27/03/2007 - 22:00

Hotel capacity reaches critical point

27/03/2007 - 22:00

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A study looking at Perth’s hotel needs for the next 15 years is expected to reveal significant capacity constraints as the sector experiences its biggest growth period in two decades.

Hotel capacity reaches critical point

A study looking at Perth’s hotel needs for the next 15 years is expected to reveal significant capacity constraints as the sector experiences its biggest growth period in two decades.

A hotel investment study, compiled by tourism analyst Alan Boys and currently in draft form, reveals that the three-, four- and five-star Perth hotel market grew at 9 per cent in 2004-05 and 11 per cent in 2005-06, well above the long-term average.

Mr Boys said this growth period, driven mainly by the increase in business travel, was the most significant he had seen since the development boom-induced demand in the mid-1980s.

However, he pointed to concerns over increasing construction costs, site costs and the lengthy approvals process as potential deterrents for potential hotel developers.

“It’s impossible to pencil in new developments at the moment, construction costs have risen so dramatically, and costs of site have risen dramatically,” Mr Boys told the luncheon forum.

The study also revealed that average room rates for Perth hotels were 18 per cent below what they were over 10 years ago, even after allowing for inflation.

Mr Boys said hotels at the west end of the city should not discount to the levels they were because they were in the prime and preferred locations for corporate travellers.

“Average room rates have been terrible in Perth for better part of the past eight years,” he said.

“It is changing. But I did see $99 rates for a certain 5-star hotel in Perth on wotif.com. That should have gone out years ago, that’s nonsense.”

Mr Boys believes the real test of the profitability increase of this market is how the hotels fare in the low season.

“If they do well in June, July and August, it’s going to be a significantly good year for the operators, and materially above where they were last year,” he said.

Esplanade Hotel Fremantle managing director Marylyn New agreed that Perth hotel rates were too low and at times heavily discounted, which made it difficult for other hotels to hold their rates.

“[Hotel] operators give in because they want to get that occupancy. They don’t hold, and they don’t get value,” she said.

“Ten days out from New Year’s Eve we had 73 rooms to sell. We sold 100 per cent. We held our rate, we were 40 per cent higher than every hotel in Perth.

“You can do it. It’s too easy to get people in and lower your rates. And it makes tough to hold it up.”

Broadwater Hotels and Resorts chief executive Scott Cogar said average room rates were going up as a result of the increase in business travel.

“One thing that’s coming out of the corporate boom is that its unlocked room rates, and that’s a positive outcome,” Mr Cogar said.

Qantas WA regional manager Ian Gay said capacity constraints in the hotel sector were also constraining demand, resulting in the stress problems currently being dealt with.

He urged the sector to create greater capacity, which would in turn create greater demand.

“Demand is constrained because capacity is unable to move. Nobody’s had a crystal ball, and everyone’s stuck and stymied and full,” Mr Gay said. “Were kind of stuck because with the philosophy of capacity driving demand, we’ve got too many reasons of why we don’t do it in the first place.”

Emerald Hotel operator Laurie O’Meara is also concerned about the potential of a hotel room shortage in Perth.

He believes that construction of more hotel rooms needs to commence immediately if they are to be ready in two to three years’ time.

However, some in the room expressed reservations about the prospect of new hotels, just when the industry was enjoying significant occupancy rates for the first time in many years.

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