$500 a day and the heat is on

Author: Robert Harley
Date: 29/05/2008
Publication: The Australian Financial Review
 
Sydney's most expensive hotel, the Park Hyatt, is charging an average $550 a night - and the cost is heading even higher.

General Manager Marlene Poynder expects the Park Hyatt's average rate to increase by 7 per cent this year. "We can't push it quite as much as some of the other hotels," she said.

The push is certainly on - and with virtually no new construction under way across the metropolitan area, hotel rates are set to rise further.

"The hotel industry has a lot of ground to make up because we are still relatively cheap compared to comparable hotels in Europe and Asia," Ms Poynder said.

Her colleague at the Park Hyatt in Moscow is charging EUR700 ($1148) a night for his rooms.

Ms Poynder said her market picked up in October 2006 and has been going strong ever since.

The occupancy rate at the hotel, in inner Sydney, was more than 81 per cent in 2007 - a 20-year high.

One tourism expert, Ryan Layers principal Tony Ryan, said that demand was still growing and there was no new supply. "Demand is sensitive to GDP [gross domestic product] growth, but the fact of no supply will mean that rates will rise," he said.

A senior vice-president of Jones Lang LaSalle Hotels, Gus Mors, said the market was seeing "a bit of a softening" at the moment but no more than was normal in winter.

"There has been strong rate growth, in the high single digits, over the last several years," he said.

"It's been driven by strong demand from corporate and business and lack of new supply."

The shortage of supply is chronic. Sydney has only 205 4-5 star rooms under construction, JLL Hotels says. And only 400 are proposed.

The one major hotel proposal for Sydney is part of the Barangaroo redevelopment at East Darling Harbour. It provides for a maximum of 50,000 sq m for tourist and hotel uses in stage one, which is not due for completion until at least 2013.

Mr Ryan said hotel developments struggled to compete against residential projects and, now that the residential sector was slowing, against a resurgence of interest in office towers.

Mr Mors said the shortage of sites and the escalating cost of construction were the key problems.

"Even in a fairly strong market, the cost of buying a second-hand hotel is cheaper than building a new one," he said.

Tourism analyst Dean Dransfield said room rates would have to rise about 10 to 15 per cent a year just to outpace the increase in building costs.