Q1

2013

Tourism and Hotel Market Outlook

February 2013

Contents

Key developments The macroeconomic context The outlook for Australias tourism sector Hotel market outlook

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Key developments

The investment pipeline strengthens. Record occupancy rates have prompted the announcement of a number of major hotel developments in the capital cities over recent months. While this strengthening of the supply pipeline is unlikely to significantly impact occupancy rates or yields in the near term with national occupancies continuing to climb and RevPAR growth forecast at 4.8% p.a. recent announcements suggest developers are again seeing value in the hotel accommodation market. International visitor arrivals rally on emerging markets and some old faithfuls. Growth in international visitor arrivals accelerated strongly over the second half of 2012, climbing 5.8% in December to finish calendar 2012 up 4.6%, withvisitor numbers surpassing 6 million for the first time. Inrecent months, arrivals have grown sharply both in the growing South East Asian markets of China, Singapore, Malaysia and Hong Kong but also in the recently subdued traditional markets of Japan and the US. With this outperformance has come a strengthening in our forecast for international visitor nights, with annual growth now forecast at 4.7% p.a. over the next three years.

Visiting friends and relatives the major driver of growth in domestic visitor nights. Over the year to September, domestic visitor nights grew by 4.5%, with growth in those visiting friends and relatives accounting for more than 75% of the observed increase. While the results for the September quarter underscore the need for caution (visitation in fact declined relative to September 2011) ourforecasts continue to see growth in domestic visitor nights outperforming the trend of the last decade, with projected growth of 1.3% p.a. over the next three years. The trend toward short trips accelerates. Domestic day trips grew by 10.6% in the year to September to reach the highest levels on record. Since 2005, domestic day trips have progressively increased while the average length of domestic overnight trips has shortened as domestic visitors increasingly opt for shorter stays. The consequence for the nations hotel sector being that growth in domestic travel is not necessarily translating into growth in demand for hotel accommodation.

Tourism and Hotel Market Outlook Q1/2013

The macroeconomic context

Signs of a recovery in the US and China Despite continuing divisions in Congress over how to address its longer term fiscal challenges, the US economy is beginning to show signs of recovery. Housing starts and house prices have finally started to grow while the discovery of cheap new energy sources has significantly improved the US growth outlook. Giventhe close link between housing construction and retail spending, the US is also likely to see an improvement in retail spending over the next year. Across the Pacific, the outlook for growth in China has also improved. Growth rebounded from 7.4% in the year to September to 7.9% in the year to December. The improvement in Chinese manufacturing output has simultaneously led to a substantial recovery in iron ore prices since September (a significant positive for Australia), although commodity prices remain well below the heights reached in 2011. Over the medium term, China will still need to rebalance its growth from being reliant on construction expenditure to consumer spending if it is to be sustained. While these medium term challenges will eventually have to be confronted, the short term outlook for Chinese growth remains solid with growth expected to remain around 8% p.a. over the next threeyears. In contrast to the improving growth outlook for the US and China, the outlook for growth in Europe remains subdued. Unemployment rates remain high through much of the Eurozone and European banks remain undercapitalised limiting their ability to finance new growth. Nevertheless, the risk of Europe dragging the worlds economy into recession is diminished compared with twelve months ago. Overall, global economic prospects are beginning to look more favourable. While Deloitte Access Economics forecasts output in the Eurozone to remain essentially flat in 2013, growth in the US is forecast to be 2.2% while China is forecast to grow by a solid 8.2% in 2013. Given the importance of China as a source country for international visitors to Australia, this bodes well for international arrivals in 2013. Domestically, while Australias growth has exceeded much of the developed world in recent years, the pace of growth is moderating. The economy grew by just 0.5% in the September quarter, with growth over the year to September being 3.1%.

This was partly driven by a decline in the contribution of public investment in the September quarter as spending cuts by both Federal and State governments dampeneddemand. Looking further ahead, resource related construction, which has been the main driver of Australias recent growth, is expected to peak by around the end of 2013. Beyond this point, the positive impact of mining construction on growth will begin to subside. At the same time, the strength of the Australian dollar has limited the pace of growth in a number of non-mining export and import-competing sectors. The main impetus for growth over the next year will be interest rates, which are at historically low levels and should help lift housing construction, retail spending and capital expenditure. Recent data indicates that housing prices are beginning to grow again which could help boost the residential construction sector. Deloitte Access Economics forecasts Australian GDP growth to be a moderate 2.7% in 2012-13 and 2013-14 before improving gradually from 2014-15. Exchange rates The Australian dollar has continued to remain at elevated levels despite historically low interest rates and commodity prices falling from their 2011 peaks. At the time of writing, the Australian dollar continued to trade above parity with the US dollar. As we noted last quarter, international investors continue to regard Australia as a relative safe haven, along with other countries such as Canada, Hong Kong, Switzerland and Singapore. As a result, the value of the Australian dollar continues to trade above what would be implied by its fundamentals. The Australian dollar is likely to continue to be perceived as such until debt concerns begin to recede in the US and Europe. Deloitte Access Economics continues to forecast that the moderation in exchange rates will be relatively gradual with the Trade Weighted Index forecast to decline by only 2.8% in 2013-14 before falling by 6.6% in 2014-15. Relative to the US dollar, theAustralian dollar is forecast to decline by 2.7% in 2013-14 but will still remain above parity on average before declining a further 6.6% in 2014-15 to $US 0.94 per Australian dollar. Deloitte Access Economics forecasts the Australian dollar to continue to gradually depreciate in subsequent years, remaining above $US 0.80 per Australian dollar out to 2016-17.

This relatively gradual depreciation suggests that tourism operators will need to continue to accommodate a high exchange rate environment. At the same time, the fact that international arrivals have grown strongly in the last two quarters is all the more encouraging in light of the Australian dollars continued strength.

The growth of international arrivals is in turn likely to continue to put upward pressure on occupancy rates in capital cities. The feature article below focuses on recent developments in the hotel pipeline in Sydney, Melbourne, Brisbane and Perth where occupancy rates have been close to record levels for some time.

Focus on The capital city hotel pipeline Over the last year, occupancy rates have been close to the strongest on record in Australias four largest cities, remaining at or above 80% in Perth, Sydney, Melbourne and Brisbane. Despitethis, theappetite for new hotel developments has for some time now remained weak. This has been partly driven by difficulties obtaining finance during the Global Financial Crisis, butalso by the higher relative return to other land uses such as residential developments and office space. Marketconditions have necessitated both commercial creativity by developers and proactive steps bygovernment. However, announcements in the last six months suggest the capital city hotel and serviced apartment investment pipeline isstrengthening In Sydney, Crown has announced plans to develop a 350 room six star VIP gaming hotel at Barangaroo subject to approval. Destination Sydney, was recently chosen as the preferred developer for the new Sydney International Convention and Exhibition Centre, and has plans to build a hotel on the site with up to 900 rooms; the Four Points Sheraton in Darling Harbour has proposed a 231 room expansion and at Circular Quay the City of Sydney recently approved the construction of a new residential tower encompassing serviced apartments. A number of major developments have also been announced in Brisbane including the 246 room Four Points Sheraton hotel in Mary Street and a refurbishment of the Chifley Hotel which will add another 150 rooms to the existing site. In Perth, BGC was selected as the preferred hotel developer for the FESA House site in November which will add to the proposed Old Treasury Building and Crown Towers developments in the pipeline. While there have been fewer recent hotel announcements in Melbourne there is a reasonable development pipeline over the next few years although most of the proposed developments are relatively small in size.

7 7 1,680 12 2,600 1,280

Development Rooms

11 1,350

Overall, Deloitte Access Economics hotel register reveals some 66 projects at varying stages of development are in the pipeline across the country a considerable strengthening from that witnessed even 12 months ago. However, the level of occupancy rates in capital cities, coupled with continued growth in demand and the prospect of iconic developments further stimulating demand means a decline in occupancies is unlikely over the medium term. Indeed, over the three year outlook presented here, all major capitals are projected to see continued growth in occupancy rates. Demand remains forecast to outstrip supply in major capital city markets, reflecting the sustained growth in business travel, improved conditions for domestic leisure and strong expected growth in international arrivals from the emerging Asian economies. Nevertheless, the growing capital city pipeline suggests that both developers and governments are beginning to respond to record occupancy rates.

Tourism and Hotel Market Outlook Q1/2013

The outlook for Australias tourism sector

Overview International visitor arrivals accelerated strongly over the second half of 2012. -- International visitor arrivals grew by 5.8% in the December quarter and by 4.6% over calendar 2012, while international visitor nights grew by 5.7% over the year to September. -- Growth has been driven by both the strong performance of South East Asian source countries such as China, Singapore, Malaysia and HongKong and a revival in the recently subdued traditional markets of Japan and the US. The recent growth in international visitors reinforces our longer term forecasts. -- Deloitte Access Economics projects international visitor nights to grow at an average annual rate of 4.7% p.a. over the next three years. Domestic visitor nights defied a decade of trend decline, accelerating 4.5% in the year to September. -- This was largely driven by an increase in those visiting friends and relatives; growth in domestic leisure travel remained subdued. -- Growth in domestic visitor nights was particularly strong in Western Australia, Queensland andTasmania. -- However, reiterating the need for caution, domestic visitor nights declined by 3.8% in the September quarter. The outlook for growth in domestic visitor nights remains moderate but encouraging over the next three years. -- Deloitte Access Economics forecasts domestic visitor nights to grow at an average rate of 1.3%p.a. over the next three years. The trend toward shorter domestic trips accelerated over 2012. -- Domestic day trips increased by 10.6% over the year to September 2012, continuing to grow in the September quarter. -- Since 2005, domestic daytrips have shown consistent growth while the average length of domestic overnight trips has shortened over time. Growth in outbound travel by Australians has slowed markedly from its peaks, but continues to significantly outpace domestic travel -- Growth is projected to slow further over the next three years, trending at 3-4% p.a. Domestic visitors After experiencing exceptionally strong growth over the last few quarters, domestic visitor nights fell by 3.8% in the September quarter 2012 compared to the September quarter 2011. However, the strong performance of domestic visitor nights in the March and June quarters meant that domestic visitor nights still grew by a solid 4.5% over the year to September while domestic visitor trips grew by 4.1% over the sameperiod. The decline in domestic visitor nights in the September quarter was consistent with the weakening in GDP growth in the September quarter. Business visitor nights fell by 7.2% in the September quarter relative to the September quarter 2011, while visitor nights for those visiting friends and relatives fell by 3.1%. Holiday visitor nights fell by only 0.7% over the same period. As Chart 3.1 shows, visitor nights associated with business and visiting friends and relatives are considerably more volatile than visitor nights associated with holiday travel. Holiday travel has remained remarkably stable over the last three years, with quarterly results never differing by more than 3.5% relative to the previous year. Given the relative stability of domestic holiday visitor nights, growth in the year to September 2012 was largely driven by other visitor types. Growth in visitor nights for those visiting friends and relatives alone accounted for more than 75% of the growth in visitor nights for the year to September with business visitor nights accounting for a further 9.5%.

Deloitte Access Economics projects international visitor nights to grow at an average annual rate of 4.7% p.a. over the next threeyears
4

Chart 3.1: Growth in domestic nights relative to the same quarter in previous year
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Growth (%)

However, the length of stay of visitors has declined since 2005 which has meant that domestic visitor nights are currently more than 5% below the levels they were in1999. These trends suggest there has been a significant shift both towards day trips and shorter overnight trips by domestic travellers in recent years. Chart 3.2: Index of domestic overnight and day trips since 1999*
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Index (1999=100) 95 90 85 80

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Se p 09 De c 09 M ar 1 0 Ju n 10 Se p 10 De c 10 M ar 1 1 Ju n 11 Se p 11 De c 1 M 2 ar 1 2 Ju n 12 Se p 12

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Holiday

Note: Quarterly results relative to the same quarter in the previous year; Source: TRA, Deloitte Access Economics

The growth in visitor nights over the year to September was a surprising and encouraging outcome for the domestic tourism sector, given that domestic visitor nights declined by around 10% between 2004 and 2011 and that many of the economic pressures that contributed to this trend remain. However, the negative September quarter result highlights the inherent volatility in the market, underscoring Deloitte Access Economics cautious optimism toward the outlook for the sector. This cautious optimism is reinforced by the recent release of the TTF Mastercard Sentiment Survey. TheDomestic Tourism Performance Index, which records the expectations of tourism operators, fell from 111 to 102 in the fourth quarter of 2012. However, thefact that the index has remained above 100 for the first time in three years suggests that the outlook for the domestic sector remains broadly positive. Deloitte Access Economics forecasts domestic visitor to grow at modest rates in 2013 before improving gradually in 2014 and 2015 as the Australian dollar begins to moderate. Growth in visitor nights is projected to average 1.3% p.a. over the next three years. In contrast to the September quarter domestic overnight result, domestic day trips continued to grow strongly in the September quarter, increasing by 10.6% over the year to September to reach their highest levels onrecord. Chart 3.2 shows that domestic day trips have grown considerably since 2008 and are now well above the levels recorded in 1999. The number of domestic overnight trips has also recovered to be slightly above the 1999 level, after declining during the GlobalFinancial Crisis.

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70 1999 2001 2003 2005 Domestic daytrips Domestic overnight trips 2007 2009 2011 Domestic visitor nights

*Year to September quarter Source: TRA, Deloitte Access Economics

Much of the decline in average length of stay has been driven by the holiday and visiting friends and relatives segments. Since 2004 the average length of stay for business travellers has remained relatively unchanged, while the average length of stay for those on holiday has declined from 4.5 to 4.2 days and the average length of stay for those visiting friends and relatives has declined from 3.9 to 3.5 days. At the same time, the holiday and visiting friends and relatives segments have been the two fastest growing segments for outbound departures. Those travelling overseas for holidays or visiting friends and relatives have grown at an average annual rate of 6.9% and 11.1% respectively since 2004, implying that nonbusiness travellers have been increasingly favouring overseas travel over extended domestic trips. This shift is likely to have been an important factor impacting hotel occupancy rates in regional Australia, particularly those locations which are highly dependent on domestic leisure travel. Performance by state As we noted last quarter, the increase in domestic visitor nights has been more pronounced in the resource states of Western Australia and Queensland, although strong growth was also recorded in Tasmania. Tourism and Hotel Market Outlook Q4/2012 | 5

Chart 3.3 shows the annual percentage change in visitor nights in each state for the year to September 2012. Domestic nights grew relatively modestly in Victoria and New South Wales and actually declined slightly in SouthAustralia. Chart 3.3: Growth in visitors by state*
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25 20 Growth (%) 15 10 5

Outbound departures grew by 4.9% in the December quarter and have increased by 5.4% over the year to December 2012. As we noted last quarter, whileoutbound growth has moderated from the double digit figures recorded in 2010 and 2011, thenumber of Australians taking advantage of the high Australian dollar to travel overseas continues to grow at healthyrates. Over the last year, growth in outbound departures has largely been driven by those on holiday and those visiting friends and relatives, which have both grown by more than 5%. There has also been a sharp increase in those travelling overseas for education purposes. Outbound departures for the purpose of studying overseas grew by 18.2% over the year to December. Bycontrast, business related outbound departures grew by a relatively modest 1.8% in 2012. Deloitte Access Economics forecasts that growth in outbound departures will continue to moderate over time as the Australian dollar gradually recedes from its current heights. Outbound departures are forecast to grow by between 3 to 4% p.a. over the next threeyears. International visitors International visitor arrivals grew strongly in the September and December quarters, both in the Asian markets of China, Singapore, Malaysia, Hong Kong and India and in the traditional, but recently subdued source markets of the US and Japan. International visitor arrivals grew by 4.6% in the September quarter to be up by 3.0% for the year to September. Growth in the December quarter was even stronger with international arrivals growing by 5.8% in the December quarter and by 4.6% for the year to December. International visitor nights also grew strongly, improving by 5.7% for the year to September (data on visitor nights for the December quarter is yet to be released). Over the year to December, visitors from China grew by 15.6% while visitors from Malaysia and Singapore grew by 8.9% and 7.9% respectively. Arrivals from India grew by 7.4% and arrivals from Hong Kong grew by 6.2%. Visitors from the US and Japan grew solidly in the second half of the year, growing by 5% and 6.4% over the year to December respectively.

0
-5 NSW VIC QLD SA WA TAS Domestic visitor nights International visitor nights

*Growth for year to September 2012 Source: ABS OAD, TRA, Deloitte Access Economics

In terms of international visitors, the standout performer was Western Australia with visitor nights growing by an astonishing 26.4% over the year to September. This was largely driven by employment related travel associated with the mining boom. Employment related visitor nights grew by 73.4% in the year to September 2012. While international visitor nights associated with business travel also grew by 17.7% in Western Australia there was also an improvement in the leisure sector with visitor nights associated with holidays or visiting friends and relatives both growing by more than 13%. Tasmania and South Australia also managed to capture reasonable growth in international visitors, albeit off a relatively low base. By comparison, international visitor nights grew relatively modestly in NSW, Victoria and Queensland, in part reflecting weaker growth in the international student market. Outbound travel by Australians With the Australian dollar continuing to remain strong against the US dollar and other major trading currencies, outbound travel has continued to grow. However, thepace of growth has slowed from the double digit levels experienced in recent years.

Healthygrowth rates of between 4% and 5% are also expected for Hong Kong, Singapore, Malaysia and South Korea, with Asian source countries projected to account for more than twothirds of total growth in visitor nights over the next three years
The growth in visitors from China and India and other South East Asian economies is consistent with our longer term outlook, as growth in emerging economies continues to fuel demand for travel to Australia. However, the growth in visitors from the US and Japan was somewhat unexpected given that GDP growth in both countries has been relatively subdued (although the US is showing increasing signs of economic recovery). Arrivals from New Zealand and the UK were relatively flat in 2012 with arrivals from New Zealand growing by 2.4% and arrivals from the UK declining by 2.4%. Thus while some traditional destinations remain relatively weak, the recent growth in arrivals from Japan and the US is very much an encouraging sign. Looking forward, Deloitte Access Economics forecasts solid growth from the international visitor market as the emerging economies of Asia continue to expand and, over time, the value of the Australian dollar moderates. Over the three years to December 2015, international visitor nights are forecast to grow by 4.7% while international visitor arrivals are forecast to grow by 4.2%. Both these forecasts are a slight upward revision on last quarter, reflecting both the improved economic outlook in the US and China and the strong growth in visitor arrivals witnessed in the December quarter. Growth in international visitor arrivals over the last year has been largely driven by leisure travellers. Chart 3.4 shows the growth in international visitor arrivals over the first and second half of 2012, illustrating that those coming to Australia for a holiday or to visit friends and relatives grew solidly in both halves of the year. Whileconference and employment visitors grew even more strongly, these categories account for a relatively small proportion of total visitor arrivals. In total, approximately 80% of international arrivals come either for business, a holiday or to visit friends and relatives. The growth in all three of these categories in the second half of the year has been the main driver of the improvement in visitor arrivals over the last six months.
Growth (%)

Chart 3.4: Growth in international visitors by main reason for travel, 2012*
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12 8 4

0
-4 Conference Business VFR Holiday Employment Education July-Dec 2012 Jan-June 2012

*Figures are based on the growth in arrivals relative to the same six month periods in 2011; Source: ABS OAD.

The improvement in holiday visitors over the last year has been driven to a significant degree by China. Chinese holiday visitors grew by just under 28% over the year to September 2012, an exceptional rate of growth. Chinese visitors coming to visit friends and relatives also grew by 11.8% whereas Chinese student visitors grew by only 2.3%. These figures suggest that holiday travellers are comprising a growing part of the Chinese visitor market indicating significant potential for continued growth in the Chinese leisure market. Over the next three years, growth in visitor nights from China is expected to average 7% p.a. exceeded only by India and Indonesia where visitor nights are forecast to grow by 10% p.a. and Thailand where visitor nights are forecast to grow by 8.5% p.a. on average. Healthygrowth rates of between 4% and 5% are also expected for Hong Kong, Singapore, Malaysia and South Korea, with Asian source countries projected to account for more than two-thirds of total growth in visitor nights over the next three years. Outside Asia, growth in visitor nights is expected to be more restrained, although visitor nights for those from the US are expected to grow by 3.4% p.a. over the next three years as the US economy recovers.

Tourism and Hotel Market Outlook Q1/2013

Hotel market outlook

Technical note The way forecasts are reported in the hotel market outlook this quarter has been modified to provide readers with more current market data and greater clarity around the length of the forecasting period. The utilisation of STR Global data in our market analysis model has allowed for historical reporting up to December 2012. The forecast period has also now been extended to the end of December 2015. This period will be retained in all subsequent publications this year to ensure consistency across quarters. For any questions or comments, please refer to the contact details on the back of thispublication.

Australia Chart 4.1: Hotel outlook, Australia

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Room rates also grew steadily in the second half of the year, growing by 1.6% to $149 in the year to December from the $147 recorded for the year to June 2012. Room rates grew by 3.3% over the course of 2012. Theforecast for growth in room rates for the next three years is similar to last quarter, with room rates projected to grow at an average annual rate of 3.7%, reaching $167 in the year to December 2015. Average yield per room (Revenue Per Available Room RevPAR) is forecast to increase by 4.8% per annum over the next three years, from $99 per room in the year to December 2012 to $114 per room in the year to December 2015. Sydney Chart 4.2: Hotel outlook, Sydney
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Room Occ% Trend (LHS)

Room Rate Trend (RHS)

RevPAR Trend (RHS)

Source: Deloitte Access Economics based on: ABS Small Area Accommodation data and STR Global

The national accommodation market continued to perform well in the second half of 2012 as international visitor nights continued to grow and limited new capacity was added to the market. After reaching the highest level on record of 65.9% in the year to June 2012, occupancy rates have since improved once more to reach 66.1% for the year to December. This improvement was driven by higher occupancy rates in Melbourne, the Gold Coast, Adelaide and Darwin and regional areas, although occupancy rates eased slightly in Sydney and Perth. While the capital city hotel investment pipeline is showing signs of improvement (see the feature article above), many of the larger developments recently announced are not expected to be completed until 2015 or later so will have a limited impact on supply over the next three years. As a result, national occupancy rates are forecast to increase steadily to 68.2% by the year to December 2015. The forecast for occupancy rates has improved slightly since last quarter reflecting stronger anticipateddemand. While last quarter the national outlook for room nights sold effectively demand was for it to grow by 1.7% p.a. on average over the next three years, our current forecasts are based on average growth of 2.0% p.a. over the next three years. Growthin room nights sold effectively supply isexpected to remain around 1% p.a. over the next three years and, accordingly, growth in demand is expected to continue to exceed supply over the next three years.

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Dec98 Jun99 Dec99 Jun00 Dec00 Jun01 Dec01 Jun02 Dec02 Jun03 Dec03 Jun04 Dec04 Jun05 Dec05 Jun06 Dec06 Jun07 Dec07 Jun08 Dec08 Jun09 Dec09 Jun10 Dec10 Jun11 Dec11 Jun12 Dec12 Jun13 Dec13 Jun14 Dec14 Jun15 Dec15

Room Occ% Trend (LHS)

Room Rate Trend (RHS)

RevPAR Trend (RHS)

Source: DeloitteAccess Economics based on: ABS Small Area Accommodation data and STR Global

Occupancy rates in the Sydney market have eased slightly over the last eighteen months, falling from 86.3% in the year to June 2011 to 84.6% in the year to December 2012. The easing in occupancy rates over the last year has been a result of the decline in business travel to Sydney over the last year. While visitor nights in the broader Sydney Metropolitan region have remained stable, there was a 15% decline in business visitor nights over the year to September, which led to a fall in CBD room nights sold and a subsequent easing of occupancyrates. More recently, supply levels in the Sydney CBD have also improved with the opening of QT Sydney. Outside the CBD, the opening of the 140 room Quest serviced apartments in Olympic Park in October has increased supply in the broader Sydney market.

As noted in the feature article, a number of key hotel developments have been proposed for Sydney over the last six months. In addition to the Sydney International Conventional and Exhibition Centre hotel which will have up to 900 rooms and the proposed redevelopment of 71-79 Macquarie Street, Unlisted Collection announced plans in December to include a boutique 60room hotel in the Central Park development. However, as many of the proposed developments will not be completed until 2015 or later or are located outside the CBD, occupancy rates in the CBD are still anticipated to gradually increase over the forecast period to 86.9% by the end of December 2015. The outlook for growth in room rates remains similar to last quarter with growth in room rates forecast to average 3.8% over the next three years to $218 from the $195 recorded in the year to December. RevPAR is forecast to grow by 4.7% over the next three years from $165 in the year to December 2012 to $190 in the year to December 2015. Melbourne Chart 4.3: Hotel outlook, Melbourne
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The outlook for room rates in Melbourne remains broadly similarly to last quarter. Room rates are forecast to grow at an average rate of 4.3% p.a. over the next three years, rising from $179 in the year to December 2012 to $203 in the year to December 2015. RevPAR is forecast to grow by 5.5% per annum over the next three years, a marginal downward revision, reflecting the more moderate outlook for occupancy rates but still indicating relatively healthy growth in Melbourne room yields going forward. Brisbane Chart 4.4: Hotel outlook, Brisbane
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Room Occ% Trend (LHS)

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Source: Deloitte Access Economics based on: ABS Small Area Accommodation data and STR Global

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Occupancy rates in Brisbane eased slightly in the second half of the year to reach 79.9% for the year to December 2012. Looking forward, occupancy rates are expected to remain between 80% and 81% in Brisbane for most of the next three year period, reaching 81.2% in the year to December 2015. This modest growth in occupancy rates in Brisbane reflects a number of new developments which have been recently announced in Brisbane including the Four Points Sheraton in Mary Street which is expected to open in early 2014 and the proposed refurbishment of the Chifley Hotel. Room rates are forecast to grow by an average of 5.7% annually over the next three years from $175 for the year to December 2012 to $207 for the year to December 2015. RevPAR is expected to grow by 6.2% p.a. on average to $168 by the year to December 2015. Thus while some new capacity is expected to become available over the next three years the outlook for growth in room rates and yields in Brisbane remainsstrong.

Room Occ% Trend (LHS)

Room Rate Trend (RHS)

RevPAR Trend (RHS)

Source: Deloitte Access Economics based on: ABS Small Area Accommodation data and STR Global

Trend occupancy rates in Melbourne improved slightly in the year to December from 80.5% in the year to June to 81.0% in the year to December. Deloitte Access Economics forecasts that occupancy rates will continue to climb steadily to 83.9% by the end of December 2015. This is a marginally more moderate outlook for occupancy rates than last quarter as the timing of some new developments and extensions has been revisedforward.

Tourism and Hotel Market Outlook Q1/2013

Perth Chart 4.5: Hotel outlook, Perth

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Adelaide Chart 4.6: Hotel outlook, Adelaide

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Room Occ% Trend (LHS)

Room Rate Trend (RHS)

RevPAR Trend (RHS)

Room Occ% Trend (LHS)

Room Rate Trend (RHS)

RevPAR Trend (RHS)

Source: Deloitte Access Economics based on: ABS Small Area Accommodation data and STR Global

Source: Deloitte Access Economics based on: ABS Small Area Accommodation data and STR Global

Despite easing slightly over the second half of the year, Perths occupancy rates continue to lead the nation. Over the year to December 2012 occupancy rates in Perth averaged 85.1%, slightly below the occupancy rate of 86% recorded in the year to June. While Perths hotel capacity was boosted by the opening of Fraser Suites in October as part of the Queens Riverside development, current occupancy rates suggest that new hotel developments will continue to be needed in Perth to ease capacity constraints. Most of the larger hotel developments planned for Perth are not expected to open for at least eighteen months. In recognition of the importance of fostering new hotel developments in Perth, the State Government has itself recently released land to BGC Group on the FESA House site for the purpose of constructing a new CBD hotel. While the peak of the mining boom is predicted to have passed by the end of 2013 with demand for travel to Western Australia expected to soften accordingly, occupancy rates in Perth are forecast to gradually increase over the forecast period to 86.3% by the year ending December 2015. Room rates are also forecast to continue to grow strongly, increasing at an average rate of 9.3% p.a. over the next three years. This strong growth will lead room rates to increase from their current levels of $199 in the year to December 2012 to $259 in the year to December 2015. RevPAR is similarly forecast to grow by 9.8% p.a. over the next three years.

Occupancy rates have stayed around 75% in Adelaide over the last two years, averaging 75.5% for the year to December 2012. Over the next three years, occupancy rates are anticipated to remain relatively constant as new supply comes on line with the Ibis and Mayfair Hotels. The opening of the Quest serviced apartments on Franklin Street in April 2013 will also bring additional capacity to the Adelaide market in the short term. Deloitte Access Economics forecasts that occupancy rates will be 75.5% over the year to December 2015. Room rates in Adelaide have remained relatively flat over the last eighteen months but are expected to grow by 2.9% over the three years to December 2015. While such growth is relatively moderate, it suggests an improving outlook over time. Given that occupancy rates are anticipated to remain similar over the next three years, growth in RevPAR is expected to average 3% p.a. Canberra Chart 4.7: Hotel outlook, Canberra
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$210 $180
$150 $120 $90 $60 $30 $0
Dec98 Jun99 Dec99 Jun00 Dec00 Jun01 Dec01 Jun02 Dec02 Jun03 Dec03 Jun04 Dec04 Jun05 Dec05 Jun06 Dec06 Jun07 Dec07 Jun08 Dec08 Jun09 Dec09 Jun10 Dec10 Jun11 Dec11 Jun12 Dec12 Jun13 Dec13 Jun14 Dec14 Jun15 Dec15

55%
50%

Room Occ% Trend (LHS)

Room Rate Trend (RHS)

RevPAR Trend (RHS)

Source: DeloitteAccess Economics based on: ABS Small Area Accommodation data and STR Global

10

Despite the supply pipeline strengthening, RevPAR is forecastto grow at 4.8% nationally over the outlook period
Occupancy rates in Canberra have shown a declining trend over the last two years, falling from 75.9% in the year to December 2010 to 71.4% over the year to December 2012. This has mostly been driven by a decline in demand for Canberra accommodation over the last two years, as Commonwealth government agencies continue to look for budgetary savings. The outlook for Canberra is predicted to improve going forward with occupancy rates forecast to return to 73.5% by the year to December 2015. In the short term the Centenary of Canberra celebrations this year are likely to lead a slight increase in demand for accommodation by leisuretravellers. Room rates are also forecast to improve with growth expected to average 3.5% p.a. over the next three years. Over the year to December 2012, room rates averaged $162 in Canberra and are expected to reach $180 by the year to December 2015. Yields are forecast to grow by 4.5% in the nations capital over the next three years. Darwin Chart 4.8: Hotel outlook, Darwin
100%
90% 80% 70% 60%

While occupancy rates are forecast to continue to improve in 2013, they are projected to remain relatively flat in 2014 and 2015 as new hotel capacity enters themarket. Deloitte Access Economics forecasts that occupancy rates are likely to moderate to 76.3% in the year to December 2015. However, if key developments are delayed there is potential for occupancy rates in Darwin to grow further. Room rates in Darwin are nevertheless forecast to continue to grow relatively steadily at 3.9% p.a. over the next four years from $155 per room in the year to December 2012 to $174 per room in the year to December 2015. Yields in Darwin are forecast to grow at an average annual rate of 3.5% p.a. over the three years to December 2015. Gold Coast Chart 4.9: Hotel outlook, Gold Coast
80%
75% 70% 65%

$210
$175 $140 $105 $70 $35 $0
Dec98 Jun99 Dec99 Jun00 Dec00 Jun01 Dec01 Jun02 Dec02 Jun03 Dec03 Jun04 Dec04 Jun05 Dec05 Jun06 Dec06 Jun07 Dec07 Jun08 Dec08 Jun09 Dec09 Jun10 Dec10 Jun11 Dec11 Jun12 Dec12 Jun13 Dec13 Jun14 Dec14 Jun15 Dec15

$240
$200 $160 $120 $80 $40 $0
Dec98 Jun99 Dec99 Jun00 Dec00 Jun01 Dec01 Jun02 Dec02 Jun03 Dec03 Jun04 Dec04 Jun05 Dec05 Jun06 Dec06 Jun07 Dec07 Jun08 Dec08 Jun09 Dec09 Jun10 Dec10 Jun11 Dec11 Jun12 Dec12 Jun13 Dec13 Jun14 Dec14 Jun15 Dec15

60%

55%
50%

Room Occ% Trend (LHS)

Room Rate Trend (RHS)

RevPAR Trend (RHS)

50%
40%

Source: DeloitteAccess Economics based on: ABS Small Area Accommodation data and STR Global

Room Occ% Trend (LHS)

Room Rate Trend (RHS)

RevPAR Trend (RHS)

Source: DeloitteAccess Economics based on: ABS Small Area Accommodation data and STR Global

Occupancy rates in Darwin have risen dramatically in the last year as growth in the Northern Territory economy has resulted in increasing demand for hotel rooms. Inthe year to December 2011, occupancy rates in Darwin averaged 70.6%. Over the 12 months to December 2012, average occupancy rates rose to 77%.

While occupancy rates on the Gold Coast still remain below the levels that prevailed before the Global Financial Crisis, they have shown steady signs of improvement over the last year. Occupancy rates rose to 69.9% in the year to December 2012 from 65.6% in the year to December 2011. In particular, thehotel industry has benefitted from the introduction of discount flights by Scoot between Singapore and the Gold Coast over the second half of 2012.

Tourism and Hotel Market Outlook Q1/2013

11

The recovery in Japanese tourists visiting Australia over the last year is also another positive sign for the local tourism industry
Given the relatively limited pipeline of confirmed developments over the next two years, occupancy rates are expected to increase above 70% over the forecast period with occupancy rates forecast to average 70.4% over the year to December 2015. While room rates and yields remained essentially flat between 2008 and 2011, in an encouraging sign for accommodation operators both room rates and yields have trended upwards in 2012. Average yields grew from $88 in 2011 to $97 in the year to December 2012 with room rates growing from $134 in 2011 to average $139 over the year to December 2012. This trend is anticipated to continue over the next three years with room rates forecast to grow on average by 3.2% p.a. and yields forecast to grow by 3.5% p.a. Tropical North Queensland The demand for accommodation in the Tropical North Chart 4.10: Hotel outlook, Tropical North Queensland
80% 75%
70% 65% 60% 55% 50%

Queensland (TNQ) region has continued to improve with occupancy rates reaching 59.9% over the year to December 2012. While still well below the national average, occupancy rates have improved steadily from the 54.6% recorded in the year to December 2010. In recent months, occupancy rates have been assisted by the introduction of direct China Eastern flights to Cairns. Another positive sign for the local tourism industry has been the recovery in Japanese tourists visiting Australia over the last year. While the number of Japanese visitors coming to TNQ was similar over the year to September to the same period last year, arrivals increased by 20% in the September quarter relative to the September quarter in 2011. Occupancy rates are predicted to continue to recover over the forecast period, reaching 64.4% by the year to December 2015. Supply is not expected to increase materially over the forecast period although the Commonwealths decision to conditionally approve the Ella Bay resort is likely to increase accommodation capacity in the region over the longer term. Looking forward, TNQ is forecast to experience average annual growth in room rates of 4.1% over the next three years with average room rates forecast to increase from $121 in the year to December 2012 to $136 over the year to December 2015. Yields are also forecast to grow strongly in TNQ over the next three years, with average growth projected to be 6.7% as occupancy rates improve over time.

$200 $175
$150 $125 $100 $75 $50 $25 $0
Dec98 Jun99 Dec99 Jun00 Dec00 Jun01 Dec01 Jun02 Dec02 Jun03 Dec03 Jun04 Dec04 Jun05 Dec05 Jun06 Dec06 Jun07 Dec07 Jun08 Dec08 Jun09 Dec09 Jun10 Dec10 Jun11 Dec11 Jun12 Dec12 Jun13 Dec13 Jun14 Dec14 Jun15 Dec15

45%
40%

Room Occ% Trend (LHS)

Room Rate Trend (RHS)

RevPAR Trend (RHS)

Source: DeloitteAccess Economics based on: ABS Small Area Accommodation data and STR Global

Deloitte Access Economics Tourism and Hotel Market Outlook Q1 2013 reports on the performance of Australias tourism and hotel accommodation sector, based on data published by the Australian Bureau of Statistics (ABS) and extrapolated through information from Tourism Research Australia (TRA) and othersources. Forecasts to December 2015 are presented, based on projections generated from our in-house tourism forecasting model and hotel accommodation sector model. These projections draw on Deloitte Access Economics macroeconomic forecasts, as reported in our quarterly Business Outlook publication. 12

Deloitte is recognised as one of the leading global advisors to the tourism, hospitality and leisure industry, with a practice of more than 2000 professionals

Limitation of our work General use restriction This report is not intended to and should not be used or relied upon by anyone else and we accept no duty of care to any other person or entity. The report has been prepared for the purpose of providing an outlook on hotel industry performance in Australia. You should not refer to or use our name or the advice for any otherpurpose. Deloitte is recognised as one of the leading global advisors to the Tourism, Hospitality & Leisure industry, with a practice of more than 2000 professionals. InAustralia, our multidisciplinary group of industry specialists have a deep knowledge of the market issues and business challenges faced by the industry. Your industry, our expertise Our dedicated practice provides a wide range of services to financiers, property owners, investment fund managers, private investors, developers, operators, government departments, professional and business groups and tourism intermediaries. We offer a full range of services to address key industry issues associated with economic conditions, regulatory change, competition, emerging market sectors, technological advancements, mergers & acquisitions, and changing needs ofinvestors. Deloitte Access Economics specialises in providing economic modelling and public policy advice to the tourism industry, with extensive experience in forecasting and projections, econometric analysis, economic impact studies across both government and the private sector. To subscribe to Deloitte Access Economics publications visit : www.deloitte.com.au/economics

Tourism and Hotel Market Outlook Q1/2013

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Contact us For further information on how we can support your business needs, please contact one of our Tourism, Hospitality & Leisure specialists:

Lachlan Smirl Leader, Tourism, Hospitality and Leisure Tel: +61 3 9671 7567 Email: lsmirl@deloitte.com.au

Ian Breedon National Leader, Real Estate Tel: +61 2 9322 5888 Email: ibreedon@deloitte.com.au

www.deloitte.com/au/economics

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