Australian hotels are becoming increasingly attractive for investors, but the government has a critical role to play in growing supply, according to an industry expert.
Speaking at a Pacific Asia Travel Association forum in Sydney this week, lawyer Tony Ryan highlighted 2011 as the 10th consecutive year of annual hotel supply growth of less than 3%, despite good returns and high occupancies.
He revealed Sydney's net growth in supply over the 10-year period as just 324 rooms.
The lack of growth is due to the perception of hotels as a weak investment, Ryan explained.
But he countered that is no longer the case. He referred to the IPD property index which shows that hotels are now outperforming other assets in terms of returns, with decreased volatility.
"It is no longer to be dismissed, it's an asset class that can really stand on its own two feet," he said.
"We should be starting to generate some interest and that is starting to trickle through from the institutions."
Asian investors have already pounced, acquiring properties in key areas across the country. Ryan predicted Australian firms would follow suit in the next 18 months.
But new build properties are still not being seen, mainly due to high construction costs and a preference to build residential properties.
Ryan insisted it lies with the government to stimulate development by designating areas of land specifically for hotel construction and by offering developers bonus floor space if they build hotels.
Meanwhile, Tourism Australia managing director Andrew McEvoy said progress is being made with $1.3 billion in transactions taking place last year, 70% of those from Asia.
He also pointed to a number of government incentives which are stimulating development in a number of cities.
However, McEvoy stressed it is critical to avoid the "boom and bust cycle" that was seen in Australia in the pre-Olympic period.
"We need more capital city beds but built in a sustainable and profitable way," he said.
