Sydney strong, but regional serviced apartments shedding guests

As we look to what's ahead for 2012, Property Observer is republishing some of our most noteworthy stories of 2011.

While the Sydney serviced apartment market continues to perform strongly, the state’s two biggest regional markets – the Mid-North Coast and Northern Rivers regions – have seen occupancy rates drop sharply in line with declining tourist accommodation demands.

According to latest ABS tourist accommodation statistics, occupancy rates for the Mid-North Coast’s 1,500-room serviced apartment market dropped from a healthy 72% in January 2011 to 62% in March 2011.

The market, which comprises the regional towns of Port Macquarie, Taree, Coffs Harbour, Forster and Kempsey, has fallen in line with a drop in hotel occupancy ratios for the region which are down 10% for the same period to 54%.

Guests are staying for shorter periods – three days instead of four – while average takings per night are down from to $135 from $188 at the start of the year.

It’s a similar story for the Northern Rivers towns of Grafton, Lismore, Tweed Heads and Byron Bay which make up the bulk of the region’s 1,800 rooms.

Occupancy ratios fell from 65% to 53% over the March quarter. At the same time the combined tourist accommodation sector dropped from a 58% occupancy ratio to just over to 53%.

Guest stays are down to two and a half days on average compared with four nights at the start of the year.

According to research by CBRE Hotels, the growth of the serviced apartment market in tourist areas was driven by leisure traveller demands.

In contrast, Sydney, which makes up half of the 12,000-bed strong NSW market, had an occupancy ratio in March 2011 of 88% compared to 85% in January.

Its 6,000 rooms were occupied for 163,000 nights in March, generating average takings per night of $197; slightly down from $199 in January, but up on a year ago when average room takings were $182.

According to research by CBRE Hotels, serviced apartments in regional areas are heavily reliant on domestic travellers, with just 10% of their guests coming from overseas.

In comparison, a quarter of guests in CBD apartments are visiting from overseas.

Online searches revealed very few serviced apartments up for sale in NSW.

The Waldorf Apartment group is current selling a studio serviced apartment in the Parramatta Apartment Hotel at 110-114 James Ruse Drive for $179,000, with guaranteed rent of $260 per week.

Further up on the Central Coast, a two-bedroom apartment at the Entrance Waldorf Apartment Hotel is for sale for $279,000. The Waldorf is offering investors a two-year leaseback option returning 4.5% net per annum on the unit's purchase price.

ABS statistics reveal the Central Coast market declined strongly during the first quarter of 2011, with occupancy ratios falling from 72% in January to 41% in March.

However, for the March quarter, the occupancy ratio stands at 54%; higher than 52% recorded in March 2011, suggesting that seasonal factors may play a major role.

Against the backdrop of Sydney’s strong showing, Ken Smith, regional director for CBRE Hotels, tips the serviced apartment market to become a much more dominant force in the Australian market in 2011.

Yields on serviced apartments are between 5% and 6%, compared to between 3% and 4% for residential investment properties, according to CBRE research.