Tourism and holiday home markets likely to have hit the bottom of the cycle

Tourist accommodation results, which are based on the results from the on-going quarterly Survey of Tourist Accommodation, were released by the Australian Bureau of Statistics recently.  The ‘small area’ data was released on the same day as the March employment figures were released, so the tourism results largely flew under the radar.  The national figures were released a week earlier and I have only seen one media article that picked up on it – a great read from Michael Pascoe in the Sydney Morning Herald (read it here).

Australia’s tourism industry has suffered as a consequence of the GFC and high Australian dollar.  The Tourism Forecasting Committee, which is part of the Federal Government’s Department of Resources, Energy and Tourism, estimates that total tourist consumption contracted 3.5 per cent in relative terms in 2009, which is the largest fall since 2003 when tourist consumption fell by 3.9 per cent due to the SARS outbreak and US invasion of Iraq.

The weakness in the tourism sector has clearly had repercussions in regional property markets which are often dependent on tourist numbers to support the local economy.  Where investors are reliant on tourism related rental income (be it from tourists themselves or workers servicing the industry) many have struggled with the decrease in cash flow.  Additionally, a larger than normal proportion of holiday home owners decided to sell their homes in 2008/09 as the Global Financial Crisis hampered their ability to service what can best be described as discretionary debt.  This led to a large amount of properties available for sale at a time when there was not a great deal of demand, leading to value declines in these markets.

Lower tourist numbers affect more than just the accommodation sector.  Retail revenue is lower, employment is hard to come by and property investors experience lower demand for their rental dwellings; be it from tourism workers or tourists themselves.

The survey results show that seasonally adjusted revenue from tourist accommodation improved over the December quarter of 2009 after recording five successive quarters of decline.  From peak to trough takings from tourism accommodation fell by 6.3 per cent.

Takings from tourist accommodation

Seasonally adjusted occupancy rates also improved after bottoming out at 62 per cent over the first nine months of 2009.  The improvement is subtle – up 1 basis point to a rate of 63 per cent nationally, but combined with the improvement in tourism takings over the same quarter it does suggest that Australian tourism market may finally be showing some signs of recovery.

Occupancy rate

A further sign of improving health in the tourism sector is that the number of persons employed in the industry has ceased their downwards spiral.   The tourism accommodation sector lost almost 7,000 employees between September 2008 and June 2009.  Since this time the survey reports that employment levels have been virtually flat with a further 810 new additional employees finding work in the tourist accommodation sector.

Persons employed

Below are comparative statistics for the December quarter last year and 2008 for the ten largest regional Tourism Regions in Australia, together with the figures for the capital cities and states.  Tourist accommodation markets are clearly performing much better in the capital cities than in regional locations.

Key stats

The improvements in tourism markets are fairly subtle at this stage, suggesting any recovery is in its early stages.  However multiple points of data suggest the sector is starting to show a turnaround.  With business conditions and confidence improving, the corporate market is likely to be one of the primary drivers of growth in the tourism sector over the coming year. Additionally, a strong domestic economy is likely to see holiday home investment and domestic travel once again move into positive growth territory.  For inbound overseas tourism, the strong Aussie dollar isn’t a great incentive for overseas travelers to visit our shores.

The Tourism Forecasting Committee is expecting inbound travel to Australia to increase by 4.3 per cent this year.  They are also predicting a 2.3 percent improvement in domestic visitor nights

An improvement in the tourism sector will be welcomed by a wide range of participants in the Australian economy.  The sector comprises about 3.6% of Australia’s GDP and employs about 4.7% of Australia’s workers.  Property buyers who are considering purchasing in tourism centric locations, now may be one of the best times to be looking.

The recent improvement in tourism statistics combined with residential market conditions that still favour the buyer in many of these holiday centric locations suggest now is likely to be the bottom of the cycle.

About Tim Lawless

Tim heads up the RP Data research and analytics team, analysing real estate markets, demographics and economic trends across Australia

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