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News release

Sydney

The returning corporate market, a boost to CBD hotel revenue

Low commercial vacancy rates contribute to Sydney and Melbourne RevPAR growth


The Sydney five-star accommodation market experienced strong RevPAR growth of 11.8% in Q2 of this year, while Melbourne also performed well with RevPAR growth of 8.3%. While this growth has been bolstered by sporting events, special events and increased visitor arrivals, growth is also being underpinned by the improving corporate market and increased demand from meetings and conferences.  

In the second quarter of 2014, JLL recorded positive net office absorption of 21,800 square metres in the Sydney CBD and a reduction in the vacancy rate to 9.9%. JLL also recorded positive net absorption of 11,100 square metres in the Melbourne CBD in Q2 of 2014. Furthermore, prime gross effective rents increased by 2.3% and 0.8% in Sydney and Melbourne over 2013/14 supporting the demand for commercial office space

The current trend with RevPAR growth and declining vacancy rates in Sydney and Melbourne supports that RevPAR growth follows improved commercial office performance. City hotels appeal to a variety of market segments but are benefitting from increased demand from corporate guests who generally utilise hotels during the week.  The choice of hotel is likely based on the proximity to the office, corporate travel policies and the brand. Subsequently, an office precinct with a low vacancy rate may increase adjacent hotels' occupancy and drive RevPAR growth, coupled with creating the opportunity for hotels to yield room rates to increase profitability.

While the Sydney and Melbourne commercial office vacancy rates have declined for the second quarter, hotel segment has continued to grow the RevPAR performance, noteworthy is the improved RevPAR performance during the traditionally soft months of May and June.

Conversely, Canberra is exhibiting the signs of a softening accommodation market with RevPAR declining this year. Canberra also recorded negative net office absorption of -26,600 square metres and a rise in vacancy to 13.2% in Q2 of this year.

In Sydney and Melbourne there appears to be a clear connection between hotel RevPAR performance and the CBD office vacancy rate; RevPAR performance strengthening when the office vacancy rates are trending downwards.

Over the next three years there could be some contraction of the amount of office stock in the Melbourne and Sydney CBD markets as assets are reviewed for residential conversion potential, which has the potential to maintain the momentum of RevPAR growth in the short to medium term.

In the short and medium term in our view there is value in tracking commercial office vacancy trends to assist hotels with the 2015 budgeting process, to review the opportunity to grow year on year profitability.