There's Room To Move In Sydney

<B>There's Room To Move In Sydney</B>

By Angela Spiegel

More rooms to choose from and lower room rates in Sydney are the short-term legacies left by hundreds of millions of dollars-worth of Olympics-induced building activity and brand buy-outs in the lead-up to the big event last year. Long term, this will be a good investment for hotel owners, as rates and yields rise, but that may not happen until 2002, according to hotel analysts.

There are now about 20,000 hotel rooms in Sydney, an increase of about 4,500 over two years in the lead-up to the Olympics. Accor Asia/Pacific, Stamford Hotels & Resorts, Bass Hotels & Resorts and Radisson Hotels are only four of the big brands that contributed to the fray, adding new properties or engaging in hotel and brand buy-outs. While the hotels did very nicely out of the Olympics, now that the party is over, things have changed. For instance, Mirvac converted its Kings Cross hotels into residential apartments as soon as the Olympics ended. And despite the reduction of 750 rooms to the city's stock, discounting has begun--a cause of irritation for established Sydney hotels whose managers maintain that Sydney does not need to discount.

But that hasn't stopped some of the newer five-star properties from offering up to $25 off the nightly room rate charged by four-and-a-half-star hotels, which had averaged $200 a night, in a bid to win some of the juicier contracts.

Peter Croasdaile, regional general manager of Federal Hotels International, which operates the four-and-a-half-star Grace Hotel in Sydney, said the discounting "is an overreaction, because there is not going to be anything built in Sydney now for the next three years."

But Wayne Buckingham, acting general manager of the five-star Westin Sydney, said there was rate pressure because there were more rooms available. "Obviously, because everyone's bidding for the larger accounts, that will drive rates down a little bit," he said.

David Waters, executive director of operations at the Radisson Group, said Sydney was a dynamic marketplace. The group opened its five-star Radisson Plaza in Sydney in July 2000, in time for the Olympics. "We know the international travel will increase due to the Olympic exposure, so although supply is very high right now, we do believe demand will increase," he said.

DA Dransfield & Co., financial advisers to the hotel industry, said room yields are expected to reduce to 1994 levels in 2001, resulting in a cyclical trough before a 4.5 percent increase by the end of 2002.

Rutger Smits, director of Arthur Andersen's hospitality and leisure services group in Australia, said occupancies for January 2001 did show a slight decrease. "However, absolute demand remained strong, with a more obvious decline in average room rates influencing a fall in room yield of 8.7 percent."

Melinda McKay, senior vice president at Jones Lang Lasalle Hotels, said the market was in a consolidation phase, and that while demand would increase, rates would not immediately follow. Yet, "The market has some really strong underlying factors," she said. "It's just a matter of moving past the Olympic blip and digesting supply."

Hotel groups that jockeyed hard to establish themselves in Sydney before the Olympics mostly are satisfied with their supply and prepared to ride out the blip. Scott Cogar, COO of Stamford Hotels & Resorts, is a firm believer in the "excellent fundamentals of Sydney." Stamford is looking at further opportunities in Australia now that it had established itself in Sydney, and, "We are looking at southeast Asia and America.