Tourism Investment Monitor 2019-20

Tourism Investment Monitor 2019–20

The 2019–20 tourism investment pipeline is the combined number and value of all significant tourism infrastructure projects with a valuation of $20 million and above. The pipeline is an indicator of confidence within the industry and its ability to grow and adapt.

Projects across the 3 main tourism sectors are captured in the pipeline. These are:

• Accommodation
• Arts, Recreation, and Business Services
• Aviation

We analyse the activity in Australia’s tourism investment pipeline to show:

• current trends
• location differences
• progressions through stages of the timeline

The monitor is to help you make informed decisions about whether to enter the market.

Tourism investment pipeline

The 2019–20 tourism investment pipeline consisted of 255 projects with a value of $43.6 billion. This was slightly lower than the value of the 2018–19 pipeline of $45.3 billion (down $1.7 billion).

Investment sectors

Across the 3 tourism sectors, the pipeline was split by:

• accommodation – 168 projects valued at $11.1 billion, with the potential to add 27,200 rooms to accommodation supply
• arts, recreation and business services – 69 projects valued at $14.3 billion
• aviation – 18 projects valued at $18.2 billion.

Project phases

The pipeline includes 3 phases:

• proposed –all projects that are mentioned but may not have much information or formal plans in place
• planning – projects which have begun formal planning such as appointing developers and architects or applying for council approval
• under construction – projects where the ground has been broken on the construction site.

Projects that have recently opened, or been abandoned or deferred, are deemed to have exited the pipeline in that year.
In 2019– 20 there were:

• 26 projects valued at $9.8 billion in the proposed phase
• 138 projects valued at $15.6 billion in the planning phase
• 91 projects valued at $18.2 billion in the under construction phase

Most of the projects in the accommodation and arts, recreation and business services space were in the planning phase. However, due to the long-term nature and complexity of aviation projects, most were under construction.

Mixed-use developments

The investment pipeline excludes mixed-use developments. These are a combination of short-term accommodation, and residential, commercial or leisure spaces. Although they were not included in the pipeline, mixed-use developments offer significant value to Australian tourism.

Over the last 3 years, mixed-use investments included more hotel rooms than stand-alone accommodation. In 2017–18 mixed-use investments surged. This reflects the growing popularity of these investments from the Asian market.

In 2019–20 there were 148 mixed-use developments valued at $57.9 billion with the potential to add 29,800 rooms to accommodation supply. By comparison, the 2018–19 pipeline contained 150 projects, valued at $55.8 billion with the potential to add 30,600 rooms. While the value of mixed-use developments increased by $2.1 billion in 2019-20, the overall rooms and number of projects has fallen. This indicates greater investment in the non-tourism component of these developments such as residences and offices spaces.

The number of rooms fell slightly in 2019–20 compared to 2018–19. However, 2,300 rooms were introduced into accommodation supply due to completions.

State breakdown of the pipeline

The tourism investment pipeline shows large variation in the type of investments across each state and territory. The tourism industry in each jurisdiction varies quite significantly, and the pipeline reflects this. For example, the Australian Capital Territory has a greater reliance on business travel, with a strong international student cohort. In contrast, Western Australia relies on domestic intrastate travel with a wide area to cover.

New South Wales

• New South Wales held one-third of all tourism investment, with 66 projects valued at $14.1 billion. This was a slight increase of $0.1 billion compared with 2018-19.
• Investments were mostly in the aviation ($5.6 billion) and arts, recreation and business services ($5.2 billion) sectors.
• Capital city investment was $13.6 billion.
• Regional investment was $555 million.

Victoria

• Victoria held a quarter of all tourism investment, with 55 projects valued at $10.8 billion.
• Total tourism investment in Victoria fell slightly by $0.5 billion.
• The majority of Victorian investment was in aviation, with the proposed Koo Wee Rup privately owned airport worth $7.0 billion.
• Capital city investment was $3.0 billion.
• Regional investment was $7.8 billion.

Queensland

• Queensland had 30 projects valued at $6.9 billion. This was a decrease of $0.7 billion compared to 2018–19.
• Most investment was in the arts, recreation and business services sector ($3.3 billion).
• Capital city investment was $4.8 billion.
• Regional investment was $2.1 billion.

Western Australia

• Western Australia had 22 projects valued at $4.5 billion. This was a $1.0 billion decrease compared with 2018–19.
• The majority of these investments were in aviation ($2.1 billion), largely driven by construction and upgrades to Perth Airport.
• Capital city investment was $4.4 billion.
• Regional investment was $130 million.

South Australia

• South Australia had 30 projects valued at $2.7 billion. This was an increase of $0.1 billion compared with 2018–19.
• The majority of these investments were in arts, recreation and business services ($1.2 billion) and accommodation ($1.4 billion).
• Capital city investment was $2.4 billion.
• Regional investment was $307 million.

Tasmania

• Tasmania had 36 projects valued at $2.2 billion. This was an increase of $0.2 billion compared with 2018–19.
• The majority of these investments were in accommodation ($1.3 billion).
• Capital city investment was $1.3 billion.
• Regional investment was $856 million.

Northern Territory

• Northern Territory had 7 projects valued at $0.6 billion. This was a decrease of $0.1 billion compared with 2018–19.
• The majority of these investments were in aviation ($364 million).
• Capital city investment was $192 million.
• Regional investment was $434 million.

Australian Capital Territory

• The Australian Capital Territory had 9 projects valued at $1.7 billion. This was an increase of $0.1 billion compared with 2018–19.
• The majority of these investments were in arts, recreation and business services. This includes the redevelopment of the Australian War Memorial ($498 million).

Australian tourism investment and COVID-19 impacts

Growth in demand and supply of tourism

The Australian tourism industry has had sustained growth over the last decade from both the domestic and international markets. Over the 10 years since 2009:

• international visitors increased 69%,  and spend increased 79%
• domestic overnight trips increased 74%, and spend increased 77%.

helpHover on line over relevant year to show total figures

This strong increase in visitation has attracted ongoing investment into Australia’s tourism industry. The investment pipeline has been consistently valued at over $40 billion over the past 3 years. Continued investment has helped ensure Australia’s supply of accommodation, transport, and entertainment meets domestic and international tourists’ needs.

Short-term tourism disruptions due to COVID-19

The COVID-19 pandemic has caused severe disruptions to demand for tourism, both globally and in Australia. The industry experienced:

• a sudden halt in international visitation
• restrictions on domestic mobility
• increased health and safety concerns.

Australia’s proactive management approach to the pandemic has played a key role in protecting domestic demand for tourism. The general success in containing the virus has further improved the perception of safety for Australian tourism destinations.

In late September 2020, two-thirds of Australians stated they felt safe to travel within Australia. This was up from 45% in late July 2020. However, only:

• 51% of people intend to travel in Australia in the next six months
• 14% intend to book a holiday in the next month (as at 23 September 2020).

(Source: Tourism Australia, Travel sentiment tracker, 2020)

Aviation

The COVID-19 impacts on aviation were immediate and severe. They forced the industry to adapt quickly in the face of mass disruptions.

• Volatile border closures and the sudden loss of consumer demand saw a 95% drop in the total number of domestic passengers carried in the June quarter 2020, compared with June quarter 2019 (Source: Bureau of Infrastructure and Transport Research Economics, Aviation Statistics, 2020).
• Domestic overnight trips that included air travel fell from 24% to 6% in the June 2020 quarter compared with June 2019.
• Virgin Australia entered voluntary administration in April 2020. It was later acquired by United States private equity firm Bain Capital.
• Australia’s primary airline carriers, Qantas and Virgin, announced thousands of jobs cuts. The stop-start nature of domestic border closures placed extreme pressure on airline operations.
• The effects of heavily reduced airline activity has flowed on to airports. Many had to lay off staff and close business on certain days in order to remain afloat.

Accommodation

In the accommodation sector the impact has not been felt evenly across the country.

• Capital cities rely more heavily on domestic business travel and international spend. International visitors accounted for 41% of all spend in capital cities (only 10% for regional locations). Domestic overnight visits to capital cities fell by 78% in the June quarter 2020 compared with June 2019.
• Regional tourism locations within driving distance of capital cities fared reasonably well compared to capital cities. However, remote regional locations that rely on visitors using air travel were suddenly cut off from their traditional domestic markets.
• Many accommodation venues went into hibernation as occupancy rates fell sharply in March and April of 2020. However, they showed signs of recovery in May and June once initial lockdowns were eased (Source: STR, Australian Accommodation Monitor, 2019–20).

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(Chart source: STR, Australian Accommodation Monitor, 2019–20)

Overall tourism industry challenges

There have been many short-term changes for Australia’s tourism landscape.

• Businesses are now catering for a purely domestic tourism market.
• Domestic tourists are taking shorter, more frequent trips, and spending less. The average trip spend in the June 2020 quarter was just $385 per person, compared with $648 per person in June 2019.
• Sudden closure of international borders hurt many parts of the industry relying on international visitors. While domestic visitors could help fill this gap, recovery will still depend on the return of international travel. In 2018–19, 23% of nights spent in hotels was due to international visitors.
• Some parts of the industry had almost a complete loss of tourism revenue due to lockdowns. Visitor spend was down significantly across a number of entertainment industries in the June 2020 quarter. This included:
  • convention and conference fees (down 99%)
  • organised tours (down 98%)
  • gambling (down 98%)
  • entertainment (down 97%)
  • taxis (down 95%).
  A certain amount of bounce back is expected. However, the recovery will be hindered by social distancing requirements and capacity constraints applied on venues.
• The industry needed to adopt new technologies to deliver a safer experience and adhere to national safety measures. This includes contact tracing.

Domestic demand for tourism has remained strong, despite ongoing disruptions to the tourism industry. For example, as soon as mobility restrictions were eased, or state borders opened, there was immediate interest in bookings for accommodation venues and reinstated flights. Local travel vouchers were also being purchased within minutes of becoming available. This is one of many reasons why the Australian tourism industry still provides attractive investment prospects over the longer term.

Current positive trends need to be considered with a measure of caution. While it is possible that Australian tourism could return to pre-COVID-19 levels, bookings are still significantly lower than 2018–19 levels.

Slowing down of the pipeline

The COVID-19 pandemic’s impacts on the Australian tourism landscape will likely continue for many years. Although there is still uncertainty, we expect the flow of projects transitioning through the pipeline to slow. Causes for this include:

• Projects that were in the proposed phase may delay transitioning to the planning phase which requires further financial outlay, until further certainty is available.
• Some projects that were under construction have had construction works halted due to lockdowns and social distancing restrictions, or slowed due to limited supply of materials. This creates more implications for new construction.
• A number of hotels that were expected to open in 2019–20 have postponed their opening dates. For example, Crowne Plaza Sydney Darling Harbour was expected to open in May 2020, but this was delayed until October 2020.
• Domestic travellers have shown a preference for regional tourism locations. This could shift future investment proposals in this direction. Regional developments cost less than those in capital cities. This could result in future pipelines having lower values.

Despite this uncertainty, only one stand-alone accommodation project and 7 mixed-use projects were abandoned. Instead most investors re-evaluating their projects have deferred or placed projects on hold until there is more certainty. This is partly due to the significant time and costs needed to get a large-scale investment project to the planning phase. A total of 23 projects were deferred in 2019–20 (compared with 11 in 2018–19). Most deferrals:

• are in the accommodation space (20 projects)
• were in the planning phase in the 2018–19 pipeline
• were located in capital cities, where there has been strongest impact from the pandemic
• occurred in May 2020.

Slightly more than half of the deferrals were in the mixed-use accommodation space. Three projects were in the arts, recreation and business services sector.

Future changes in the investment landscape

The changing nature of the Australian tourism industry is likely to have a significant impact on tourism investment. Many of these changes aren’t tourism specific. They hinge on human behaviours and the way these might adapt through, and because of, the pandemic.

Moving towards more flexible work

People will likely work more flexibly. This will reduce the need for office spaces in city centres and may reduce future business travel. This could have 2 major impacts:

• A reduced need for inner city hotels. In 2019, business travellers accounted for 46% of all domestic nights in capital city hotels or equivalent. This was only a quarter of all domestic business nights (23.4 million nights).
• New investments could be lower value. They could be centred on the redevelopment of office buildings (brown field investment), rather than higher valued new developments (green field investment) which often occur in the tourism investment pipeline.

A stronger consumer focus on hygiene, safety and preserving greater physical distances could see new opportunities for smaller and more spaced out establishments and establishments that demonstrate strong adherence to safety protocols without compromising the visitor experience.

Shifting toward outdoor and nature activities

People will shift towards outdoor and nature activities. Outdoor and nature activities have strong appeal as the world looks to recover from COVID-19. The reasons for this are economic and health-related:

• They are often a low cost experience, and allow for spontaneity as they usually need limited bookings.
• Outdoor and nature experiences provide clean air and allow for adequate social distancing.

The tourism industry has already experienced early signs of this. In the June quarter of 2020, domestic overnight trips involving arts heritage or social activities fell by more than 90%. In comparison, outdoor and nature activities fell only 60-75%. This was likely driven by a limited ability to participate in indoor activities.

Even when demand for arts and cultural activities recovers, COVID-safe restrictions such as capacity constraints will affect overall profitability for current and future ventures. This could have an impact on the arts, recreation and business services pipeline, with a future focus on outdoor activities and attractions.

Shifting towards more regional holidays

People generally don’t stay home for a holiday. More than two-thirds of Australia’s population live in a state capital city. This means the 17.1 million people who reside in capital cities may be looking towards regional destinations. Only around 10% of domestic overnight trips are ‘intra-regional’. This means either more trips to nearby locations by car, or more reliance on domestic aviation for longer trips to other capital cities. Both of these could have an impact on the investment landscape.

The more likely event in the short-term is a shift towards short, drive getaways to nearby regional locations. 53% of hotel rooms were located in capital cities (151,707 rooms) in 2019–20 (Source: STR, Australian Accommodation Monitor, 2019–20). However, capital cities only received 50% of hotel nights.

While regional areas generally have lower occupancy rates, domestic holiday patterns focus on weekend and school holidays, which creates surge demand.  Increased visitation to regional areas will need investment in new tourism infrastructure to meet growing demand.

helpHover on line over relevant month to show total figures

A surge in capital city breaks will increase the use of pre-existing tourism supply, particularly arts and recreation and accommodation. However, in the longer term it may strain the current transport and access infrastructure.

Arts, recreation and business services results

Breakdown by investment type

Arts, recreation and business services businesses were hit particularly hard by the pandemic. This is because they are limited by health and safety regulations and ongoing capacity constraints. Investments in arts and culture projects (including museums) were the most common investment type:

• 25 of these projects were valued at $5.3 billion
• sports projects were valued at $3.7 billion across 17 projects

More than half of sports projects (9 projects valued at $2.2 billion) and almost half of arts and culture projects (11 projects valued at $2.6 billion) were still in the planning phase. Due to this, the impact of COVID-19 is expected to continue to play out.

Aviation results

Thirteen projects were in the construction phase. These were valued at $10.0 billion. These investments were distributed across 6 states. The most activity occurred in:

• Queensland – 5 projects under construction, valued at $2.2 billion
• New South Wales – 2 projects valued at $5.6 billion
• Western Australia – 2 projects valued at $1.5 billion
• Northern Territory – 2 projects valued at $328 million.

Accommodation results (stand-alone)

Summary

Accommodation remains a key requirement for tourism. The changing behaviour of visitors will lead to a growing demand for diverse accommodation options. In recent years there has been a noticeable shift in the pipeline towards environmentally friendly and boutique accommodation investments. The average number of rooms per hotel reduced slightly.

The 2019­-20 pipeline included 168 stand-alone accommodation projects. These were valued at $11.1 billion, with the potential to contribute 27,200 rooms into the tourism accommodation supply. This was 16 more projects than the 2018–19 pipeline. However, there was no change in the total value.

Breakdown by project phase

There were 32 new accommodation projects in 2019–20 pipeline. This was almost half of the number of new projects added in 2018–19. These projects were generally geared towards capital cities, and remained in the proposed and planning phases.

New projects were valued at $1.3 billion, with the potential to add 4,700 rooms. The average value of new developments has been falling over the last few years. However this is due to the size of hotels becoming smaller in response to visitor’s demand for more boutique and tailored accommodation options.

Notable new projects include:

• Fairmont Port Douglas Resort in Queensland – $300 million and 253 rooms
• Hyatt Regency Adelaide – $180 million and 295 rooms

Most projects in the 2019-20 pipeline were in the planning phase. There were a total of 102 projects in this phase. These were valued at $6.9 billion, with the potential to add 16,500 rooms. A further 51 projects were under construction. These were valued at $3.7 billion, with the potential to add 8,900 rooms.

Twenty projects worth at least $1.2 billion left the pipeline in 2019–20. Reasons include:

• Recently opened – 13 projects valued at $902 million, adding 2,000 rooms to supply.
• Abandoned – 1 project valued at $250 million.
• Deferred – 7 projects valued at over $250 million.

Another 6 hotels entered the pipeline and opened in 2019–20. This means the number of significant stand-alone hotel openings totalled 19. This was considerably lower than 2018–19, which had 32 new hotel openings.

Breakdown by project locations

Most projects were located in capital cities. 114 out of 168 projects were in capitals. The total value of capital city projects was $8.3 billion. The highest value investments were in:

• Sydney – $2.8 billion across 37 projects
• Melbourne – $1.6 billion across 33 projects
• Adelaide – $1.1 billion across 16 projects

By comparison, projects in regional locations were valued at $2.8 billion and mostly distributed across:

• Queensland ($875 million)
• Tasmania ($560 million)
• New South Wales ($520 million)

Mixed-use accommodation results

Methodology

Data sources

Three data sources are used to build the tourism investment pipeline database that underpins this report. The 2 main sources are Deloitte Access Economics’ (DAE) Investment Monitor and STR Global Asia Pacific’s Pipeline Database. The third source is the investment authorities within state governments.

DAE’s Investment Monitor details the total investment chain from pre-approval through to completion. This covers a number of industries (including accommodation) in five project phases:

• possible: projects that have been announced, but no early decision has been made on whether to proceed
• under consideration: a decision whether to proceed is expected in the near future
• committed: projects where a decision to proceed has been announced but construction has not yet started
• under construction: where work has started on the project
• completed: project has been completed

DAE’s Investment Monitor only lists individual projects worth $20 million or more and excludes land costs. It does not include the number of rooms to be built in specific investments.

STR Global Asia Pacific’s Pipeline Database provides a summary of the number of hotel and resort pipeline projects, and recently opened hotels. It also provides the number of existing hotels to give a picture of current and future supply within Australia. The database details the investment pipeline chain in four project stages:

• unconfirmed: potential projects that remain unconfirmed at this time
• planning: confirmed, under contract projects where construction will begin in more than 12 months
• final planning: confirmed, under contract projects where construction should begin within the next 12 months
• in construction: vertical construction on the physical building has begun, not including construction on any sub-grade structures. These include parking garages, underground supports/footers and other types of sub-grade construction
• recently opened: project opened within the last 12 months

STR Global does not supply information on the value of all projects, but does include the number of rooms to be built.

We source project values from industry and media.

Input from state government investment authorities have provided additional insight for the tourism investment pipeline since 2016–17. This provides an additional layer of intelligence to help us compile a more comprehensive pipeline, with a focus on accommodation projects. We would like to acknowledge these organisations for their help:

• Destination NSW
• Department of Jobs, Precincts and Regions, Victoria
• Department of Innovation and Tourism Industry Development, Queensland
• South Australian Tourism Commission
• Tourism Western Australia
• Office of the Coordinator-General, Tasmania
• Tourism NT, Northern Territory
• Department of Trade, Business and Innovation, Northern Territory
• VisitCanberra, Australian Capital Territory

Alignment of data sources

When we construct a tourism investment pipeline database for the Tourism Investment Monitor, we categorise DAE and STR Global’s project phases in the following way:

• proposed: includes projects identified as ‘possible’ (DAE), ‘unconfirmed’ (STR Global)
• planning: includes projects identified as ‘under consideration’ (DAE), ‘planning’ (STR Global), ‘final planning’ (STR Global), ‘committed’ (DAE), ‘in consideration’ (STR Global)
• under construction: includes projects identified as ‘under construction’ (DAE), ‘in construction’ (STR Global)
• recently opened: includes projects identified as ‘completed’ (DAE), ‘recently opened’ (STR Global).

Project thresholds

The primary threshold for projects is $20 million or more. The project values and pipeline progression are as at year ending June 2020.

Note that:

• This is not an exhaustive list of current or potential development projects, and does not account for all tourism investments. It does include major investments that will impact on supply.
• The pipeline excludes mixed-use developments, unless stated otherwise. This is due to difficulties in ascertaining the value of these projects to particular sectors.
• Some accommodation projects included in this year’s accommodation investment pipeline may be part of a mixed-use development. We categorise projects as either stand-alone or mixed-use accommodation based on market intelligence and key data sources available at the time.

Glossary

Abandoned

Abandoned projects are those that have exited the pipeline due to the investor choosing to permanently abandon the project.

Accommodation

Buildings primarily providing short-term or temporary accommodation on a commercial basis, including:

• self-contained, short-term apartments, for example serviced apartments
• hotels that mainly provide accommodation, motels and guest houses, boarding houses and cabins
• other short-term accommodation including migrant hostels, youth hostels and lodges.

Arts, recreation and business services

The arts, recreation and business services industry includes these entities:

• ‘heritage activities’ such as museum, parks and garden operations
• ‘creative and performing arts activities’ such as performing arts operations, creative artists, musicians, writers and performers, and performing art venue operations
• ‘sports and recreation activities’ such as
• health and fitness centre and gymnasium operations
• sports and physical recreation clubs and sports professionals
• sports and physical recreation venue, grounds and facilities operations
• sports and physical recreation administrative activities
• horse and dog racing administration and track operation
• other horse and dog racing activities
• amusement park and centre operations
• amusement and other recreational activities not elsewhere classified
• ‘gambling activities’ such as casino operation, lottery operation and other gaming activities
• ‘business services’ such as facilities to host conferences, conventions, or other business services.

Aviation

National and international passenger and aircraft movements between domestic and international airports.

Deferred

Deferred projects are those that have exited the pipeline due to the investor placing the project on hold. These projects may re-enter the pipeline at a later stage if the investor chooses to proceed with the project.

Planning

Includes the value of projects that have been submitted for approval. This includes:

• projects already under consideration
• projects with approval that have not yet commenced works
• other projects that have plans submitted to the local council or appropriate body.

Proposed

Projects that are still possibilities or proposals at this stage. This includes projects that have not yet submitted council plans or have a project under council consideration.

Regional areas

The areas of a state or territory excluding its capital city tourism region.

Rooms

Rooms available for accommodating short-term paying guests at each hotel and resort, motel, guest house, and serviced apartment during the survey period. Units, apartments and suites are treated as rooms for these types of establishments.

Tourism-related industries

Refers to the sum of three Australian and New Zealand Standard Industrial Classification (ANZSIC) industry divisions. These are:

• Accommodation and food services
• Transport, postal and warehousing
• Arts and recreation services

These industries were selected due to their importance for tourism and the availability of information from published sources.

Under construction

Includes the values of projects that have commenced building. A project will remain in this phase until its official opening.