Hoteliers bullish about Melbourne recovery
Nearly two-thirds of hotel operators expect their Melbourne hotels to return to pre-COVID profit levels next year, despite the city bracing for an avalanche of new hotel openings and still lagging behind the recovery of other capital cities.
Of the 30 international and domestic operators surveyed by JLL (including Accor, Hilton, Marriott, Hyatt and Choice), 63 per cent said they expected their Melbourne hotels to achieve gross operating profit in 2023 on par with 2019, while 38 per cent said this would only happen in 2024.
Tellingly for a market that endured lengthy lockdowns, not one of the 30 operators expected their Melbourne hotels to have returned to pre-COVID profit levels this year.
This compared with over one-third of operators (37 per cent) anticipating their Sydney hotels to have already returned to pre-COVID profit levels this year, followed by a slightly bigger recovery (42 per cent) in 2023.
“The majority of respondents are of the belief that Sydney, Melbourneand Perth are lagging slightly behind and will likely return to full-year pre-COVID levels of gross operating profit over 2023,” JLL said in its inaugural JLL Hotel Operator Sentiment Survey.
Adelaide was the best-performing hotel market this year with more than two-thirds of respondents anticipating gross operating profits in the SA capital in 2022 to match those of 2019.
Almost half of those surveyed were bullish about the performance of their Gold Coast (47 per cent) and Brisbane (44 per cent) hotels rebounding in 2022, while by 2024 – barring another pandemic-like event – all hotel markets are expected to be performing at 2019 profit levels.
Optimism about Melbourne hotels returning to pre-COVID profit levels next year comes despite a ramp-up in supply and as the city continues to report lower occupancy numbers than the other capital cities, though the gap is closing.
A December report by Colliers identified Melbourne as the epicentre of next year’s supply boom, accounting for almost half of the nearly 6000 rooms to open across the major hotel markets.
This follows Melbourne accounting for 55 per cent of all new room supply in 2022, a construction boom that has seen investors largely shun the city in favour of buying opportunities in Sydney, Brisbane and elsewhere.
“We did our own study, and believe there are too many hotels in Melbourne,” said Chayadi Karim, scion of one of Indonesia’s wealthiest families, which plans to build a $500 million portfolio of east coast hotels.
“Personally, I love Melbourne, but we have to go where the numbers lead us,” Mr Karim told the Financial Review earlier this month.
Looking at the recovery more broadly, 80 per cent of hotel operators surveyed by JLL unsurprisingly identified labour and staffing issues as the biggest challenge to improved profitability in 2023.
JLL noted that many groups were offering cash bonuses and other incentives to attract new workers and retaining those already on their payroll.
“The highest job vacancies include [food and beverage] staff, housekeepers and managers,” said Ross Beardsell, executive VP of hotel asset management at JLL. “However, the return of inbound migration and steady recovery of overseas students and migrants should see these vacancies begin to be filled over the short term.”
Rising energy costs were identified as another big challenge facing hotel operators. Surprisingly, given the number of new hotels in the pipeline, only 10 per cent of operators were worried about increased competition.
Looking ahead to 2023, hotel operators’ top priorities were implementing sustainability practices, refurbishing or repositioning properties and making greater use of technology to improve guest experiences or increase operating efficiencies.
