Marys and the 88-room extension of the Mercure Sydney Liverpool. The new properties added 2,437 guestrooms to the market. 

Sydney's hotel pipeline

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Even more hotels are in the development pipeline for Sydney, including the Four Points by Sheraton Sydney Central Park, the Quest Penrith and the Skye Suites Sydney CBD. The 42-room extension of the city's Meriton Suites Bondi Junction is also slated to be complete soon.

Horwath HTL predicts that Sydney has approximately 4,600 upcoming guestrooms, which will begin operating by the end of 2022. The group expects a majority of the hotels will open in 2019 and 2020. These additions will increase the supply 2.6 percent by 2022, causing occupancy to drop until 2021. 

Recent hotel transactions

The number of hotel transactions dropped in 2017, despite the growing demand. 

"There appears to be no shortage of interest from buyers. [However,] sellers seem to be holding off and instead enjoying the increased operating income returns," Stefan Muff, consultant of Horwath HTL Australia, said in a statement.

A few recent hotel transactions in Sydney include the $76.4-million sale of the Mercure Sydney International Airport Hotel in October 2017, the $23.2-million sale of the Veriu Green Square in November 2017, the sale of the development Gold Fields House in January 2018 for an undisclosed price, the $10-million sale of the North Shore Hotel in February 2018 and the $30-million sale of the BreakFree on Clarence in April 2018. 

New Sydney hotels. Photo credit: Horwath HTL

Hotel market forecast

Horwath HTL predicts demand for guestrooms will remain strong within the next 12 months due to the New South Wales' economy growth. Deloitte Access Economics predicts the state's economy will grow 3.2 percent in 2018, surpassing the Australian average of 2.7 percent. 

Horwath HTL also forecasts the International Conference Centre Sydney's performance will remain strong. The conference center has more than 1,300 large national and international events booked until 2026, including Sibos 2018 in October, COSPAR 2020 and the 18th World Congress on Medical and Health in 2021. 

The group  predicts 2018 will be a strong year for ADR, growing 3.1 percent to AU$237. RevPAR will also rise 4.4 percent in 2018 to AU$206, in response. The supply additions over the next few years will slightly impact RevPAR growth in 2020. Therefore, Horwath HTL predicts RevPAR will grow 4 percent by 2020.