Australia's constrained hotel development pipeline has seen a 673 room increase in projects under construction over the past ten months, according to Jones Lang LaSalle's Hotels & Hospitality Group's latest Australian and New Zealand Hotel Development Register.

Troy Craig, Managing Director, Strategic Advisory, Hotels & Hospitality Group said, "Whilst the number of rooms in the likely proposed category has jumped, it is coming off a low base and is underpinned by a number of large-scale medium term projects. On the whole, development activity in Australia's major accommodation markets is expected to be fairly benign over the next few years. High occupancy levels and capacity constraints are therefore expected to remain a feature of the Australian hotel investment landscape over the next few years."

Hotel openings have been limited during the first four months of 2013, with majority of new projects slated for the second half of the year, with approximately 1,473 rooms projected to open in the balance of the year.

Rooms under construction have increased by 27.6% (673 rooms) with 13 projects evolving to the construction phase. Major new construction starts include Ibis Adelaide, Quest on King William Adelaide, NEXT Hotel Brisbane, Tune Hotel Melbourne, Oaks on William Melbourne and Wyndham on William Melbourne. Hotels dominate construction activity accounting for around two thirds of rooms under construction.

Mr Craig said, "Despite the upturn in the pipeline, of current known projects, hotel room night supply is expected to increase on average by 1.2% per annum over the next five years." He continued, "This is considerably lower than the long term average of 3.7% per annum, but in line with the level recorded over the past ten years, when supply additions have averaged 1.0% per annum."

Mooted projects have recorded a significant reduction since June 2012 with a number of large mixed use projects progressing, but with fewer new projects being put forward which could indicate that developer appetite for short term accommodation development remains soft.

Karen Wales, Executive Vice President, Research & Consulting, Hotels & Hospitality Group said, "While more projects are likely to be proposed in the coming years, the likelihood of all existing mooted and new projects advancing is low as feasibility hurdles remain a challenge. Furthermore, we think it unlikely that another phase of overbuilding will occur as has been the case in previous cycles, due to improved investor and operator knowledge, along with increased market transparency."

Mrs Wales said, "For the first time, we have also included a snapshot of accommodation development activity in the broader Sydney and Melbourne metropolitan areas in this report. Both cities have expanded over the past decade with the growth of secondary CBD's and satellite accommodation markets and demand is therefore being dispersed further afield." She added, "For Sydney in particular, we expect to see a higher proportion of accommodation development in these areas over the next development cycle as land is less expensive and development constraints less prohibitive."

Currently Jones Lang LaSalle estimates that there are ten projects with 735 rooms under construction or proposed in the Sydney and Melbourne metropolitan areas. There are an even higher proportion of new rooms mooted for the Sydney metropolitan area with 32 projects with 3,226 rooms currently under review. While very unlikely, should all projects proceed this would result in an increase of almost 25% on the existing Sydney metropolitan base stock.

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Stephanie Gregory
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