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Hotel development projects stall as trading forecasts revised
Jones Lang LaSalle Hotels' Strategic Advisory team suggests RevPAR (Revenue Per Available Room) growth is now forecast to average 1.9% per annum between 2008 and 2011 compared to 8.4% between 2004 and 2007.
"Unless financing has been secured and construction imminent, proposed projects scheduled to open in 2010 and beyond are unlikely to materialise," said Mr Craig Collins, Managing Director - Investment Sales, Jones Lang LaSalle Hotels. He added, "Lenders are more likely to direct restricted capital toward existing product rather than riskier new-build developments."
Currently there are 6,246 rooms in the development pipeline with more than half of these rooms (58% or 3,630 rooms) under construction and the remainder at the proposal stage. "The number of proposed rooms has fallen to an 18-month low whereas rooms under construction are now at the highest level since 2003," said Mr Collins.
Accommodation construction hot spots include Melbourne, Adelaide and Darwin. "Projects progressing to the construction phase, notably the new Crown hotel in Melbourne (658 rooms) and Crowne Plaza Adelaide (314 rooms), would have secured development funding prior to the tightening of global and local credit markets through 2008," said Mr Collins.
Although unlikely, should all projects, under construction and proposed proceed, new rooms will increase existing stock by an average of 1.8% per annum in the period to 2012. This is on par with the rate of growth experienced over the three years to 2007.
In November 2008, national accommodation building approvals plunged 73% to a low $31 million, the lowest level in any month since May 2005. "The stalled development pipeline adds weight to the argument for a v-shaped recovery," said Mr Collins. He added, "Occupancy levels are high which should mean that markets will quickly return to levels which stimulate strong rate growth."
Continuing its trend from the last quarter of 2008, outbound travel is predicted to fall 2.9% in 2009 as a result of the weaker Australian dollar and the slowing economy. "The wildcard for Australian hotels will be the extent to which demand softens," said Mr Collins. He added, "Whilst more Australians are expected to holiday at home this year, inbound travel is likely to decrease by 4.1%."
Full Year 2008 indicative results
Source: STR Global 2008, Jones Lang LaSalle Hotels
Note: Based of a representative sample of 3-star, 4-star and 5-star hotels located in the CBD
The global team comprises over 270 hotel specialists, operating from 31 offices in 18 countries. The firm's advice is supported by a dedicated global research team, which produced over 45 publications in 2007 in addition to client research. Jones Lang LaSalle Hotels' services span the hospitality spectrum; from luxury single assets and large portfolios to select service and budget hotels, resorts and pubs. Their services include investment sales, mergers and acquisitions, capital raising, valuation and appraisal, asset management, strategic planning, operator selection, management contract negotiation, consulting, industry research and project development services. Jones Lang LaSalle Hotels' clients have access to the resources of its parent company, Jones Lang LaSalle (NYSE: JLL). www.joneslanglasallehotels.com.
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