Since the reopening of borders, the number of international visitors to Australia has been more of a trickle than a flood, with many key markets, including China, still absent amid persistent controls from COVID-19, inflation and geopolitical concerns.
June data from the Australian Bureau of Statistics reveals outbound travelers are growing almost three times faster than inbound as Australians continue to flock abroad.
And yet a plethora of new hotels continue to spring up along the east coast – many of which were conceived on the promise of 1.3 million inbound Chinese tourists, a figure that has fallen to virtually zero.
Now, a strong domestic market ensures that hotels not only survive this difficult period of the pandemic, but also thrive.
The Australian hotel landscape has exploded in recent years; many projects currently under construction were given the green light before the pandemic. Some major developments in particular have experienced setbacks and construction delays, including W Sydney and Ritz-Carlton Melbourne.
Melbourne leads the growth, with more than 2,500 new rooms under construction, followed by Sydney (1,639 rooms) and Brisbane (1,386 rooms), according to data from Jones Lang LaSalle Incorporated (JLL).
Interest in development is not waning either. Peter Harper, JLL’s head of investment sales for Australasia, says that despite market uncertainty, deal activity remained strong in 2022, driven by the sale of the Hilton Sydney, the largest deal in Australia’s sole asset at $530 million.
“The biggest issues facing hotel investors right now are the rising cost of debt and massive labor shortages. The decline in Chinese tourism is really not in the conversation,” Harper says.
Of course, the lack of inbound visitors is not helping Australians’ holiday budgets, as data reveals that domestic travelers are paying for these financial headwinds.
Pent-up demand and government accommodation voucher programs have helped drive up hotel room rates, with hoteliers pocketing more per room than they were before the pandemic, helping to counter falling occupancy caused by the low number of visitors.
STR data for July shows that despite Sydney’s hotel performance declining from the previous month, average daily room rates were $239.96, down from $197.41 in 2019. In June, Melbourne hotels opted for an average daily rate of $210.54, a significant jump from $168 in 2019.
Tourism Accommodation Australia CEO Michael Johnson said the loss of the Chinese market is “a blow to our industry”, and room rates are unlikely to drop anytime soon as Australians are still ready to spit. any further.
“There are still voucher schemes around the country that the government subsidizes, like the Stay NSW Voucher scheme. The vouchers have driven up room rates,” Johnson said.
“Once we start to see the market stabilize, the voucher programs will stop and more foreigners will come in – particularly if they’re on wholesale rates – then we might see those rates come down a bit.”
The Stay NSW Voucher scheme, which allows eligible residents to claim $50 towards an accommodation reservation, expires on October 9, 2022.
The tourism sector is now focused on growing new markets, with India, Australia’s fastest growing market for visitor spending in 2019, topping the list. Qantas is leading efforts in the aviation sector with plans to launch a Sydney-Bengaluru service on September 14, 2022, as well as a new codeshare partnership with IndiGo. Elsewhere, Australia and India have started negotiations for a free trade agreement, to encourage tourism between the two nations.
But can hoteliers expect a return of Chinese tourism? The Chinese government has banned all “non-essential travel” as part of a strict zero-COVID strategy aimed at eradicating the virus.
James Laurenceson, director of the Institute of Australia-China Relations at the University of Technology Sydney, noted: “Chinese opinion polls conducted last year, even amid heightened geopolitical tensions, have showed that, overall, the desire to travel to Australia for tourism purposes remained strong”.
However, given Beijing’s extreme COVID approach, Chinese tourism is unlikely to return significantly this year. Laurenceson says it’s a matter of waiting for the Chinese government to liberalize outbound tourism flows, “most likely from the second quarter of next year.”