RESEARCH & CONSULTING

Key Facts The Australian tourism sector continues to go from strength to strength, with international visitor growth increasing 9.2% The hotel market is mature and well over the 12 months to March Market in Context established, driven by demand from both the 2017. The Australian tourism sector continues to go business and leisure sectors. With hotel International visitor numbers from strength to strength, underpinned by a market performance directly tied to the into Sydney increased 10.1% resurgence in international visitors brought fundamentals of the local economy, the over the year to March 2017 about by steady growth in the Australian growth of the NSW economy has been a (3.7 million visitors), currently economy (+2.4% annual growth to December primary driver of the strong performance capturing 47% of all overseas 2016), a depreciating Australian Dollar (albeit within the hotel sector over the past five tourists into Australia. remaining resilient) and increases in years. Off the back of increased hotel household spending capacity as a result of requirements from both domestic and Reflective of increased demand, historically low interest rates (cash rate sitting international visitors, the sector has hotel occupancy rates in at 1.5%). In the 12 months to March 2017, performed well since 2013 with hotel have 7.7 million international tourists visited performance metrics in Sydney significantly increased from 62.4% in April Australia, up 9.2% from the prior outstripping national averages over the same 2013 to 76% in April 2017 corresponding period and well above the period. With occupancy rates across the (YTD). historical growth rate of 3.5% per annum. broader Sydney region currently averaging With hotel operators continuing Highlighting the resilience of the sector, 86.8%, Sydney hotels are nearing full to drive ADR, RevPAR rates recent growth in international visitor numbers capacity and highlights the opportunity for have increased 32.4% over the into Australia has come at a time when global additional supply. past four years in Sydney financial markets have shown increased Olympic Park, well above the volatility. Hotel performance in Sydney Olympic Park 26.7% recorded for Sydney over has mirrored recent trends for the broader the same period. For Sydney, international visitor numbers Sydney region. Although occupancy rates in grew by 10.1% in the 12 months to March Sydney Olympic Park are lower than the There is a limited supply pipeline 2017, the highest annual growth of all the Sydney average at 76% verses 86.8%, and combined with increasing capital cities. Over the 12 month period, 3.7 occupancy growth in Sydney Olympic Park occupancy levels in Sydney million international tourists visited the has significantly outstripped the Sydney Olympic Park, returns from harbour city, accounting for 47% of all average, increasing from 62.4% in April 2013 hotels is expected to continue overseas tourists into Australia. to 76% in April 2017 (YTD). to improve.

The tourism sector is a key contributor to with an additional two million international Sydney’s economic output, accounting seats entering the Sydney market Accommodation for almost 5% of Sydney’s gross regional throughout 2016. Similarly, international Demand product and employing more than 74,000 passenger growth through people. Reflected by the strong is up 7.2% in the year to April 2017 The Sydney hotel accommodation market performance in hotel metrics, a large compared to the same period in 2016. has been the standout performer nationally, share of Sydney hotels are operating at aided by the emergence of Western Sydney near capacity several nights a week, Over 750,000 annualised new international as a leisure and business destination and compounded by the lack of supply seats have already been announced in more specifically Sydney Olympic Park. brought to market in recent years. Aiding 2017. The additional services have been Sydney Olympic Park attracts a mix of over this occupancy growth has been material focussed on Asia, with new and increased 14 million domestic and international visitors increases in holiday and education capacity to China, Vietnam, Korea, a year and plays host to over 5,600 events visitation into Sydney, while solid Indonesia and Hong Kong. The growth of annually. The precinct is home to some of fundamentals in the NSW economy has the Chinese market received a further Australia’s largest sporting and led to a pick-up in corporate travel into boost in December 2016 with the signing entertainment events across its stadiums, Sydney. of an historic new China-Australia air indoor arenas and sporting fields. One of services agreement. The agreement the precinct’s largest events, the Sydney International Arrivals immediately removed all capacity Easter Show, attracted over 920,000 people restrictions on airlines flying to and from through its gates in 2017. The numerous Chinese cities and is expected to generate Sydney is Australia’s global gateway city, events hosted across the precinct currently capturing almost half (47%) of all a new wave of growth from this important throughout the year ensures non-seasonal market in 2017 and beyond. international visitors into Australia. In demand for hotel accommodation. addition, international visitation into For Sydney Olympic Park, approximately Sydney is 43% larger than the second Historically, demand for hotel 30,000 international visitors stay in the largest tourist destination of Melbourne. accommodation in Sydney Olympic Park precinct per annum, making it the 15th In the 12 months to March 2017, there has been driven by sporting, entertainment were 3.7 million international visitors into most popular region in Sydney to stay for and conference events. However, with the international visitors. In regards to Sydney, supported by a significant pick- number of jobs within the Sydney Olympic Western Sydney, only the Blue Mountains up from Asia and the continued inbound Park precinct forecast to rise significantly and are ahead of Sydney arrival of New Zealanders. Notably, over the next 15 years, coupled with the Olympic Park in regards to overnight international aviation passenger growth global and national company tenant profile international visitors. into Sydney was its strongest in 12 years, (Samsung, NRMA, Lion Group and CBA), the forecast employment growth will have

positive demand implications for the hotel market. With Sydney Olympic Park expected to bolster its position as a major Sydney Olympic Park Tourism & Hotel Dashboard employment hub, it is anticipated that the business sector, stemming from visiting interstate and overseas employees to new and expanding business, will become more of a contributing factor to the demand for hotel accommodation.

Sydney is currently in the midst of an infrastructure boom with an unprecedented amount of funds being directed towards building a new airport as well as roads, tunnels and railways. Notably, a large share of these projects will directly benefit Sydney Olympic Park, ultimately improving connectivity to the CBD, Sydney Airport and other parts of Sydney. The recently announced West underground rail project connecting the Sydney CBD to Parramatta, via Sydney Olympic Park and The Bays Precinct will be a catalyst for further investment in Sydney Olympic Park, underwriting increased demand for hotel accommodation given the

2 SYDNEY OLYMPIC PARK HOTEL MARKET BRIEF - JUNE 2017 RESEARCH

reduced travel times. In combination with several hotel projects in the pipeline, has been a catalyst for the healthy the WestConnex road project and stage largely stemming from Parramatta corporate travel sector within the Park. two of the Parramatta Light Rail (Camellia including QT Hotel (252 rooms) and to Strathfield via Sydney Olympic Park), Altitude serviced apartments (254 An increase in occupancy rates has led to accessibility to and from Sydney Olympic apartments). an increase in average daily room rates Park will improve exponentially. (ADR) in both Sydney Olympic Park and Hotel Trading the broader Sydney region. In the 12 The new Badgerys Creek airport, located months to April 2017, ADR in Sydney 27 km from Sydney Olympic Park is Performance Olympic Park measured $198.20, up expected to accommodate five million 4.8% on the 12 months prior. A large re- passengers per annum once operational To illustrate the operating characteristics basing of room rates in the Sydney CBD, and will be a game changer to tourism and of the hotel market, we have compared as a result of occupancy rates hovering accommodation demand in Western the hotel performance of Sydney Olympic around 85%, has meant that ADR across Sydney. Given Sydney Olympic Park’s Park against the broader Sydney hotel Sydney increased 5.1% over the same strategic location within Sydney, existing market. Over the past five years, there period to $235.30. By comparison, ADR accommodation providers will directly has been a significant pick-up in the nationally increased by just 1.4% over the benefit. In addition, with Western Sydney’s demand for hotel accommodation within same 12 month period. population expected to grow to 3.6 million Sydney, reflected by the strong persons by 2036, at which point almost performance in room occupancies and an The confluence of increased occupancy three in five Sydney residents will live in the increase in average daily room (ADR) levels and ADR has led to considerable region, the next phase of growth rates. Occupancy (YTD) across the upward pressure on Revenue Per opportunities across all real estate sectors Greater Sydney hotel market has Available Room (RevPAR) in recent years. lie within the Western corridor of Sydney. increased from 82.8% in 2013 to 86.8% In the year to April 2017, RevPAR in in April 2017. This result has stemmed Sydney Olympic Park averaged $150.70, from a surge in international arrivals into compared to $204.20 for Sydney. Current & Future Sydney and coupled with limited room However, the RevPAR rate of growth Room Supply additions has led to a relative shortage of recorded in Sydney Olympic Park has hotel rooms across the Sydney outstripped the Sydney average over the At present, there are 835 hotel rooms metropolitan region. past four years, up 32.4% in Sydney across five hotels in Sydney Olympic Park, Olympic Park, compared to 26.7% for underpinned by the Pullman (218 rooms) For Sydney Olympic Park, YTD Sydney over the period (since April 2013). and Novotel (177 rooms) hotels. Notably, occupancy rates in the hotel market have existing room supply is skewed towards increased significantly over the past four 4.5+ star accommodation, representing years, from 62.4% in 2013 to 76.0% in 64% of rooms. No new hotels have been April 2017 (see Figure 2). While still down added to the market since 2012 (Quest from the Sydney average, occupancy Apartments). Looking ahead, there are no levels in Sydney Olympic Park have Opened 2008 additional rooms in the short to medium increased in response to limited new Upper Upscale Class / 5* term pipeline, however there is potential for supply and an increase in overnight 218 Standard Room & Suites additional supply to be added through the visitation to the precinct due to major Meeting rooms for up to 220 release of new sites. We note, beyond the events and corporate travel. Notably, the precinct’s low office vacancy rate of 2.9% Sydney Olympic Park precinct, there are Opened 2000 Upscale Class / 4.5* Sydney International Visitors Hotel Sector Performance 177 Standard Room & Suites Year to December ADR, Occupancy, RevPAR, YTD Conference facilities for up to 600

4.0 millions 14% $250 90%

$230 85% Opened 2012 3.5 11% $210 80% Upscale Class / 4.5* $190 75% 3.0 8% 140 One, Two & Three Bedrooms $170 70%

$150 65% 2.5 5% $130 60% Opened 2009 $110 55% 2.0 2% Midscale Class / 3.5* $90 50% 144 Standard Rooms 1.5 -1% $70 45% $50 40%

1.0 -4%

Apr-14 Apr-15 Apr-16 Apr-17 Apr-13 Apr-14 Apr-15 Apr-16 Apr-17

Apr-13 Opened 2008

2006 2010 2014 2008 2009 2011 2012 2013 2015 2016 2007 Sydney Olympic Park Sydney Economy Class / 2* INTERNATIONAL VISITORS ANNUAL GROWTH RATE (RHS) ADR REVPAR OCCUPANCY (RHS) 156 Standard Rooms

3

RESEARCH & CONSULTING Paul Savitz Director, Consulting +61 2 9036 6811  Over the next five years, both domestic Sydney Olympic Park have increased [email protected] and international tourism in Australia is significantly in recent years, Luke Crawford highlighting the increased demand for expected to strengthen. Domestically, Senior Analyst, Consulting tourism growth is forecast to increase accommodation in the precinct from +61 2 9036 6629 by 16.2% over the next five years corporate travellers and visitors [email protected] attending events. (Tourism Research Australia), while Marco Mascitelli aviation capacity growth between Research Analyst Australia and overseas markets is  With the hotel supply pipeline picking +61 2 9036 6656 expected to result in a 31% increase in up across Sydney, new supply is not [email protected] international visitors over the same five considered to impact the market before year period (Tourism Research 2018 and is expected to only cause a COMMERCIAL RESEARCH Alex Pham Australia). modest reduction in room occupancies. Senior Research Manager Although there is the potential for future +61 2 9036 6631  A strengthening tourism outlook is supply through the release of new sites, [email protected] expected to underpin growing demand there are no identified hotel projects in for hotel and serviced apartment the pipeline within the Sydney Olympic accommodation with occupancy and Park precinct. Subsequently, room rates expected to increase over occupancy and RevPAR rates in the coming 12 months. With Sydney Olympic Park are expected to occupancy rates across the broader trend above inflationary growth over Sydney market currently averaging the short to medium term, providing 86.8%, hotels are nearing capacity scope for additional accommodation several nights a week. Although lower provisions to be added to the market. than Sydney, occupancy levels in

Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs.

© Knight Frank 2017 This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Knight Frank Research or Knight Frank for any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not permitted without prior consent of, and proper reference to Knight Frank Research. This research report is not intended to be used to provide financial advice, express or implied, and we confirm that Knight Frank Research and Consulting is not licensed to provide financial product advice under the Corporations Act 2001.

Knight Frank Research Reports are available at KnightFrank.com.au/Research