Softening RevPAR, a $34 million reduction in the NSW tourism budget and the prospect of hotel room oversupply in the near future – these are three reasons why tourism stakeholders and hotels in particular should take an active interest in the upcoming night time economy and lockout review
Five years ago the narrative for the Sydney hotel sector was amazingly positive. Occupancy rates were over 90 per cent, revenue per available room (RevPAR) was growing, a glitzy ICC was on the way, and the promise of vast numbers of inbound Chinese tourists all painted a rosy future.
How quickly things can change.
While occupancy rates are holding near 80% per cent, RevPAR has declined for 7 consecutive months (and down 4.4% per cent over 12 months according to STR). Chinese visitor numbers have also slowed over the last 9nine months. Compounding the problems for the sector, growth in supply is now outstripping demand. It’s not a recipe for achieving target room rates.
But to date, the tourism and hotel sector has been surprisingly quiet when it comes to Sydney’s nightlife. Being generous, these issues been at the periphery of its business model with primary revenues driven by corporate accounts, functions and every spare minute thinking about pipeline. Being brutal, perhaps the sector has been complacent, waiting for some other schmuck (ahem…) to come along and do the heavy lifting when it comes to fixing it.
Or perhaps it has just been waiting on the right stats to filter through?
Well, if softening RevPAR hasn’t got your attention, then here’s a couple of other key things to have a think about:
Time Out City Index Data
Time Out has run a city index over the last three years and the results for Sydney should alarm even the most ardent city index sceptics.
In 2017, Sydney ranked 16 out of 18 cities surveyed. In 2018, Sydney ranked 28 out of 32 cities surveyed. And in 2019, Sydney ranked 39 out of 48 cities surveyed. Of most concern this year was the wooden spoon ranking given to Sydney’s nightlife – 48 out of 48 cities surveyed.
But city indexes are many and conflicting. For each one that says one thing, you can find another that says the opposite. What makes the Time Out data compelling is reading it in conjunction with the Deloitte Report issued in February 2019 that identified the opportunity cost to Sydney’s NTE, to be in the vicinity of $16bn.
So what’s all this got to do with the hotel sector?
A few things come to mind.
First: How much of that $16bn annually should be sitting in the coffers of travel and tourism? Well, the NSW GDP from tourism is about 7.5 per cent, and even if we assume that the Sydney percentage is the same (it may well be higher), then the opportunity cost of an underperforming night-time economy to the tourism sector is in the vicinity of $1.2 billion annually. Assuming RevPAR of about $200, that’s…. 6 million room nights each year. Seems a lot?
Second: Lockout has all but extinguished nightlife in the CBD (which is where a large number of hotels are concentrated). Meanwhile, locals now descend on areas closer to home like Manly, Bondi, Double Bay and Newtown, whose nightlife has benefited from central Sydney’s woes. These areas offer then authentic experience of Sydney, and deliver on the promise that the rapidly expanding lifestyle and boutique category aspire to. Who's got rooms in those areas? Airbnb does. Great if you are them. Reinvigorating the CBD will neutralise Airbnb’s competitive advantage when it comes to lifestyle travel.
Third: The holy grail of tourism marketing is repeat visitation. Repeat visitation is in turn a function of having experienced a destination, feeling like there was more to see, which is why you venture back. Our friends south of the border in Victoria well and truly understand this, which is why they are storming ahead of NSW in terms of domestic tourism trends.
Sydney’s current challenge in the absence of a vibrant lower CBD is what I call “three photos are you’re done”. The Bridge, the Opera House and whatever dessert item has replaced the snow egg on the Quay menu. And let’s face it, photos of the first two are pretty good ROI for your average visitor. But the lack of CBD vibrancy hardly screams “come back, there is more to experience”.
Lastly: It would be a brave senior tourism bureaucrat who commissioned a research report into “brand damage for Sydney” as a result of the lockout. Which is probably why one hasn’t been done as far as I know, and we are left to anecdotal feedback only, increasing parody videos, and the embarrassment occasioned by hosting international guests and business colleagues.
We know from the Music and Arts economy inquiry that Sydney’s lockout brand is adversely impacting the live music touring circuit. But it would be great to hear from the MICE sector on whether Sydney’s lack of nightlife is an inhibitor to business. It can hardly be a help.
So much for the problem… what’s the solution?
The NSW Government has finally opened the door to a sensible chat via the Night Time Economy and Lockout parliamentary inquiry.
I’d encourage the hotel sector to stick its size 16s in, and kick it wide open. We get one chance to fix this. Otherwise, it’s four more years and $64bn more of lost income. The submission deadline is today (2nd July) but you can write to the secretariat (NightTimeEconomy@parliament.nsw.gov.au) and it’s likely you will get an extension until 9th July.