Friday, February 14, 2014

RevPARing the supply side

There was a story by our friends at the Cairns Post this week on the most recent Dansfield Hotel Futures 2014 report. proclaiming that "Cairns and Port Douglas hotels are leading Australia in growth according to new RevPAR report".

The report is indeed positive and a reason for optimism with improved occupancy and room rates driven by a recovery in demand. However it was also noted that the recovery had been from a low base and perhaps more relevant to our local economy is the supply side.

RevPAR = revenue per available room. The demand recovery has also coincided with a contraction in FNQ room supply in recent years. There is some good commentary on Cairns & PD in the report and this is their chart on actual and forecast supply:

FNQ is the only region covered in the report where (Aquis not yet included) forecast supply is entirely based on market response with no current construction or proposals.  I have copied the report commentary on supply below and note the reference that the recovery is not yet sufficient to generate a substantial supply response.

Supply Actual

In CY2012 supply decreased by 2.2% against 3.5% growth expectations
In FY2013 supply growth remained in decline with a 1.9% decrease
Supply growth has averaged a 0.3% p.a decline in the last 5 years

Supply Forecasts

Long term supply expectations to FY2022 have been slightly upgraded with 2.1% p.a average growth expected.
Supply growth for FY2014 is expected to be consistent with previous forecasts of 1.0% growth with no live projects currently in the construction phase.
Supply increases in the medium term to FY2016 continue to be low and are again on par with previous forecasts of an average 1.0% p.a.
Long term supply growth is expected to average 2.1% p.a over the forecast period to FY2022 with a slightly stronger back half. This represents an upgrade on the previous forecast of 1.7% growth.

Market Response Allowances

In Cairns and Port Douglas, all of the supply forecast relates to anticipated new projects as the market responds to favourable development conditions. They are not live or specific projects which are separately allowed for as construction and proposals activity.
Room rates and RevPAR remain well below other regional destinations, and demand and rate performance would need to be well above current expectations to encourage substantive new supply.
Market response makes up 100% of all supply in the next 6 years
Our forecast allows for a modest market response of 620 rooms over the next 6 years.

The report also notes an ageing stock in need of refurbishment. Investment in supply and refurbishment would be a boost for employment and the regional economy.

There is also some recent positive commentary on FNQ from reports by the Mantra Group: Summer travel boom for Mantra Group

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