24 minute read
DEVELOPMENT OUTLOOK
from HM June 2022
THE PATH FORWARD
THE AUSTRALASIAN HOTEL OUTLOOK FOR 2022-2023 IS POSITIVE AS THE RETURN OF TRAVEL BRINGS CONFIDENCE AND CONTINUED MARKET INVESTMENT.
ACCOR
It is an exciting time to work in hospitality as the travel industry enters an era of transformation and growth. One critical area Accor is tackling head-on is our responsibilities towards the environment.
Lindsay Leeser – SVP of Development
Sustainability is critical to our teams, our guests, our partners and our future. Some initiatives under consideration by Accor include innovation around renewable energy, in particular, we are concerned with finding ways to use solar energy on small available roof space.
We are also examining our supply chain in detail in an effort to reduce plastic in packaging and transportation, as well as what our guests see and experience. Food waste is both a challenge and opportunity, and we are exploring how we reduce the impact on the environment in this space with our partners.
Above all it is vital that we work together as an industry. We do not want to be competitive regarding sustainability and the future of the environment. Accor recently signed the Sustainable Hospitality Alliance for this reason. We need to learn together and from each other, inspire each other and challenge each other to make a difference.
THE ASCOTT LIMITED
James Shields - General Manager Growth and Capital Strategy
Ongoing strategic investment in positioning, projects, properties, and partnerships is delivering above and beyond expectations for The Ascott Limited’s suite of brand offerings including Quest.
While expansion had already picked up pace pre-COVID, the resurgence in the domestic markets during COVID led by the regions and drive destinations amplified the benefits of the growth strategy. At the heart of Quest’s approach is a commitment to delivering a balanced stakeholder approach within the evolving challenges of the marketplace.
The proof in the success is the fact that Quest like the other brands in Ascott’s impressive portfolio including The Ascott Residences, Citadines, Citadines Connect, Sommerset and lyf is flourishing.
In fact, the pipeline is the strongest every experienced by the group with eight projects in construction and 15 more at varying stages of negotiation.
The end result – an additional 2,750 rooms and more than $1.2 billion in completed projects under the Quest banner will be delivered over the next four years.
-James Shields, The Ascott Limited
Supporting this is a commitment to flexibility of structures including leases, management agreements and brand franchises. There’s also a focus on getting the inventory quantity and mix right through understanding demand drivers at the most granular level and building out room night volume accordingly.
New developers are selectively added to the existing developers who have a track record of delivering for the group. Quest’s design and construction teams are integral and work hand in hand with developers to optimise project feasibility and delivery especially given increasing construction costs.
Importantly, the financing market remains strong for leases, where a lease can represent a pre-sale of more than 50% of the number of apartments in any mixed-use development. This means developers do not need to sell 100% of residential inventory to meet debt coverage ratios. Now is the perfect time to harness the strength of the domestic markets and optimise the entire group for sustainable, quality growth as we continue to deliver on our purpose of making corporate travel effortless for our guests, our owners and business partners.
BAKER AND MCKENZIE
If the deals we have worked on recently are any indication, in the financial year ahead ever-increasing attention will be given to hotels located within mixed-use developments and the highly complex documentation that these deals necessitate. This is simply a sign of the times.
Graeme Dickson – Partner
New hotel development - particularly the five-star product – located in CBD locations in gateway cities like Sydney and Melbourne struggle to stack up as stand-alone offerings. This trend will spread to other locations as the financial equation to determine the highest and best use of land becomes increasingly more demanding. To further enhance the value proposition, there is also the increasing trend to attach the hotel operator's brand to residences usually located in the development.
These deals involve all the curly issues relevant to standalone hotels and much, much more. Some of the more thought-provoking include:
• Construction timing. Generally, sale completion of the branded residences usually can only take place once the hotel is opened. Hotel opening is usually at the operator’s discretion which can be a complex process, particularly for a high-end offering. Timing uncertainty can be a real issue for construction lenders looking to be paid out of the residence sale proceeds - not to mention the residence purchasers themselves.
• Brand standards and their impact on common areas or facilities (e.g. a shared lobby or entrance), its cost and allocation amongst the various development users. Brand Standards may impact on other components of the development (e.g. retail offerings) including sale price expectations.
• Limited ability to deal with building-wide issues. If, for example, the exterior facade of the development is damaged then, the hotel owner may have limited ability to cause the damage to be fixed in a timely manner depending on its control of the owner’s corporation that oversees such issues.
• Operator’s desire to regulate the use of residences. Many operators wish to impose restrictions banning Airbnb or other short term letting opportunities
• Use of hotel facilities. Headaches relating to access to pools, gyms and other facilities located on hotel premises being shared with other building occupants including residence owners on a fair and reasonable basis.
• Signage. Both the operator’s and other occupiers’ signage can raise significant issues in terms of inter-relationship, size and placement. The ability to constructively deal with these and other issues requires a deep understanding of not only how hotels work but the complexities of the real estate laws which deal with mixed-use offerings. Patience and an ability to devise effective solutions to the myriad of competing wants and needs of a diverse range of stakeholders also helps. It’s challenging but enormously satisfying when it all comes together.
BWH HOTEL GROUP AUSTRALASIA
Graham Perry - Managing Director
While the world turned inwards and battened down the hatches over the last two years, BWH set its sights on networking and supporting its hotels and the accommodation industry to ensure a strong post-COVID recovery. The BWH development team led by Danilo Curcuruto and Elena Martiniuc focused on building ties with external stakeholders including investors, operators, developers, property brokers, management companies and hoteliers to foster strong long-term relationships.
Fast forward to 2022 and with the resumption of travel and with revenue back to pre-COVID levels the fruit of this labour is paying dividends. In February 2022, BWH opened its first Aiden by BestWestern in Darling Harbour in partnership with property developer Nicolas Chen and his father Frank. This was closely followed in May 2022 with BWH signing an exclusive 20-year agreement with development company, ARBT Property Group. This collaboration will see the launch of Australasia’s first Executive Residency by Best Western later this year and the second Aiden by Best Western opening in early2023. BWH will also open a new Best Western in Queen Victoria Market, Melbourne in late 2022.
Strong revenue growth forecast to continue right across Australasia for the foreseeable future is being driven by the demands of the post-pandemic traveller who is looking for fresh lifestyle and extended stay branded accommodation to satisfy their appetite for personalised experiences. This new traveller is giving rise to the new “bleisure” market that blends business and leisure activities with a single extended day trip.
Australia's second Aiden by Best Western will open in early 2023
As we capture a new generation of domestic travellers and reopen our borders to greatly missed overseas markets with China expected to recommence travelling in 2023, BWH has a strong foothold on the accommodation market with production underway for multiple new properties in capital cities and regional centres comprising both traditional and new extended stay and lifestyle brands. Working in tandem with its new array of partners, BWH is in a box seat to showcase the halo effect of its 17 global brands to turbocharge direct business and revenue performance for its properties. This brand legacy effect speaks for itself and can exploit what is a strong revenue outlook to drive the growth and development of the BWH portfolio across Australasiathroughout the next decade.
HILTON
Tushar Raniga – Director Development, Australasia
2022 is the year that the hospitality industry recovers with borders now open and travel demand unleashed, and Hilton will continue to provide an important backdrop for guests to make new memories at our 29 hotels across Australasia.
With 13 hotels in the pipeline, our growth momentum has not wavered despite the pandemic, showcased in our recent Waldorf Astoria Sydney signing announcement which marks the first Waldorf Astoria in Australasia, and our first luxury hotel signing in Australia.
In terms of further expansion, our development strategy is to organically introduce our world-class brands to travelers in key markets at the right time, with plans to expand further within the luxury, lifestyle and focused service segments in Australia and New Zealand.
Where we see immense opportunity is with our award-winning and fastest-growing upper-midscale brand, Hilton Garden Inn, which welcomes guests to more than 940 hotels in 55 countries and territories globally.
Hilton Garden Inn was introduced to Australia in 2021 with the opening of Hilton Garden Inn Albany and with six projects in planning or under construction, we have an ambition to double the footprint of Hilton Garden Inn across Australasia within the next five years.
For developers, the brand offers an efficient prototype set-up designed for the Australasian market that provides increased certainty over costs and allows them to efficiently adapt to evolving guest preferences with enhancements. Developers can cost-efficiently expand their portfolios and streamline their operating model to drive returns. Hilton Garden Inn achieves market-leading performance by maintaining a lean, focused service operating model, while the Hilton name commands global recognition.
In March 2022 we launched our franchising model in Australia for Hilton Garden Inn which will provide experienced owner/operators to partner with us whilst maintaining day-to-day control over their hotel businesses, as well as being a key driver of growth for the Hilton Garden Inn brand.
IHG HOTELS AND RESORTS
Matt Tripolone – Managing Director, Australasia and Pacific
The first half of 2022 has been one of the busiest on record for IHG Hotels and Resorts and, after the past two years, we could not be more buoyed by the positivity in market.
We started the year with the opening of Holiday Inn and Suites BondiJunction, before welcoming Australia’s first Kimpton hotel together with our partner Pro-invest, who also followed with the opening of Holiday Inn Express Melbourne Little Collins, Holiday Inn ExpressAuckland City Centre and recently capped off with two new voco hotels in Auckland and Brisbane. We also opened the stunning voco MelbourneCentral at the end of April, making a total of three new voco properties opening in the space of a month.
We’re currently seeing an increased focus on regional destinations as domestic travel has reignited interest in discovering Australia’shidden gems. This was highlighted by a slew of signing announcement with partners such as the Pelligra Group and the Oscars Group, which included Crowne Plaza Shell Cove Marina and Holiday Inn and SuitesMawson Lakes, which drew significant interest from business and the local community. We can’t wait for InterContinental Sorrento to open which will become a destination in its own right, with multiple dining venues, a spa and bathhouse amongst other leisure facilities on site.
In the next four years, there will be an additional 2,750 rooms under the Quest banner
In terms of what is top of mind for our owners at the moment, it would undoubtedly be conversion opportunities. With interest rate rises, tightening lending criteria and increased labour costs, conversion arrangements become even more attractive. Our recently launchedVignette Collection is perfectly positioned for owners to convert hotels quickly, allowing the property to retain their own branding and identity while putting the full power of IHG’s commercial system behind them. voco, IHG’s fastest-growing brand, gives owners a light-touch approach to conversions, allowing them to convert more quickly and cost-effectively and the increase in interest around this colourful brand has been exciting.
LANCEMORE HOTELS
Julian Clark, Chief Executive Officer
It’s a time of change in hotel development at the moment. There remains plenty of activity but there is a slight pause in some areas of the market, primarily due to uncertain macroeconomic conditions, conservative debt providers and increased cost of construction. After a generational increase in new hotels supply over the past half-dozen years we see this as healthy and will benefit future trading conditions immensely.
In terms of asset purchasing - there is plenty of capital seeking a home but finding reasonable IRR returns without excessive debt remains challenging. Having said that, there are deals that still make sense, you just need to find alpha in the asset and/or be a longer-term holder. Such deals become easier to stack up as each month progresses. With normalising demand and slowing supply we are extremely optimistic about future trading. Consequently, we remain a buyer and continue to recommend to capital partners the same, but we are not “buying the market” and are very specific on which markets, assets and pricing are attractive.
In terms of management there continues to be plenty of opportunities. Unsurprisingly a trend is new supply in sub-markets that were slightly unloved pre-COVID but traded well throughout the pandemic, especially in suburban and regional areas.
Much new supply is looking for an operator in Lancemore’s core area of expertise which we are naturally happy about – lifestyle/boutique or white label in both CBD and regional locations.
In terms of agreements, we have two HMAs signed in South Australia and one more at LOI stage. We are very confident about serving markets there that have been underserved for some time. This adds to our expansion into Brisbane, Melbourne and regional Victoria in the past 18 months. As a medium-sized company there remain many locations in both Australia and New Zealand that we are excited to enter and are working on deals in many of these markets as we speak. After a tough two years, the future is bright.
MARRIOTT INTERNATIONAL
Richard Crawford – Vice President Hotel Development, ANZP
As the world’s largest hotelier, Marriott International manages and franchises 8,000 hotels under 30 global brands. With a footprint spanning 139 countries, sustainable expansion is central to our strategic plan, and our opening of a new hotel – somewhere in the world – every 14 hours is evidence of the successful execution of Marriott’s growth mandate.
Prior to Marriott’s acquisition of Starwood in 2016, Marriott operated just six hotels in the Australia, New Zealand, and Pacific region. Today, our portfolio numbers 41 operating hotels in the region, under 15brands, including Marriott, Sheraton, Westin, Ritz-Carlton, St. Regis, W, Aloft, Courtyard by Marriott, Four Points by Sheraton, and JW Marriott.
With agreements executed for an additional 22 hotels and resorts, Marriott’s growth in the Australia Pacific region will ultimately see our portfolio increase tenfold, in the decade following the Starwood acquisition. Marriott’s growth in the region has been characterised by multiple signings in Melbourne (where we now operate nine properties), plus a focus on upscale, upper-upscale, and luxury hotels. Of note, Marriottoperates the largest hotels in the Australia Pacific region, with an average key count of 230 guest rooms.
Marriott reports record room rates at its Gold Coast Sheraton resort
Despite the operating challenges faced by our industry in recent years, hotel investment continues unabated, with developers and hotel owners rightly referencing our local industry’s strong pre-COVID fundamentals, and the renaissance in domestic travel as valid logic for optimism.
The ten new hotel projects Marriott is nearing signing in the AustraliaPacific region, reflect the wider industry trends of continued investment in Melbourne (and Australia’s other capital cities), along with surging travel demand in Australia’s iconic leisure destinations. On the Gold Coast, for example, record room rates at our Sheraton and JW Marriott branded resorts have stimulated investor confidence and will see us announce new world-class luxury offerings in the coming months.
This month, JW Marriott Jnr. stepped down as Chairman of the Board of the company his father founded 95 years ago. Mr Marriott’s youngest son, David Marriott, will become just the third Chairman of MarriottInternational, a company that knows “success is never final”. It is that mantra which will continue to drive our growth, and our mission to be the world’s favourite travel company.
MINOR HOTEL GROUP
Lachlan Hoswell – General Counsel and Commercial Officer
When we look ahead to 2023, there is plenty to get excited about in the development pipeline for MinorHotel Group and the broader industry.
On the international investment front, Australia will continue to be a desirable location, with hotels, in particular, a sought-after asset for overseas investment. On the home front, domestic developer activity and investment in the market is strong and provided returns meet investor needs there is money available for feasible projects and performing hotel acquisitions. We expect to see new hotel announcements over the coming 12 months.
Not surprisingly, uncertainty around new build costs will continue to impact feasibilities, however, we do expect the supply chain challenges impacting the construction sector to ease as the industry returns to a new normal after the peak of the COVID-19 pandemic.
Minor Hotels is targeting franchise opportunities to expand its Oaks brand
For our brands, we see a myriad of opportunities to grow through a strategic combination of franchising, hotel management agreements and leasing arrangements, as well as investing in projects alongside developers, with both popular capital city, urban centre and regional locations currently being considered.
In light of the robust regional market activity in Australia, we are targeting franchise opportunities to expand our Oaks brand, and we look forward to sharing Oaks’ fully equipped serviced apartment model and ‘home away from home’ offering with business and leisure travellers in new locations across the country.
Construction is about to commence on NH Collection in central Sydney CBD which will be the first foray into the Australian market for the brand. We are excited about launching this strong global brand into the market and expanding the brand further throughout Australia.
PRO-INVEST HOTELS
Shantha de Silva – Director of Operations
2022 will be the biggest year on record for Pro-invest Hotels. We will open eight new hotels in Australia and New Zealand in the first half of the year with our partners at IHG Hotels and Resorts and Accor, and we could not be prouder to be bringing some of the world’s most exciting brands to our shores.
Speaking of records, in a record number of ‘firsts’ for Pro-investHotels, 2022 has already seen us bring the first Kimpton hotel to Australia, the first voco hotel to New Zealand, and the first Holiday Inn Express and Suites brand to the region. Our commitment to the Holiday Inn Express brand as a whole remains strong and we have a number of Holiday Inn Express hotels in the pipeline in fantastic CBD and resort locations around Australia.
Vista Hospitality Group, a joint venture between Pro-invest and Next Story Group, has opened voco Brisbane
Our hotel portfolio now stands at 30 hotels across nine brands, each of them distinctive in their own way, serving their particular market to a very high standard. In March 2022, we announced a joint venture with Next Story Group to form Vista Hospitality Group. Since we announced the JV, we have been buoyed by the interest investors have had with the Vista Hospitality Group. In addition, in May we announced the purchase our first asset in fund III which will be The Sebel Canberra Campbell. This is our second Sebel hotel in Canberra and we’re pleased to be extending our partnership with Accor in the nation’s capital.
RADISSON HOTEL GROUP
Mark Bullock – Managing Director, Australasia Business Unit
As tourism and markets take an uptick, a similar trend is seen with Radisson Hotel Group. We are moving forward with confidence as we aim to capitalise on the rebound of leisure and corporate travel in Australasia.
We are witnessing rising demand from owners and developers for all our brands, driven by a healthy mix of organic growth, the potential for mergers and acquisitions and franchise opportunities, and our owners have access to a collection of brands that address the different market mix and segments. Our Australasian growth strategy will be driven by our new local development office in Sydney, which will offer expert on-the-ground support to our partners.
Radisson is focusing on upper-midscale and lifestyle brands
While our portfolio of brands ranges all the way from midscale to luxury, Radisson Hotel Group is especially focusing on upper-midscale and lifestyle brands such as Park Inn by Radisson and Radisson RED, which we believe are well suited to the needs of the Australasia market. Radisson Individuals is gaining extremely good traction globally; this soft brand, which can be localised to suit its destination, is helping us to successfully enter new markets such as Papua New Guinea.
We are also aiming to tap the potential of new market segments such as branded serviced apartments, with strong potential for this model in the upscale and midscale segments. This is something we will explore further with our partners in future.
The global recovery of travel and hospitality is now well underway, and Asia Pacific is leading the way. Travel demand to Australia surged as borders reopened, and the Asian Development Bank has forecasted that Asia Pacific will be the first region to reach pre-pandemic levels of travel spending.
RESORT BROKERS
Trudy Crooks – Managing Director
Like its residential cousin, the commercial property sector in Australasia has been enjoying a halcyon ride off the back of historically low-interest rates and a global pandemic which placed the focus firmly back on domestic transactions.
But with rising interest rates – the first of which occurred in early May – and state and international borders re-opening, how long will the property bubble last?
While it is critical to read the economic signals and threats - at ResortBrokers where we have brokers on the ground in every corner of Australia - we are witnessing buyer demand at an all-time high from all sectors of the market.
This is driven by a number of factors including industry newcomers who want to relocate and be their own boss after years of anxiety during the pandemic of no job certainty; corporates seeking to invest capital in the hotel industry which still represents great value compared to other asset classes; and a renewed interest in regional Australia where investors are capitalising on large parcels of land which are under-utilised.
-Trudy Crooks, Resort Brokers
Based on our financial year figures to date, we see no signs of this upward trend waning, with high room rates set to continue even if occupancy declines. While it would be useful to possess a crystal ball in the property industry, we believe there is at least another 12 months’ heat left in the market.
Certainly, our own sales figures indicate so with our listings rising substantially to 51 per month in the first seven months of FY 21/22 to 359 listings. In the same period, we settled 127 deals which represents a 34 per cent increase, and there was a 13 per cent increase in market enquiry. By the end of FY 21/22, we will have more than 300 deals settled and in the pipeline.
The bottom line: we can sell in any market – whether it is going up or going down – it just needs to be moving, and for now, that continues to be up.
VERIU GROUP
Michael Herman – Director of Development
Veriu Group is rebooting its expansion program after a tough couple of years. My appointment is part of the program.
Veriu works with developers, signing long-term leases. This puts us in a very different category to most other hotel operators in Australia, who generally will only enter into management agreements. We therefore appeal to developers who prefer not to have a hotel operating business and would rather have returns akin to commercial office space. We are not competing with the international operators, nor the larger domestic ones.
We expect to open three new properties this year, including the first two Veriu branded hotels in Melbourne, part of mixed-use developments in Collingwood and Queen Victoria Market.
New Punthill Apartment Hotels will open at Essendon North this August and Geelong in May 2024, in partnership with developer EVR Group.
Construction work on a further five properties – two Veriu, three Punthill – is scheduled to start in 2022, setting the tone for what is hopefully a decade of consistent growth for the business, which now operates 17 properties.
The goal in the next 10 years is to get to a position where we are a proper national operator with somewhere around 70 to 80 hotels under operation.
We’re really looking to have a presence in most of the major suburban, CBD and regional markets around the country.
Agreements are in place for new Veriu Hotels and Suites in Fremantle, Western Australia, and the inner Melbourne suburb of Cremorne. There are also three fresh leases signed for Punthill Apartment Hotels in the Melbourne suburbs of Sunshine and Footscray, plus another in the Hunter Valley city of Maitland.
WYNDHAM HOTELS AND RESORTS
Matt Holmes – Vice President of Development South East Asia and Pacific Rim
Through 2022 and 2023 Wyndham Hotels andResorts Asia Pacific will be focusing on a twoprongedapproach in Australasia, including franchiseconversions and increasing our presence in key markets through eitherfranchising, license and distribution or management opportunities.
The Australia and New Zealand markets have long been skewed toward owners seeking partners to manage their assets, particularly for the larger hotels and new construction properties. We don’t believe this will change too much; however we want to make sure we are also driving franchise opportunities, particularly for hotel conversions, and are giving owners the option to control their own assets or choose preferred managers,overlaying this with a global brand and world-class franchising system.
Our Trademark Collection by Wyndham is a strong option for this, allowing hotel owners to plug into a powerful distribution system without the costs and challenges associated with rebranding or changing operating procedures. Our partners are able to maintain their uniqueness while taking advantage of Wyndham’s global scale of distribution, customer service and the Wyndham Rewards loyalty program.
I think a lot of the activity around management opportunities will be through conversions, as rising interest rates, rising construction costs and increased supply in some of the major markets start to hit new constructions.
We will look to increase our presence in some key markets we are currently under-represented in. Our presence in Australia has been growing substantially in regional and leisure-driven destinations, which has been of huge benefit over the last two years. However, we need to start looking more aggressively at opportunities (either managed or franchised) in some of the key capital cities where we have system-driven demand, without the supply to satisfy.
We currently have 48 hotels open and operating in Australia, New Zealand and the South Pacific, and are eagerly approaching a key milestone of opening our 50th hotel in these regions. This will likely coincide with the opening of our first hotels in South Australia later in the year, which we will no doubt celebrate!
