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Hoteliers warn of “unsustainable” city room boom

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Adelaide’s rapidly expanding hotel market could lead to a “glut” of empty rooms unless the State Government boosts its tourism spending, hotel groups have warned.

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The Australian Hotels Association has estimated up to 4000 new hotel rooms could be built in Adelaide over the next five years, with 21 luxury hotel developments either confirmed or on the cards for the city.

That figure would grow Adelaide’s hotel supply by about 20 per cent by 2021 – a figure hoteliers warn could lead to market saturation in a city that already struggles to fill hotel rooms year-round.

Of the hotels planned for the city, three are currently under construction, including SKYCITY Casino’s 123-room hotel on the Riverbank, Sofitel’s 257-room hotel on Currie Street and Crowne Plaza’s 326-room “Adelaidean” on Frome Street.

Other confirmed hotels include the 295-room Hyatt Regency on Pirie Street, Westin Hotel’s 285-room tower overlooking Victoria Square and the contentious 138-room Adelaide Oval Hotel.

AHA South Australia general manager Ian Horne described the hotel development boom as “unsustainable”, telling InDaily current hotel operators already found it challenging to fill rooms in the tourism off-season.

“Certainly it’s all private money so one assumes that they (hotel companies) have done their due diligence and they’ve done their work to make sure it’s a reasonable investment that they can get a return on,” Horne said.

“But it’s always a risk that the market will become saturated and certainly for existing operators that’s one of their greatest worries.

“It’s very competitive and on some weekends in Adelaide in winter, the prices to stay in one of our four or five-star hotels is just unimaginable.”

Horne said recent infrastructure spends in the city, including the Adelaide Oval and Convention Centre redevelopments, as well as the new medical precinct along North Terrace, were driving international hotel brands to the state.

He said the Adelaide hotel industry’s “bread and butter” continued to be corporate travellers, rather than interstate or overseas tourists.

“There will be enormous pressure on the tourism industry to actually get the numbers in to fill those rooms,” Horne said.

“It’s like a rollercoaster – we have high occupancies in January, February, March, although increasingly the only time we tend to come near to full capacity – and that’s only for one or two nights – would be when there’s a major cricket test match in town, or the Clipsal 500 (now known as Superloop Adelaide 500).

“Once you get into late April, May, June, July, you tend to see a slump.”

The expected boom in hotel developments has prompted calls for a $50 million State Government funding intervention ahead of tomorrow’s expected release of the 2030 Visitor Economy Plan for South Australia.

InDaily understands the plan will outline how the Government intends to grow South Australia’s visitor economy by $12.8 billion by 2030 – up from $7.2 billion currently.

The plan is also expected to include a target to create 16,000 new tourism sector jobs in South Australia by 2030.

SA Tourism Industry Council chair Eoin Loftus criticised the State Government for setting the targets after cutting $3 million from the SA Tourism Commission in the last State Budget.

He said the SATC’s marketing budget was “at the lowest level it’s been in five years” with broader cuts to the Department for Tourism – also to the tune of $3 million – further dampening growth in the sector.

State Budget papers show the Government has reduced spending on the SATC, but will provide $30 million over three years from 2020-21 to fund marketing directed at boosting international and domestic visitors to SA.

“They’re (the State Government) writing an industry plan where they see significant opportunity for growth and I just get the sense that the Government feels that it will just happen without their investment,” Loftus said.

“The Government just have to tip in a little bit more – not a whole lot more – to fill that new supply of hotel rooms, or we will be in a state of oversupply.”

Loftus said the state’s visitor economy was already growing substantially, but more investment was needed to prevent Adelaide hotel rooms remaining empty.

“If we go back 12 months the visitor economy was at $6.8 billion, now it’s at $7.2 (billion), so it’s gone up $400 million over a year,” he said.

“If you go back to five years ago we were sitting around about the $5 billion mark.

“What could happen short-term is that if the Government don’t invest more in driving demand there will be a glut in the oversupply of product.”

Of the $50 million in State Government funding the Tourism Industry Council is calling for, it has asked for the bulk to be spent on new marketing initiatives.

The council has asked for the remainder to be spent on driving tourism in regional South Australia, as well as strategies to build the capacity of tourism operators.

“Nearly every other state and territory is increasing investment in driving visitor economy demand and we will lose our competitiveness if our government doesn’t increase our visitor economy demand as well,” Loftus said.

In a statement to InDaily, Tourism Minister David Ridgway said the Government looked forward to “soon releasing a number of its sector strategies to drive growth in the state’s economy, of which tourism will be one”.

“Latest figures have shown tourism spending in SA has risen to a record high $7.2 billion dollars and that this industry will be a major contributor to our future economic success,” he said. 

“The Government has demonstrated its commitment to the sector with a recent $43 million injection of funding which will allow the SATC to continue to produce their award winning campaigns to drive visitation to SA.”

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