'Revenue Destruction' For Years To Come

Hotel sector faces a slow and staggered recovery from the impact of Covid-19 and the result will likely be declines in revenue of over 30% over the next 12 to 24 months


Key points:

  • Hotel sector faces a slow and staggered recovery from the impact of Covid-19

  • 30-50% RevPAR reduction over the next 12-24 months in Sydney

  • 30-45% reduction in Melbourne


Dransfield Hotels has revised their report on Sydney and Melbourne forecasts, indicating that they believe the hotel sector faces a slow and staggered recovery from the impact of Covid-19 and the result will likely be declines in revenue of over 30% over the next 12 to 24 months.


The report forecasts that after four months of extreme declines, demand for accommodation will pick up from September when the easing of domestic travel restrictions takes effect. However, a return to pre-covid levels of 78% occupancy and $200 ADR will only be possible once international flights resume and all travel bans and social distancing measures are ended. Even then it will take time for demand to match these levels, which they believe will be no earlier than mid-2021.


Pre-covid, Sydney maintained an average occupancy of 87%, while Melbourne was at 83%. According to STR, current occupancy rates sit at c. 20%, with more than 400 hotels temporarily closed.


The Dransfield revision anticipates a 30-50% RevPAR reduction over the next 12-24 months in Sydney and a 30-45% reduction in Melbourne. "As Sydney is positioned earlier in its supply development life cycle compared to Melbourne, it has a greater opportunity to recalibrate to the lower demand, by delaying or cancelling proposals."

As a result of falling revenues, hotel values are also expected to fall for at least another two years and only start to recover in three years' time. Also affected will be hotel development, with 3,000 fewer rooms expected to be completed in Melbourne and 2,500 less in Sydney between now and 2028 as hotel development feasibility becomes more challenged.

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