Sydney hotel supply to increase by 1,619 rooms in the near term

These are from eight properties currently under construction.

The Ace Hotel Sydney recently opened its doors to the market, marking the first new hotel opening of the year. The upper upscale 257-room hotel is situated in Surry Hills. For the second half of the year, one other property, the 121-room The Porter House Hotel-MGallery by Sofitel, is scheduled for opening in 3Q22.

Eight properties are currently under construction in Sydney and the surrounding fringe suburbs, representing a net increase of 1,619 rooms or 7.5% of existing stock. It is expected that new development activity will remain constrained over the near term, as feasibility and development finance challenges arise.

Here’s more from JLL:

With the easing of restrictions, strong growth in demand was evident in 2Q22, assisted by the free movement of travel interstate and the open international borders. Improving domestic and international air capacity, as well as major events like Vivid, have resulted in significant YTD ADR growth of 25.6% compared to the same period in 2021.

Occupancy as at YTD June 2022 improved to 52.6% y-o-y versus 44.0% y-o-y for the same period last year. Despite this, market occupancy has continued to be materially affected by the ongoing impact of the pandemic, illustrated by a pre-COVID-19 occupancy rate of 85.7% for the same period in 2019.

EBITDA continues to improve

With revenue now improving and significant cost savings being achieved by owners over the last 2 years, EBITDA is likely to continue its recovery.

While the direct impact of COVID-19 circumstances are now moderating, indirect effects are now emerging and are of concern. Examples include the disruption to global supply chains and production, labour shortages, escalating costs (i.e. inflation), as well as an increasing cost of debt (i.e. rising interest rate).

Outlook: Progressive recovery is anticipated to continue

Trading conditions are expected to remain somewhat constrained over the near term, as the Sydney market is likely to take time to normalise given its strong reliance on international and corporate/MICE demand. Despite this, strong ADR growth and recovering demand are anticipated to continue driving recovery.

Investors remain readily eager to acquire quality trophy assets or non-performing assets with upside potential, especially whilst sub-optimal trading conditions exist. Given the limited opportunities for large-scale investment grade products, the majority of transactional activity is expected to occur in the mid-market space.

Note: Sydney Hotels refers to all grades of accommodation and includes both hotels and serviced apartments.