SYDNEY — While Australia waits for a comeback in international tourism, Sydney — the country’s top destination for locals and foreigners — is still performing well, according to hoteliers.
Dave Baswal, CEO at Hong Kong-based Ovolo Hotels, said Sydney’s average daily rate is strong, despite lowered occupancies. Australia recently ended COVID-19 restrictions for international visitors on July 6.
“Hoteliers are holding [ADR] to make up for the lower occupancy that still exists," he said. "A good strong ADR is definitely helping, especially in the leisure sector, where it’s even ahead of 2019 by about 8% to 10%. That’s because domestic business is punching above its weight and filling in the gaps."
Mark Durran, managing director of JLL’s hotels and hospitality division in Australia, agreed that recovery in the city has been faster than anticipated, with Sydney's revenue per available room up 49.9% compared to the same period last year.
“What’s particularly pleasing is the strength in ADR compared to last year, which in many cases is outpacing hotel budgets. That’s partly due to the changing market mix post-COVID-19, with domestic leisure business leading the resurgence and typically paying a stronger rate than other market segments,” he said.
Despite a small dip in performance between June and July, improvements in performance over pre-pandemic levels continue at a lively pace, according to data from STR, CoStar's hospitality analytics firm.
ADR for Sydney hotels in July increased 21.5% over July 2019 to 239.96 Australian dollars ($165.34), while RevPAR increased 2% to $157.80 Australian dollars. Hotel occupancy in July was 65.8%, which is still 16.1% below 2019 levels.
“But occupancies are rebounding, too,” Durran said.
Baswal said his two Sydney hotels “are doing amazingly well in the absence of international tourists and bigger conferences.”
He said ADR at his luxury the Ovolo Woolloomooloo “for the winter season … is ahead of 2019," while at his boutique asset, The Woolstore 1888, is “4% to 5% up on pre-pandemic levels. … But if you ask the same question to big box hotels in the [central business district] and Darling Harbor that rely on their facilities for conferences, the answer will be different."
According to Tourism Australia, there were 231,000 overseas tourist arrivals to Australia in May 2022, which is a 65% decline on pre-pandemic levels. Sydney gets most of those visitors.
Jerry Schwartz, CEO of hotel owner Schwartz Family Co., which has 14 hotels in its portfolio including the Sofitel Darling Harbour, said downtown Sydney hotels continue to stay healthy.
“Despite very little international inbound, most Sydney [central business district] hotels are at about 60% occupancy,” he said. “However, compared with the high occupancy — over 90% — Sydney has previously been enjoying, this is still low, albeit at higher rates,” he said,
Schwartz added that hotels are enjoying almost full occupancy at high rates on weekends.
“[These big-box hotels’] occupancy gaps are much larger to be able to overcome [them] with ADR growth, so lifestyle hotels are doing much better based on the domestic leisure market … So, in a way, the full recovery has happened for lifestyle hotels.” he said.
Accor Pacific CEO Sarah Derry said leisure demand will continue to keep Sydney hotels afloat until business travel is steady.
“We’re seeing a steady improvement in Sydney hotel performance and the domestic leisure market continues to dominate,” Derry said. “But conferences, events and business travel are also making a comeback, and we expect the business market to continue to build."
Derry said it's possible international arrivals will not return to their previous heights until at least 2024.
“International tourism will take some time to return. We should see it normalizing within the next two to three years. We need the government to invest in strong marketing campaigns, and we need workers to come back,” she said.
Bricks and Mortar
Hotel investors haven't shied away from Sydney.
“Sydney, being Australia’s global gateway, heads up the investment surge and is one of the more popular investor destinations,” Durran said. “Much of the money is from global private equity firms such as Pro-invest and [Baring Private Equity Asia]. They can choose to invest anywhere in the world but are choosing to place their faith here."
Of note, the Hilton Sydney recently sold for 530 million Australian dollars, which JLL brokered. Durran said the deal is "emblematic of the confidence in Sydney’s rapidly recovering hospitality sector and its long-term fundamentals for demand and supply."
“Despite the current headwinds, landmark hotel assets remain highly sought-after and obviously investors are confident that the rebound will continue,” he added.
Durran said approximately 1,639 rooms are in the Sydney pipeline, with the 585-room W Sydney comprising approximately one third of them.
Despite construction hiccups early this year, that hotel still is on track for a 2023 opening, said Sean Hunt, area vice president of Australia, New Zealand and Pacific at Marriott International.
He said investor appetite for new projects in the region is stronger than ever.
Accor also sees room to grow its footprint in Sydney, Derry said.
“Lifestyle hotels have a strong growth trajectory,” she said. “Accor continues to strengthen its position in this segment with Ennismore, which develops lifestyle concepts that integrate entertainment, restaurants and bars to attract locals as well as travelers."
Pivotal to that development is the 2023 opening of the 105-room 25hours Sydney, the debut for the brand in Australia.
Accor also is growing the presence of its Mercure flag, which Derry said is the fastest-growing global midscale brand in Australia.
In 2022, Salter Brothers bought the Australian Travelodge portfolio of 10 assets for 620 million Australian dollars and subsequently reflagged those assets under Accor’s Ibis Styles and Mercure brands.