How Covid-19 and monetary policy changes are impacting the Australian accommodation property market.
The Australian property market has experienced significant changes over the past few years and recent media and industry reports discuss that various sectors of the market, primarily residential and commercial, are entering a period of correction. Following the Covid-19 pandemic, the rapidly changing monetary policy environment has also contributed to market changes. In this article, we have reached out to national industry participants to provide insights into the going concern property space. We have discussed the general market trends in the hotel (pub), accommodation, and caravan park industries with active national agents in these specialist markets. We have also considered observations from valuation instructions within these sectors. The condition of the going concern property market in Australia varies depending on a range of factors, including economic conditions, consumer confidence and industry trends. It is also impacted by various state and federal regulations, for example licensing requirements, foreign worker availability etc.
Accommodation Sector
The accommodation sector includes a varied spectrum of properties from traditional hotels, motels, serviced apartments etc., and caters for a mix of tourists (both domestic and international) and travelling workers. Both of these client sectors had been heavily affected by Covid restrictions with international arrivals returning from many offshore markets, although not at pre-Covid levels for some of our largest markets i.e. China.
It is further noted, that over the past two years, and particularly post-Covid, regional accommodation businesses have seen a strong demand from workers and occupants related to large infrastructure and regional works, as well as strong rural industries, resulting in a larger travelling workforce. This demand has increased occupancy and revenue across the sector which, in the medium to longer term, may experience variations due to movement in overall macro-economic conditions stemming from changes in both monetary and fiscal policy.
Trudy Crooks, Managing Director, Resort Brokers adds, “In 2023 to date, when looking year-on-year, ADRs (average daily rates) have increased and occupancy remains stable or improved across nearly all markets.”
Technology Impacts
In recent years, there has been a trend towards increased use of online booking platforms and mobile technology in the accommodation industry, which has allowed for greater accessibility and convenience for consumers. Trudy Crooks continues, “Booking lead times are seeing some reduction as consumers act later in making holiday decisions, making drive markets more attractive options. This suggests cost of living pressures (caused particularly by an increased cash rate target and inflationary pressures) may be impacting people’s choice of holiday destinations, but it’s clear holidaying is not being eliminated altogether by the overwhelming majority. Australians per capita remain one of the world’s most travelled peoples, especially domestically.”
Accommodation industry owners/managers appear to face similar operational conditions and obstacles with insurance and labour identified as ongoing issues. The issue of increased insurance premiums and ability to source suitable insurance has been highlighted throughout various industries over the past twelve months which in part is a reflection of climatic conditions and events throughout Australia.
Trudy Crooks notes, “There are increasingly well-publicised issues particularly for caravan park operators around obtaining new, and in some cases renewed, insurance policies. There doesn’t appear to be a clear solution here yet, however we are noticing some vendors are starting to self-insure.”
The accommodation sector remains an historically robust industry which has maintained relatively consistent yields over a prolonged period, which, despite current macroeconomic influences appears to be remain resilient to the current monetary policy environment.
Trudy Crooks continues, “We anticipate asset values to hold up better than many other asset classes. Accommodation assets typically have higher yields overall compared to many other property/business types, meaning the impacts of the cost of finance are lessened on any yield/multiplier movements. We expect accommodation fundamentals for operators will remain similar to their current state; low vacancies/high occupancies and increased ADRs and rents (without additional pressures such as incentives that can diminish returns in other asset classes) are all positive indicators for the next 12 months. Challenges around cost of living may pressure some into taking shorter breaks closer to home, but this bodes well to support domestic tourism which continues to be strong. The steady return of international tourists over the next couple of years will also boost the sector.”
Continue reading our Going Concern sector updates for Hotel and Caravan Parks industry sectors below ↓