Planning uncertainty certainly hurts hotel development. Hotel investors and developers don't always see eye to eye but are unanimous when it comes to defining what holds back further investment in New South Wales' hotel sector.
Council development approval is nominated as the top obstacle to investment and this bugbear is shared with professional associates involved in the acquisition, design and delivery of hotels in the State. Traditionally, the top two constraints in the hotel development game have been competing on land uses and construction costs. Not all that much has changed, with hotels still competing with residential and commercial assets for highest and best land use.
To soften land cost issues and increase financial viability, developers often combine retail, residential, commercial and hotel uses. Similarly, the design and construction industries have risen to the challenge and use innovation and common sense to deliver new hotel projects cost-effectively.
It appears there's just one remaining stakeholder needing to step up and play nicely to make hotel development in New South Wales stack up again - the approval authorities. Lodging planning and development applications is an expensive and at-risk outlay, starting at around several hundred thousand dollars for the simplest of developments.
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Developers accept this costly first hurdle. But it's the lack of
certainty of timing for planning approvals that hurts most and this is
clearly deterring hotel investors. While holding costs
hurts financially, absolute uncertainty can be crippling. Planning
approval constraints are a contributing factor for the recent
extraordinary sale prices for existing hotels assets.The value of certainty is creating record transaction values. A known premium cost factor is a safer position for investors and developers rather than not knowing when, or even if, a new hotel proposal is likely to gain planning approval. Planning red tape in New South Wales has also become a strong deterrent for overseas investors with many detouring to Victoria and Queensland where planning frameworks are easier to navigate.
On a recent project, an iconic regional resort in NSW was closed for four years awaiting development approval and subsequent refurbishment. When the approval finally materialised from this notoriously obstructive regional council, it was so onerous that the project's financial feasibility was severely impacted. Transparency is good stuff.
It's one of the reasons Australia fared so well through GFC and continues to attract strong overseas investment. We are deservedly and comparably an economic safe haven. Yet development approval systems and processes remain archaic, convoluted and often misunderstood. If New South Wales wants to be seen as a viable state for new hotel development, we need to replace uncertainty with transparency and maintain a reasonable timeframe for approvals.
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