We have focused on late on the accommodation marketing in country towns and what is appearing to be a rapid decline in the value of these assets.
Some of the core indicators that things are going bad are:
- Number of premises for sale
- Room rates are not increasing
- Failure or disappearing large chains
- Quality of accommodation is falling
- Cars in the parking lot
Travelling a lot, as the team does, we see on the coalface the decline in the market, the drivers for this have been significant but include:
- Reduction in business travellers
- Increase in motor homes and caravan sales
- Decline in the rural economy
- Increase in costs of running a business
- Substantial oversupply
The concern for many accommodation operators that when times were good there was a substantial increase in the number of motels open, but as these assets are very hard to re-purpose they either need to be knocked down or heavily modified, there are very few other uses for these.
We assisted a family group that owned three properties in rural NSW, the total number of rooms was 150 (70, 50 and 30), the average occupancy was 15% (or 23 rooms a night), the highest occupancy in the previous ten years was 50%, they had not sold out any of their properties during the entire time (being the ten years). Upon engaging a valuer it was indicated that two of the properties held land value only and the third could be re-purposed for permanent accommodation, as motels their value was minimal (and actually losing substantial amounts of money each week). Fortunately they had no debt, so were able to close the doors and have a logical sale of the assets and could afford to re-purpose the third property but for some accommodation providers a secondary market may simply not be achievable.
Analysing your accommodation business in a declining market can be a tough experience, and we recommendation that there is no better time than now to understand your options.