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Chips Still Down, But Hoteliers Hold Out Hope

Chips Still Down, But Hoteliers Hold Out Hope (1)

Covid-19 continues to haunt the hotel sector, with occupancy levels in Brisbane, the Gold Coast and Cairns all falling below 20 per cent in April—but regional markets including Rockhampton and Mackay outperformed their city cousins thanks to ongoing essential corporate demand, a new report shows.

Preliminary data from Colliers’ Queensland hotels market update has revealed the impact of the lockdown measures on revenue streams of hotels and hospitality venues in the Sunshine State, and though it paints a fairly bleak picture, there is cause for some optimism in a sector hit hard by the pandemic.

Retail liquor sales across the nation were one of the few areas to benefit from government directives to stay at home and the closure of on-premise venues, spiking by 32 per cent in March 2020 over the prior year and remaining 14.9 per cent higher in April and up 45.8 per cent in May.

In stark contrast, turnover in Queensland’s cafes, restaurants and catering declined by -32.5 per cent in March 2020 over the prior year and a larger -68.4 per cent in April, the first full month of restrictions, as businesses closed their doors.

But report authors, Colliers’ Baden Mulcahy and Paul Ellis, say that as the restriction measures are gradually unwound, turnover is expected to return to trend levels as the economy continues to normalise.

National Liquor Retail Turnover

Chips Still Down, But Hoteliers Hold Out Hope (3)

“In addition, measures such as the discontinuation of buffets and improved cleaning protocols may become more permanent outcomes that will have an ongoing impact on venue cost structures in future.

“Further relaxation of social distancing measures including floor space requirements and maximum venue limits, combined with the re-opening of stadiums, arts and entertainment venues should aid future revenue growth, albeit the ultimate stabilised trading outcomes will be influenced by broader economic conditions.”


The closure of Australia’s international borders, the subsequent closure of the state border, lockdown measures and the grounding of commercial airline fleets severely impacted most accommodation businesses throughout Queensland.

According to STR data, market occupancies within the major centres of Brisbane, the Gold Coast and Cairns all fell significantly to below 20 per cent for the month of April and fared only slightly better in May.

These occupancies are based on hotels open, with economic occupancies actually lower when the 14 per cent to 25 per cent of hotel rooms closed in each market are considered.

Regional business locations such as Townsville, Mackay, Rockhampton and Gladstone have outperformed relatively due to ongoing essential corporate demand.

As pandemic concerns and restriction measures ease, interest in travel is taking off again, with SiteMinder data comparing 2020 daily bookings as a percentage of the corresponding daily 2019 bookings showing renewed and stronger growth in Gold Coast and Cairns leisure destinations and Townsville—although Brisbane growth has been more muted.

Demand growth has been led by the intrastate domestic leisure sector, particularly to road-trip destinations in proximity to major population centres.

“Future growth will be aided by the reopening of state borders and the return of regular interstate airline flight schedules and larger hotels and tourist attractions in major leisure destinations should continue to gradually reopen and increase capacity over the third and fourth quarters of 2020,” Mulcahy and Ellis said.

They also noted that Virgin Airlines, on completion of its sale, is expected to recommence as a scaled-down mid-market airline with a reduced fleet capacity, and while this may impact on access to some destinations, it could also provide opportunities for some of the smaller regional airlines.

As far as corporate demand goes, Brisbane remains slow to recover with many major employers still not allowing staff to return to their offices—and some not planning to until the fourth quarter of 2020—let alone allowing them to travel.

But intrastate travel is expected to be boosted by major mining and infrastructure projects, including those associated with the opening up of the Surat Basin, according to Mulcahy and Ellis.

“Conferencing and event demand will take longer to recover given the lead times required for this business and is anticipated to ramp up over the course of 2021 following the easing of social distancing measures.”

Market Occupancy

Chips Still Down, But Hoteliers Hold Out Hope (2)

Queensland’s inbound market will be slow to return, the authors say, governed by the easing of border restrictions and unlikely to recommence in earnest until the second half of 2021.

“Historical demand patterns will not be replicated in the short term as the visitor mix for each respective market recovers at different rates.

“This is likely to lead to strong peak demand periods for leisure destinations but weaker off-peak periods and lower occupancies overall,” the authors said.

The Brisbane market is forecast to experience a “softer” short-term occupancy due to reduced conferencing and inbound demand, however regional markets that rely primarily on intrastate business should recover more quickly, Mulcahy and Ellis said.

“Overall, the markets with significant exposure to inbound visitors are not expected to stabilise until 2022 to 2023.”

Covid-19 support measures

With cash flows across all hotels and hospitality businesses under extreme pressure thanks to significantly reduced or eliminated revenue, Mulcahy and Ellis explain that attempts to modify operations to cope with restriction measures—or closing entirely—has meant significant cost-cutting and reduced staffing levels.

Support measures such as Job Keeper, rent reductions and loan repayment deferrals introduced by the federal and state governments and banks have offered some support to businesses during the worst of the pandemic and helped maintain a core workforce for the future recovery phase.

Whilst some businesses will recover reasonably quickly, Mulcahy and Ellis predict that many markets and asset types will take a longer period of time to recover, and in some cases, this may extend for two to three years, particularly for those with a high exposure to inbound visitors.

“Cash flows in these sectors will remain under pressure, particularly as the support measures are unwound over Q4 2020, subject to review.

“Strict cost controls will need to be maintained as business momentum builds to ensure that profitability is not permanently eroded should revenue growth not meet expectations.”

The Covid-19-induced lockdown has accelerated some trends that were already evident in various sectors and despite the support measures, there are some businesses that have closed the doors and will not re-open due to a lack of capital or obsolescence.

Capital markets

Mulcahy and Ellis note that capital markets reacted quickly to the evolving health crisis and the implementation of restriction measures, with existing contract negotiations breaking down, parties walking away from potential deals, and proposed marketing campaigns being shelved.

This was not the case across the board, though, with “a number of licensed premises contracts staying afoot, albeit on negotiated terms, which included extended settlements or pre-Covid-19 income triggers”.

The report’s authors say the net result of this has been a softening in pricing to account for the loss of profit over a defined period of typically 0.5 to 1.5 years, but the impact on yields remains “opaque” because of the potential longer-term impact on EBITDA.

In addition, a number of transactions of freehold investment hotels were concluded during the first half of the year, including the Acacia Ridge Hotel, the Indooroopilly Hotel and the Yeppoon’s Railway Hotel, but Mulcahy and Ellis note that these transactions were in progress or settled prior to the worst of the pandemic lockdown.

“Despite the challenging market conditions, investor sentiment surveys indicate that the current environment represents a buying opportunity for good quality major assets, particularly in Brisbane, however, selling intentions remain reasonably low,” Mulcahy and Ellis said.

“Secondary quality assets and markets which have a longer-term recovery profile have a higher proportion of sale intentions and weaker demand profile.”

Transaction activity is anticipated to pick up from Q4 2020 as business levels return and cash flow improves, which will also be stimulated by the withdrawal of support measures in some instances.

“The impact on pricing will then become clearer as greater certainty can be placed on the future financial performance of a business.”





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Boomers a ‘Force of Change’ in Retirement Property Market

Property Market

As teenagers they invented pop culture and now—much older, collectively wealthier and arguably wiser—they are defining a new age group and re-inventing retirement living.

Millenials may have surpassed them in numbers but baby boomers are still having significant influence on world economies and trends—not least in the property market.

“The baby boomers are coming through and have become a force for change in the seniors’ market,” said Cameron Kirby, managing director of Kirby Consulting Group, a retirement and aged care specialist.

“The more progressive operators are definitely getting their ducks in a line.

“And there’s a lot of developers interested in dipping their toes in the market for the first time, some of them with more than 30 years’ experience in the development industry, because they can see there is huge opportunity.

“[But] many developers that want to enter into this space are probably a bit reticent because they’re worried about the complexity of it, they’re worried about the unknowns.

“The opportunities, however, far outweigh any of their concerns.

“And if you’re offering what the market wants, you’re going to be successful.”

Kirby will be a speaker at The Urban Developer Developing For An Ageing Demographic vSummit on April 28.

“The sector is continuously changing,” he said.

“You’ve got land lease communities and over-55 developments that have been moving into the traditional retirement village space.

“And, at the moment, there’s a lot of talk about integrated care in retirement living with a greater weighting on having more retirement villages and less aged care.”

Last year, a survey by benchmarking firm StewartBrown showed 58 per cent of aged care homes were operating at a loss, up from 55 per cent the previous financial year, and 32 per cent made a cash loss.

“Aged care has got some major challenges … but in the meantime there’s also the baby boomers coming through,” Kirby said.

“What I’ve seen over the last 10 years is a bit of a slide where low-care people that used to go into aged care are more likely to go into retirement villages and, equally, people that used to go into more traditional retirement villages are now probably more interested in moving into land lease communities and over-55s concepts.

“Land lease communities are growing very fast and are hugely attractive, there’s no doubt about that … but retirement villages have upped the ante enormously as well, they tend to offer much more wellness and are moving more towards the care side of things.

“Certainly, operators who are offering care in retirement villages are going from strength to strength.

“There’s an increasing amount of quality retirement villages with hotel and resort-style living and state-of-the-art amenities coming online. Pools, gyms, spas, saunas, cinemas, you name it they’ve got it. 

“But those retirement living operators that have a full continuum of care solution that’s what the market is demanding … [the boomers] know they’re going to need some support down the line so they’re planning for their future.

“It really doesn’t matter, however, whether you’re doing aged care, retirement, over-55s or land lease community … because demand is outstripping supply. There is a market for all of those and they attract very different types of buyers.”

Kirby said given Australia’s ageing demographic, the seniors and retirement market was a “much more defensive proposition” for developers.

“Just as healthcare is a defensive stock on the stock market, I think seniors living is a much more defensive play in the property sector,” he said.

“It tends to be more needs driven than what a straight-out residential property play would be.

“And so, I think if we are going to be headed towards a softer property market this is an area that can really shine because seniors will still have the wealth and will still want to move and look at downsizing opportunities.”


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Houses still in high demand, apartment prices lag


The price growth of apartments continues to lag rocketing house prices in many suburbs across Sydney and Melbourne, with the trend showing little signs of abating.

The widening price gap between houses and units is a long-term trend driven by land scarcity in our biggest cities, with the difference tending to be widest between houses and high-rise apartments.

While house prices in Sydney’s North Ryde soared 29 per cent in the year ended March 31, unit prices in the suburb grew by a mere 6 per cent. Similarly, prices in Homebush grew 29 per cent, compared to unit price growth of just 7 per cent.

In Sydney’s Pennant Hills, house prices grew 24 per cent, while unit prices were flat, figures from CoreLogic show.

It is the same story in many parts of Melbourne, with Essendon North house prices growing by 19 per cent over the same period, while apartment prices fell by almost 1 per cent.

Houses in Melbourne’s Canterbury saw their prices jump more than 14 per cent, while units dipped 4 per cent. In inner-city Hawthorn East, houses were up 9.6 per cent, compared to a 6 per cent fall in unit prices.

Earlier analysis by CoreLogic showed more expensive property markets, particularly those close to CBDs and in areas where there are high numbers of units relative to houses, tend to have the biggest price gaps.

Eliza Owen, head of research at CoreLogic, says one of the reasons for the relative recent poor price performance of unit markets is COVID-19 related travel restrictions, including the closure of Australia’s international borders.

Demand for investment units in urbanised centres likely fell because of their high exposure to migrants and international students.

During the height of the pandemic, many units were empty, particularly in inner Melbourne.

The re-opening of international borders is seeing arrivals from overseas rising quickly, which should help to support the prices of units in both Sydney and Melbourne, she says.

However, Owen says one area of concern remains the prospect of higher mortgage interest rates, with prices of investment units more sensitive to rate movements than houses.

Many analysts expect the Reserve Bank of Australia to start increasing official interest rates this year, possible as early as June, with lenders expected to pass on any hikes in their variable rate mortgages.

Following two years of surging property prices, the big gains made over the past year appear to be over.

Sydney house prices were 0.1 per cent lower in March after being flat in February. Unit prices were 0.5 per cent lower in March and 0.3 per cent lower in February.

In Melbourne, house prices down 0.2 per cent lower in March, following flat prices February. Unit prices were 0.2 per cent higher in March and 0.1 per cent higher in February. However, those small gains came after big falls in inner-city unit property values during COVID-19 restrictions.

Coming off the back of strong annual growth, falling affordability continues to be a key factor affecting property market conditions.

A surge in the cost of living and rising rents is restricting the ability of prospective homeowners to save and borrow.

In last month’s federal budget, the government expanded the number of places available in its low-deposit scheme.

The program allows first-home buyers, and others, to buy new or existing dwellings with a deposit of only 5 per cent, instead of the usual 20 per cent that is needed to avoid paying expensive lenders’ mortgage insurance.


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Brisbane house prices leave units in the dust

Brisbane house prices

The gap between house and apartment prices in Brisbane is now the widest in at least two decades, but is set to shrink over the next 12 months as housing affordability bites and buyers choose cheaper options, Colliers says.

Colliers residential director Queensland, Andrew Roubicek, said the price difference between houses and apartments in Brisbane has reached 45 per cent compared with an average of around 20 per cent between 2003 and 2015.

Brisbane house prices further escalated with the onset on COVID-19 when people placed a higher value on privacy with interstate migration to the Sunshine State also propelling Queensland’s property market.

Property data company CoreLogic estimates that Brisbane house prices increased 32 per cent in the year ended March 31 compared with 15 per cent growth for units over the same period.

CoreLogic said house price growth is slowing faster than units and Mr Roubicek predicted that Brisbane apartment values will rise by “at least” another 15 per cent in the next 12 months.

Mr Roubicek said rising construction costs have hit the new apartment market hard and that comparable established stock costs about 25 per cent less.

“There have been several examples of new developments achieving pre-sale [targets] only to have developers refund deposits and tear up contracts because building costs escalated to a point where it was financially unviable,” he said.

“As a consequence, developers who are looking to acquire new development sites are forced to increase their projected sales prices by around 20 per cent.

“Just 18 months ago a two-bedroom apartment in Brisbane might have sold off the plan for $9000 per square metre.

“But to build that apartment today the developer would need to achieve a sale price of $11,000 per square metre for the project to stack up.”

He said as result new stock is selling slower than established units, a trend that will play out through the rest of this year.

“The market is coming to terms with those newer prices and are seeing in the short-term better value for money in the established unit market.”

He said it is a similar scenario to when GST was introduced in 2000.

“When GST came into the market overnight the cost of housing went up 10 per cent and put more demand into the established market, where the prices of stock grew and the difference between new and second hand became narrower.”

Mr Roubicek said he believed the record price gap between houses and apartments will contract through the year.

“If you believe in history, if you believe in charts, and take a long-term view you would have to think that gap is going to narrow because everyone’s talking about affordability, everyone’s talking about interest rate movements,” he said.

“Natural forces will push what would have been a buyer of a detached home back into the unit market because of affordability.”


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