For Perth's hotel operators, the current market is something of a mixed blessing.
For Perth's hotel operators, the current market is something of a mixed blessing.
On the one hand, average daily room rates are up, soaring 16.2 per cent in the first quarter of 2008, according to Australian Bureau of Statistics figures.
Yet the prices being achieved are not high enough to support any new building activity, particularly with competition for land from the commercial and residential sectors.
Aside from the redevelopment of the Old Treasury buildings and talk of a new project on Barrack Square near the bell tower, there's not a single hotel planned or under construction in the Perth CBD.
West Perth's Richardson Hotel and the Medina Executive Barrack Plaza are the newest arrivals, yet they've been open for two years.
And as office rents climb towards $1,000 per square metre in the city, making a viable case for new hotels will become increasingly hard, as demonstrated by luxury hotel operator Stamford Land Corporation Ltd's decision to scrap its plans for a hotel in favour of offices.
It will be the first time Stamford has commissioned an office tower, and its decision will leave Perth as the only mainland capital where the company does not have a presence.
Stamford bought the site in 1996 - including the land for the subsequent Woodside tower - with the intention of building a mixed-use development.
However, the company decided a hotel was no longer viable 12 months ago, commencing plans for a 13-level office building instead.
Stamford Property Services general manager development and construction, Anthony Rice, said room rates in Perth would have to rise substantially in order to make the case for a new hotel, given the high costs of land and construction.
"Currently, room rates don't support the construction of a new five-star hotel, whereas commercial rents make an office building much more [financially] attractive," he said.
"We'd like to build a hotel in Perth if we found the right site, but land is not cheap and construction is very expensive, more so than in Sydney. Perth has always been comparatively expensive, and in the current building boom it's even more so."
Stamford is yet to decide whether it will retain and build, or sell the project.
According to figures released this week by the ABS, Perth's hotel occupancy rate eased slightly to 82.9 per cent during the first quarter of the year, yet is not expected to retract much further due to limited new supply.
Perth Convention Exhibition Centre general manager Robert Clifford said the shortage of rooms was making it more difficult to compete for business internationally.
"Because we're dealing three or four years out on a commercial basis [with clients], I would be hesitant to say we're turning away business, although we're not as competitively attractive as we once were," he said.
Mr Clifford said there was a place for government intervention in the sector because current yields on room rates were not high enough to make hotels profitable.
"The government should really offer incentives to investors, in terms of tax breaks or something similar, to increase investment in hotels. It's what we should be lobbying for as an industry," he said.
"If we continue to go with the traditional financial models, building hotels simply won't stack up."
However, Mr Clifford said extra business from the convention sector would generate demand and help strengthen the viability of hotel construction.
"If we keep driving our sector, we should start seeing more gain in the average cheque throughout the industry, which we hope will in turn improve the financial case," he said.
It's a sentiment echoed by Perth Convention Bureau managing director Ross MacCulloch, who said the organisation was being much more strategic in its operation.
"For us, [the room shortage] has a direct impact, because we have to be careful to target certain times of the week or year," he said.
Mr MacCulloch said the convention business faced an even bigger challenge in the price of fuel, with companies requesting compensation for fuel surcharges in some cases.
He said the industry simply couldn't afford to pick up the bill, which in one situation would have totalled $100,000.
Meanwhile, demand for existing hotels is at a premium, with both the Emerald and Chifley selling this year, at $25.1 million and $28 million respectively.
Colliers International WA sales executive hotels Greg O'Meara said demand had been strong during the sales campaign, with companies keen to get a foothold in Perth due to construction being too expensive.
