More on the Windsor Hotel redevelopmentPosted: March 29, 2010 Filed under: Planning | Tags: Essential Economics, five star hotel, height limit, Justin Madden, Melbourne, planning permit, single loaded, Windsor Hotel 2 Comments
I had a look on the weekend at the report of the independent Advisory Committee established by the Planning Minister, Justin Madden, to advise him on the application for a planning permit for the redevelopment of the Windsor Hotel. I’ve previously commented on this issue, here: Windsor Hotel Redevelopment.
There is some interesting information in this report that so far hasn’t gotten much, if any, airing in the media. It reinforced my earlier view that approval of this development was the right decision.
The report makes it clear that the site isn’t subject to a mandatory height limit as some critics have implied. However it is the economic arguments that are particularly interesting.
The Windsor is now near the bottom of the five star hotel market in Melbourne. The average number of guest rooms in all other five star CBD hotels is 348, whereas the Windsor only has 180. Of these, 75% are less than the 35m2 minimum considered appropriate for a five star hotel. The Windsor’s average tariff is 22% lower than the average for all five star hotels in Melbourne and its occupancy is 10% lower. On average visitors only stay 1.5-1.9 nights at the Windsor but 2.2-2.4 nights at comparable hotels.
Perhaps most importantly, the facilities expected of a five star hotel, such as conference, business and leisure facilities, are either lacking or of poor quality.
The Committee accepted the applicant’s argument that:
The economic feasibility…(study)…indicates that at least 330rooms of a minimum size of 35 sq m are required in order to achieve an economically viable hotel – which will be supported by financiers – and maintain the excellent 5‐star service expected.
An interesting aspect that I’d not become aware of from relying on the media for information was that the tower is ‘single loaded’. That means it only has guest rooms on one side of the corridor. The report states that “a double loaded tower would be too wide to fit on the site without demolishing significant parts of the original hotel…..It is not possible to have a ‘fatter‘ tower (as it) would severely impact on the ballroom, remove the light court, and reduce the setback to Spring St”. Given that the report rather curiously lacks any plans or diagrams, this wording tells us that the light court will be retained.
Something that struck me as odd was that while the Committee acknowledged there were concerns about the heritage implications of demolishing the back part of the hotel, the report did not evaluate the appropriateness of this work (or even mention it any further as far as I could see). I’ll concede that I only looked at the report briefly but this omission surprised me. It’s clear that demolition remains a powerful image – see here.
The report also got me thinking about a wider but nevertheless interesting issue which I will only mention here in passing. The Committee accepted, on the basis of the evidence presented, that “there is sufficient latent demand in the Melbourne CBD 5-star hotel accommodation market to justify the additional capacity proposed by the redevelopment of the Hotel Windsor”.
There’s nothing new about this, but I’ve always thought it remarkable that we let the planning system protect the interests of existing businesses by restricting the entry of new competitors. Not surprisingly, there’s a long and in some instances dishonourable history of commercial rivals, especially in the suburban shopping centres market, using the planning courts to restrict competition.
I appreciate there are complexities to this issue. Buildings have long lives and there are small business tenants in shopping centres whose livelihood could be ruined by unfettered competition (small retailers tend to be regarded as ‘consumers’). Still, I wonder if the planning system is really the best way to deal with commercial issues. Perhaps this is something I might write about another time.
Tourism is a precarious industry. So the ‘restriction of competition issue’ you raise is a tricky one.
Rather than becoming some instant source of riches, individual tourism operators (more often than not) find that their industry can be extremely financially risky and unpredictable. It is also vulnerable to sometimes unforeseen and fast moving events like health scares, transport strikes, security scares and more. Demand can fluctuate dramatically under such circumstances and reasonable profit margins are essential to weathering such sudden storms.
Oversupply in particular has serious consequences for all players, as in the tourism industry it commonly leads to operators competing on price not value – to the detriment of both the quality of product and service supplied, the setting of appropriate charges and to the viability of all businesses concerned.
With this in mind, under or over capacity in the provision of different levels of accommodation options to visitors represents a serious planning and business viability issue. A key issue is the amount of lead time needed to meet demand, if supply is unknowingly being outstripped by the pace of growth. And of course nobody’s viability is improved by oversupply.
So monitoring trends on an industry wide and coordinated basis is highly desirable and it is encouraging to see the Windsor Hotel’s own viability issues under the microscope at this time.
Incidentally, as a parting observation Melbourne’s rapidly growing population rate will undoubtedly just as significantly affect its tourism market demand – as there is a direct equation between growth in resident population and growth in the statistically most significant tourism market segment – Visiting Friends and Relatives (or VFR).
In my previous comments, I neglected to add that, when viewing these issues from the consumer perspective (and not just the operator perspective), it is when accommodation supply is not matching demand that tariffs and prices more easily go up!