The return of international tourists is providing a fillip to the tourism sector and hospitality real estate in Australia.

The 12 months to end-May this year saw 7.92 million short term visitors to Australia, up 42% over same period last year. However, this is still 16% below the total for 2019, prior to the covid pandemic, which saw Australia closed to visitors. The Australian Trade and Investment Commission (Austrade) predicts international arrivals will not exceed pre-pandemic levels until next year.

However, even with visitor numbers not fully back to 2019 levels, hotel revenue per room, a key performance metric for the sector, has bounced back sharply and is 23% above 2019 levels across Australia, reflecting pent up demand for travel from both domestic and international tourists.

Furthermore, Austrade predicts 6.9% growth in annual visitor numbers between 2025 and 2028, higher than the ten years to 2019. Similarly, international spending is expected grow relatively strongly both in nominal and real terms over the same period, compared with the decade leading up to the pandemic.

Real estate investors began buying into Australia’s recovery in 2022, when hospitality transactions rose 83% from the previous year, although the numbers include a record deal, the A$530 million ($355 million) sale of the Hilton Sydney. Last year, transaction volumes dropped 6% from 2022, still a strong result after a bumper year, and in contrast to much more pronounced slowdowns in activity in other commercial real estate sectors.

While the cyclical opportunities may have faded, Australian tourism looks set fair in the longer term, says Chris Naughtin, National Director, Capital Markets Research at Savills Australia. “Australia’s geographic proximity to large and growing Asian markets with rapidly rising household incomes will drive growth in tourism activity over the medium-to-long term.”

While consumer spending is slowing and consumption is generally shifting more towards essential items, many households continue to prioritise travel and hotel stays in their consumption.

“Hotel and accommodation services spending has outpaced overall household consumption in recent years,” says Naughtin. “In Q1 2024, nominal spending on accommodation services was 24% higher than pre-pandemic (Q4 2019) levels, compared with an 18% increase for total household consumption.

“Spending on hotel accommodation has outpaced many other discretionary spending categories over this period including clothing and footwear, household goods, and recreation & culture.”

Naughtin adds that Australia’s rising population – it grew by 2.5% in 2023 – will also boost domestic tourism.

Further reading:
Savills Australia Hospitality H1 2024

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Chris Naughtin