Things to keep in mind before buying that tourism hotspot investment property

Our image of tourism in Australia is synonymous with leisure tourism and that is usually associated with beach culture.

Business tourism rarely gets much of a look in but accounts for more visitor nights and more actual tourism dollars than the leisure market.

While the sight of hordes of holiday makers crowding out beach holiday hot spots might lead you to think this is a big market for rental properties, it’s also a fickle one.

The business travel market is pretty solid throughout the year, with strong weeknight accommodation needs, as opposed to leisure which often works around weekends and public holidays.

This is worth keeping in mind if you find the idea of an investment property that will rely on either leisure or business travel tempting.

Here are some things to keep in mind:

All holidaymakers are not alike

Some of the most popular holiday destinations are those favoured by families – often on a budget.

The reason a particular destination might be popular could also be that it is affordable for the family market.

This is a great part of the Australian holiday tradition and it’s something we all identify with but it may not be the best market signal for an investment strategy.

Tight economic times (like we have now) can mean the capacity to pay for their accommodation (which is your property income) is capped by budget realities.

It’s a very different story for the ritzy destinations (think Noosa for example) where your typical holiday maker is just as concerned with the fine wine lists at the large number of upscale restaurants, as they are about the adequacy of their five-star digs.

Money is of little concern and household budgets are things other people worry about for this market. That flows through to local real prices, and these can reach eye watering levels.

The same isn’t always true of budget holiday destinations. The business travel market is very different, with an emphasis more on capital city or large regional city short stay accommodation.

Price points are often determined by company travel policies or proximity to key markets. Surrounding amenity is important, but for the majority of business travellers, it’s not five-star dining they need – that only raises questions when travel expenses are submitted.

Are we there yet?

Most holiday makers still drive to their favoured destinations, although an increasing number are flying with budget fares making this more accessible.

Whether it’s a drive in the family car or a trip on a plane, the shorter the better if families (read: children) are involved. That tends to make holiday destinations closer to major population centres much more accessible, and hence busier.

People with money have the means to travel further in greater comfort.

They want to escape the hordes, not join in with them. So their chosen holiday destinations are often farther flung, and more exclusive. If you plan to follow the holiday money, keep this in mind.

Stay longer, care less

The leisure holiday maker tends to stay longer than a business traveller. This can be good thing in short bursts in peak seasons. But they can also lead to more wear and tear on a property.

Business travellers stay shorter but are often travelling solo and will eat out rather than dine in. All this can mean a more benign treatment of short stay accommodation than perhaps family holiday makers.

Supply and demand

Some of the biggest holiday markets in terms of demand also have the greatest supply.

The Gold Coast, for example, has no shortage of accommodation options from high end hotels to apartment hotels, motels (yes, they still exist), camping (increasingly scarce) and endless private short stay options (like Airbnb).

The local council is pro-development so there is no shortage of people looking to deliver more supply if the market signals are right.

Where supply responds to demand, this usually prevents overheating. Contrast this with nearby Byron Bay, where getting permission for a garden shed can be problematic.

Supply shortages in this case have led to even the most modest accommodation options being quite pricey in peak periods. That’s unlikely to change given Byron’s reputation as ground zero for nimbyism.

Year-round reliability or peak season burst?

Accommodation like an apartment hotel that targets the business traveller is typically going to enjoy fairly reliable, year-round income. Nothing is certain in life but for predictable, dependable bookings, the business travel market will tend to deliver.

On the other hand, leisure accommodation in desirable holiday destinations will experience significant bursts of activity and elevated peak season pricing, contrasted with possibly lengthy stretches of limited demand and discounted accommodation offers.

This can work out for investors but also means you are more exposed to potential peak season failures (bad weather for example).