Australia's tourism sector is showing robust signs of recovery as international visitors return in significant numbers following the pandemic. Recent data reveals international visitor arrivals to Australia are forecast to reach 8.3 million this year, representing 88 per cent of pre-pandemic levels. This recovery is expected to continue, with arrivals projected to surpass pre-pandemic numbers by 2026, reaching a record 10 million international visitors. By 2029, international arrivals are forecast to grow to 11.8 million, a 41 per cent increase compared to 2024 figures.

The recovery has varied significantly across source markets. Visitors from Vietnam, South Korea, and Ireland have already exceeded their pre-pandemic levels, while arrivals from India, Indonesia, and the Philippines are expected to surpass pre-pandemic numbers this year. China remains a critical market for Australian tourism, though its recovery has been slower than initially anticipated. Chinese arrivals are expected to increase by 70 per cent this year to 909,000 and eventually surpass pre-pandemic figures by 2027. By 2029, China is forecast to reclaim its position as Australia's largest inbound market with 1.72 million visitors. In an increasingly complex geopolitical environment, Australia's stable relations with China position it favourably to capitalise on the resurgence of Chinese outbound tourism.

International visitor spend has already exceeded pre-pandemic levels, reaching $33.2 billion in 2024 (6 per cent above 2019 figures) and is projected to grow to $48.5 billion by 2029. This stronger recovery in spending compared to visitor numbers reflects increased travel costs and a focus on higher-value travellers.

The hotel investment market in Australia is showing significant momentum, with transaction volumes experiencing substantial growth. In the first quarter of 2025, hotel transaction volumes jumped more than 100 per cent year-over-year to reach $791.8 million, signaling renewed investor confidence in the sector. For the full year ending Q1 2025, total hotel transaction volume reached $2.2 billion, though this represents a modest 2.7 per cent decline from the previous 12-month period. The compression in cap rates continues tightening 62 basis points to average 6.2 per cent, reflecting increased competition for quality assets and growing investor confidence in the sector's long-term performance.

The Australian hotel investment market remains heavily dominated by offshore investors. Singapore continues to be the most active source of foreign capital, accounting for a significant portion of cross-border investments over the past 24 months. Other notable sources of foreign capital include Canada and Thailand, with significant investments in the past year. Chinese and Hong Kong investors, though less active than in previous years, continue to maintain a presence in the market. Sydney remains the most sought-after market, with $432 million in transactions in 2025 year-to-date, followed by Melbourne with $258 million. Notable recent transactions include marquee properties in Sydney and Melbourne, further cementing these cities as prime investment locations.

Several factors enhance Australia's competitive position in the global tourism landscape. The weaker Australian dollar makes the country more affordable for international visitors, creating an attractive value proposition, particularly for travellers who might otherwise consider the United States or Europe. This favourable exchange rate also makes Australia an appealing destination for international investors, helping to drive the substantial investment activity seen in the Australian hotel market.

The current geopolitical climate may further enhance Australia's appeal. Rising tensions and political polarisation in other major destinations could redirect tourism flows toward Australia, which is perceived as a stable, welcoming environment. For travellers from North America, Europe, and increasingly Asia, Australia represents not just a destination but a secure choice in unpredictable times.

With limited new hotel supply in the pipeline and increasing visitor numbers, the outlook for hotel performance appears positive. The strong ADR and occupancy growth across most markets indicate that hoteliers are successfully capturing value from increased demand against limited supply. Recent annual hotel performance data to March 2025, confirms the tourism recovery trend, with Australia-wide hotel occupancy reaching 72.6 per cent (up from 71.6 per cent in 2024), and average daily rates increasing to $250.65. Revenue per available room has grown to $182.03, representing a solid increase from $179.93 in the previous year.

While challenges remain, including global economic uncertainty and the potential impact of efforts to reduce carbon emissions in aviation, the favourable exchange rate, strong recovery in high-spending visitor markets, and a stable political environment create a compelling case for Australia as a preferred destination for international travelers and investors seeking both value and certainty in an uncertain world.