Approximately 1,200 miles north of Sydney lies Cairns, the “gateway” to the Great Barrier Reef and the World Heritage Daintree Wilderness. Cairns is a market that is once again blossoming, not so much because of new hotels but because of increased visitation and investment.

Hotel investors have taken notice of Cairns’ new demand, but also its lack of new hotel supply.

A case in point is the February relaunch and branding of the Cairns Harbourside Hotel. Located on the North Queensland city’s Esplanade, the hotel has previously operated as a Holiday Inn under Japanese investment firm Taisei Kanko, a forerunner of Cairns’ tourism growth that expanded the property from its original 100 rooms in 1993 to 173 rooms.

Now the Cairns Harbourside Hotel is up for sale, one of three notable hotel sales announced this year in Cairns.

“I wouldn’t take it as a negative. People sell for different reasons,” said Glen Macdonald, the Cairns Harbourside’s general manager since February.

Macdonald said he did not know what the future ownership of the Cairns Harbourside would be but for now, “it’s business as usual.”

“We just make sure the business is viable. Look after the assets, look after the guests. It may not sell. You’ve got to consider it both ways,” he said.

Cairns hotels have benefited from a rise in both domestic and international tourism, prompting a steady market for hotel transactions.

And while the number of visitors might be increasing, new hotel openings are not, which is also a plus for investors.

Mark Olsen, CEO of Tourism Tropical North Queensland, said the Cairns region needs 500 more new luxury hotel rooms in the next decade to capture inbound demand from new markets.

Matthew Burke, regional manager of Pacific, Japan and Central South Asia at STR, CoStar’s hotel-analytics division, said with no new hotels in four years since the luxury Crystalbrook Flynn opened in November 2020, there are “no current proposed projects in Cairns.”

“Instead, a number of properties have completed refurbishments in the past five years to reestablish their quality and reposition and support their ADR. That has and will continue to support future occupancy growth with improving demand,” Burke added.

Wayne Bunz, national director of capital markets and hotels in Australia at business consultancy CBRE, agreed that the dearth of new hotel supply is driving investment opportunities in Cairns.

He predicted supply constraints will continue to underpin recovery of the city’s limited assets.

This includes the Pullman Cairns International, which is up for sale for a guide price of AU$100 million-plus ($65.2 million) following an AU$17 million renovation conducted by owner Shakespeare Property Group in 2021.

“We only closed initial expressions last week. These deals take six to eight months,” said Bunz, who is brokering the deal. “The Cairns market has done particularly well. Queensland as a whole is one of the strongest markets, along with Perth, and Cairns closed last month off at 80% occupancy. It’s particularly strong in school holidays.”

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“With vacant possession available, there’s the opportunity for rebranding depending on the buyer,” Bunz said.

Richard Saab, vice president of hospitality assets and investments, Shakespeare Property Group, said any first mover in the luxury hotel space in Cairns will have a major advantage.

“Incoming buyers would be able to benefit from all the upside that this segment can offer,” Saab said.

There's evidence of strong investor appetite in such deals as the CBRE-brokered sale of the Pacific Hotel, Bunz said.

Australian hospitality group TPG Hotels & Resorts acquired the four-star hotel at the end of May after CBRE sold it for Perth-based Pacific Hotels Group. The hotel will now undergo a refurbishment program.

“The owners of that business had a different mindset — buy, build up and sell. It’s not a negative that it was put on the market,” Macdonald said.

Bunz agreed.

“It’s not about everyone selling hotels. It’s about people taking advantage of the demand for hotels in Australia, and that’s why you will have seen in the last 12 months, hotels have been one of the strongest asset classes that are continuing to trade well above previous acquisition prices,” he said. “Cairns is definitely a growth market, and with the cost of construction in Australia, hotels continue to trade substantially below replacement values.”

It's possible the Cairns market will not see any new hotel construction for a decade, Bunz said.

“The government talks about the need for new rooms, but when it comes to construction costs and feasibility, it doesn’t stack up. The cost of replacing the Pullman in Cairns will probably be AU$200 million,” he said.

Overall, Cairns as a market has recovered well, Macdonald said.

“Cairns is still emerging and is bouncing back very strong post-COVID, and there’s a lot of development. The expansion of the port and what they are doing across the whole of Cairns to bolster infrastructure, it is going to be enormous. We’re a very robust economy,” he said.

He added that the Cairns Convention Centre has received AU$171 million of investment.

“For businesses to be outlaying sizable amounts, that shows what’s happening with the town. It shows they have the confidence,” Macdonald said.

Cairns also has seen a population surge, which is forecast to rise from 175,000 today to 230,000 by 2030, Macdonald said. That’s far from the sleepy far-north Queensland market Cairns once was.

Then there is the tourism surge to Cairns, which has benefited from a AU$55 million upgrade to the city’s international airport terminal and an increase in both domestic and international flights.

Burke said Cairns benefited from Australians diving deeper into domestic travel during and after the pandemic.

“Cairns was like many leisure-centric destinations, a beneficiary of a rising [average daily rates], now 33% higher than in 2019. … ADR growth has now slowed considerably with year-to-date May 2024’s growth of 0.5% reflecting a ‘normalizing’ of demand with expansive choice for consumers and various state school holidays spreading the demand,” he said.

Burke said Cairns’ hotel occupancy recovery for the trailing 12 months to May is about 94% when compared to 2019.

Macdonald said “June was an exceptional month, with between 80% and 90% occupancy. ADRs in town are about AU$155, roughly.”

“Typically, earlier months in the year are a bit quieter. Then you start to see some growth from April onwards, through the year continuing. We are a combination of inbound, [frequent independent travelers], corporates and leisure … There’s a very strong interest through many market segments,” Macdonald said.

According to Tourism & Events Queensland, international tourism has rebounded by 75% on pre-pandemic levels, with the U.S., United Kingdom and New Zealand being the biggest inbound markets.

“All the travel trends in recent years have highlighted visitors’ increasing desire for accommodation that captures the destination’s DNA. We look forward to delivering a very authentic tropical Queensland experience,” Macdonald said.

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