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Temporary hotel closures & the road to recovery

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Australia’s accommodation industry has undoubtedly been one of the hardest hit sectors due to the impacts of the travel restrictions in place to curb the spread of COVID -19.  As a result, some owners have made the difficult decision to close hotels temporarily as they have sought to navigate the low demand environment across Australia and with the mandatory closure of licensed premises within hotel operations. 

According to STR, occupancy levels fell sharply through March before reaching a low point in April ranging between 29% in Melbourne to 7.7% on the Gold Coast.  It is worth noting however that occupancy levels reflect what operators are reporting as “available inventory”, and given the discrepancy as to how to report closed inventory, the actual market occupancies are lower when considering “normalised” supply. 

As we move towards recovery with the reopening of borders and as Australians start travelling again, it will be important for owners and operators to understand where and to what extent temporary closures have occurred as this will have a material impact on performance during the second half of the year, particularly when coinciding with the opening of more new hotels. 

Australia’s hotel development cycle has been in full swing over the past couple of years with more than 15,000 rooms still under construction. Completion of these rooms will add downward pressure on hotel markets as these hotels open and look to gain share. 



Temporary closures of existing inventory

Research undertaken by Colliers in mid-April 2020 (of over 700 properties with 100,000 rooms) found that close to 30% of hotel rooms across Australia were temporarily closed or placed into ‘hibernation’ with other hotels operating with limited inventory.  Some hotels which remained open were not taking bookings but being used for government mandatory quarantine purposes.  

Hotels_Charting the Course_Hotel Closure Graph_1

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Even where hotels have closed, there would be an ongoing staffing requirement to ensure the safety and security of the building is maintained, which has resulted in owners keeping the doors open. The introduction of the Federal Government’s JobKeeper program has also tipped the balance in favour of staying open albeit with staff often engaged in cleaning and refurbishment works to make up their hours.    

Hotels which have temporarily closed are expected to start to reopen once interstate borders reopen and travel is once again permitted across Australia and demand starts picking up.  Our research indicates that most properties which did choose to close temporarily are not projected to open until the end of June at the earliest.  



Wide variance between major centres

Examination of the major accommodation markets of Australia, highlights that Hobart saw the most closures, calculated as a percentage of the total room stock count closed as at April 2020 with 55% of rooms surveyed reported to be closed.  Resources or defence locations have seen less reductions in demand with corporate travel viewed as ‘essential’ and hence had lower percentages of temporary hotel closures. Demand in Perth was also boosted by ‘Fly In Fly Out’ (FIFO) business within the State. Canberra also experienced a lower level of closures, due to the extent of government demand which has remained constant during these unprecedented times. 

The major inbound gateways have also seen a benefit from returning Australians staying in hotels for the mandatory self-isolation period, albeit at a low room rate.  Other hotels have decided not to take on hotel quarantine business as they perceive it to be a risk with potential negative stigma attached.  


Hotels_Charting the Course_Hotel Closure Graph_3



New hotels opening in 2020 will add further downward pressure

Australia’s hotel development cycle has been in full swing over the past couple of years with supply increases expected to peak through 2020 and 2021.  Our analysis found that 30% of hotels due to open in Q1 and Q2 of 2020 have now been pushed back to later in the year and will coincide with the reopening of hotels which were temporarily closed.

Opening a hotel in a period of low demand is particularly challenging as the build-up period to a stabilised occupancy is typically around three years albeit there is evidence of shorter periods for mid-market hotels opening in strong performing markets.  The time to stabilisation is dependent upon a variety of factors including, but not limited to, hotel type, location, size, and service level.  The marketing expenditure required to capture attention for a new hotel, and to build the required base level of demand will be particularly challenging for those larger hotels and those of higher star gradings which anticipated a higher proportion of international visitation.  

Hobart is expected to experience the greater downward pressure with the highest number of new rooms as a proportion of the existing base stock, at 22%. The reopening of state borders will be critical if this supply is to be absorbed.  Other markets which will see considerable new supply include Adelaide, Melbourne and Perth.  

Notwithstanding, some exciting new properties are anticipated to open by the end of the year including the Little National Hotel and much anticipated Crown Towers in Sydney.  Similarly, Melbourne will welcome the Next Melbourne, The Quincy, W Melbourne, Voco Melbourne and the Fragrance Hotel – all of which will add even more desirable options to the already impressive line-up of hotels in the city.  New supply in Adelaide is also largely at the upper end with the opening of SkyCity and Crowne Plaza. 

Hotels_Charting the Course_Hotel Closure Graph_4

Longer term the interruption of COVID-19 is expected to result in a substantial reduction in the accommodation supply pipeline across key Australian markets with only those hotels which are under construction now expected to proceed. Indeed, Colliers April 2020 Australian Investment Sentiment Survey identified that investors had signaled a significant change in strategy with ‘build’ intentions the lowest for all investment strategies across all Australian markets Uncertainty about the quantum of future room night demand has undermined hotel development feasibilities and investors have refocused activities further down the risk curve.

Colliers will provide an update on Australia’s accommodation supply pipeline in a later edition of Charting the Course. 

Closed state borders continue to hamper greater travel

The reopening of state borders has emerged as a point of tension between the federal and state governments, as the Commonwealth seeks a return to unrestricted domestic travel, while states with low rates of infection are anxious to preserve their isolation. 

At the time of writing, there are no border restrictions in either New South Wales, Victoria or the ACT. South Australia has opened its borders to Western Australia, the Northern Territory and Tasmania, with others to be welcomed from July 20. Mandatory hotel quarantine has been dropped in the NT while Tasmania's border closure will be revisited early next month. 

Queensland has been working towards a July reopening although Premier Annastacia Palaszczuk has warned restrictions won't be lifted if there's active transmission interstate. While in WA, Premier Mark McGowan is standing firm on his decision to keep the border closed until it's "healthy and safe" to open again. 

Whilst state borders remain closed, intrastate travel is being heavily relied upon as it is now permitted in all States and is likely to be the major source of demand during the July school holidays. As a result, those markets likely to benefit most include Northern NSW, NSW ski fields and potentially Sydney, given their access to the greatest source of demand with visitors from NSW, Victoria and the ACT all permitted to visit.

Hotels_Charting the Course_Hotel Closure Table_6

Source: Colliers International, as at June 2020



Intrastate tourism marketing can only go some way

Intrastate tourism will be enhanced and encouraged by the recent roll out of tourism marketing campaigns by State tourism agencies. 

  • NSW - has launched the Love NSW campaign with “213 reasons to love NSW”; 
  • VIC - $2 million campaign to promote “A Short Stay Goes A Long Way” encouraging Victorians to travel within the state; 
  • WA – launched ‘We’re free to Wander out Yonder’, celebrating the state’s newfound feeling of freedom; 
  • TAS – launched mid-June urging Tasmanians to ‘make themselves at home’ and explore their own backyard.   
  • QLD – launched the “Queensland – You’re Good to Go” campaign in June showcasing the best of the state from Cape York to Coolangatta. 
  • SA - with restrictions on intrastate travel and outdoor dining eased in May, the South Australian Tourism Commission is supporting regions to ‘Welcome Back’ visitors.  
  • NT - announced a tourism voucher scheme to encourage Territorians to explore the Territory and support local tourism businesses until borders reopen. The $5.2 million voucher initiative is supported by a marketing campaign ‘Never have I ever…’ encouraging Territorians to book a local tourism experience they have never got around to enjoying themselves and;
  • Tourism Australia - is also more active in the domestic tourism space following the release of the Holiday Here This Year as part of the national bushfire recovery plan which encouraged Australians to get out there and see their own backyard.


While it is near impossible to predict when the sector will fully recover, Australia is well placed given the size of its domestic tourism market and an unwavering thirst to travel. Australians spent close to $65 billion on overseas trips over the past year and there is the opportunity to replace some of that expenditure on holidays at home.  This will be required if hotels are to absorb significant new accommodation supply which will coincide with the reopening of temporarily closed hotels. 

'Charting the Course' series


Colliers International Hotels team have put together a series of articles to help the hotel and tourism industry chart the course to recovery, as one of the sectors most acutely impacted by social distancing measures introduced in response to Covid-19.

For more insights and articles, please click the image below to be redirected to our home page.


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