Property

A competitive market

During the last few years or so motel accommodation has been under fire in predominantly larger regional centres from the influx of new high rise units that have been coming out of the ground left right and centre.

This has been on the back of strong demand for short and long term accommodation that was for a number of years, boosted by an enhanced resource industry lead requirement. Many of these buildings are good quality properties that have been constructed and fitted out to a high standard. There are also those that have not, where low cost fixtures and fittings look good for a short time only. In some cases plans and construction were based on residential living, however a change of tack resulted in these units ending up in short term occupation.

The large number of short term units that have been introduced to the accommodation market within a short time frame is where some of the occupancy issues come to the forefront. In any market it takes time for these additional units to filter through the system and for a short period, occupancy rates in those areas can drop considerably due to the surplus of accommodation space now available.

Increased competition in any industry over time is inevitable. It is the volume that creates the short term issues. The number of complexes opening within a short time frame is not the issue, it is more the number of additional units.

In one location in Queensland an additional 300 (approx) short term letting units were added to the market within a short period of time. This creates a major surplus and it takes years for this surplus to filter through the system. Of course timing is an issue as well, where regional councils react to strong demand for accommodation by quickly approving many new developments. These may then take years before construction commences and eventually the complex is open for business. On one hand this can help to alleviate the issue where developments are staggered, however on the other hand a number can also be built and opened in quick succession.

In localities where demand is outstripping supply it is easy to see why new developments would be approved and constructed within a short time frame. Where it is difficult to forecast is how long this stronger than normal demand will last. This has been evidenced in a few locations where demand has slowed for different reasons, and the lag of construction of new accommodation properties has then “missed the boat”. They have then opened for business in a market where demand has declined and subsequently occupancy rates and room rates have also declined.

The pressure that is placed on room rates during such a time is immense. Discounting and other bad habits sneak their way back into the industry even when it had been thought to be almost eradicated on the back of stronger times. The lure of free breakfasts, cheap meals and the like to travellers who smell a bargain also filters back in, and serves to erode the profits of any type of business in this situation, not only accommodation.

Where motels can seek to gain market share has to be within the product and service being offered. A higher level of service needs to be provided. The “home away from home” is a catchcry that can be utilised by providing this type of service to particularly those travellers who are travelling for business reasons for more than one night, week or month in many cases. The service side of things could be argued to be the area where the bigger opportunity exists to gain and maintain market share. Another area is that the presentation of the product is paramount, where renovations, repair and maintenance, and updating are words that become more relevant for a property that was constructed many years ago that wants to remain competitive against newer complexes in a tough market.

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