22 minute read
DEVELOPMENT OUTLOOK: MOVIN' ON UP
from HM June 2023
Movin'on up
OPPORTUNITIES ABOUND IN HOTEL DEVELOPMENT ACROSS THE ASIA PACIFIC WITH STRONG INTEREST IN WHITE-LABEL MANAGEMENT AND FRANCHISING PARTNERSHIPS.
ACCOR PACIFIC
Lindsay Leeser, Chief Development Officer
With growing demand for accommodation, increasing tourism, and changing traveller preferences, developers have a unique opportunity to create properties that cater to the needs of modern travellers.
One of the key trends emerging in hotel development is a focus on sustainable design. As travellers become more conscious of their environmental impact, hotels are increasingly incorporating sustainable design features and green initiatives. These properties appeal to a growing segment of travellers who value eco-friendliness and are willing to pay a premium for it.
Another emerging trend is the focus on wellness. As travellers prioritise their physical and mental wellbeing, hotels are incorporating more health and wellness-focused amenities, such as onsite fitness centres, yoga studios, healthy dining options and spa treatments, to attract health-conscious travellers.
Accor has several properties in the pipeline that will make a big impact in the industry throughout 2023 and 2024. We are building our pipeline rapidly with a focus on strategic locations in major cities, airports and holiday destinations.
Ennismore, a joint venture which Accor holds a majority shareholding, will introduce two new lifestyle brands to Australia in 2024 with the openings of 25hours Hotel Sydney and Mondrian Gold Coast. In New Zealand, Ennismore will open an additional four new lifestyle hotels in 2023-24, including a Jo&Joe in Auckland, two Tribe hotels in Auckland, and a Hyde in Queenstown.
Additional hotel openings for 2023 include the landmark 153-room Pullman Sydney Penrith, The Sebel Wellington Lower Hutt in New Zealand, and Hotel Morris Sydney, part of the Handwritten Collection. With all of these new developments, there is plenty of excitement on the horizon for Accor and the industry more broadly.
BWH HOTELS
Danilo Curcuruto, Director of Development
Australia is emerging as an attractive market for both local and international investment. The recent domestic recovery combined with the increasing return of the corporate market and international arrivals, with the exception of China, is making the region very appealing.
Driven by the expectation of strong market performance for the foreseeable future, BWH Hotels is experiencing an unprecedented surge of enquiries from investors, developers and hoteliers. Their interest is toward BWH’s impressive ‘Franchise’ (brand and distribution) and ‘Manchise’ (brand and distribution plus management) offerings, including white label solutions.
Australians have rediscovered their passion for travel and the new hybrid working model has led to the expansion of the bleisure market. This increased desire to linger longer in new destinations has fuelled a demand for extended stays and work-cations.
BWH has responded by offering a new range of extended stay options from upper economy through upper midscale. Executive Residency by Best Western Woolloongabba (opening Q4 2023) and the newly signed soft brand property, South Harbour Hervey Bay – BW Signature Collection (opening in 2025) are examples of this. BWH’s Home by Best Western midscale brand is scheduled to launch within Australia in 2024, bringing to market an alternative extended stay offering.
Lifestyle brands are an attractive choice for developers wanting to reposition existing assets or position new builds championing local destinations, their uniqueness and experiences. BWH Hotels encourages this creativity by providing flexible lifestyle options in both hard and soft brand formats. What unites these properties is their common ethos around customer service and food and beverage.
CBRE HOTELS
Michael Simpson, Managing Director – Capital Markets
Ally McDade, Pacific Head of Hotels Research
The Australian hotel market’s expansionary phase experienced over the last 10 years is set to peak in the next 12 months. New hotel room supply tracked by CBRE shows that approximately 8,400 rooms are scheduled for completion across our major hotel markets over the course of 2023 and 2024. Almost 65% of these new rooms will be upscale, upper upscale or luxury, continuing the elevation of luxury hotel standards across Australia. This development trend towards luxury boutique/lifestyle hotels delivers on experience, amenity, design aesthetic and service. Melbourne is the primary recipient of new room supply (35% of total).
Following this wave of additions, higher debt cost and construction costs are anticipated to suppress the development pipeline, with activity being largely limited to key strategic sites usually having mixed use appeal. Sustainability is increasingly a major concern for developers and operators due to rising utility costs of hotels, and the global investment market’s focus on ESG for all real estate asset classes.
The continued recovery of inbound arrivals should provide relief to pressures placed on occupancy, particularly in the major gateway markets of Sydney and Melbourne (where most of the new supply will be delivered). In addition, the new wave of supply is anticipated to play a role in driving rate performance over the next two years.
The opening of several premium projects (which are set to achieve a new luxury benchmark) in Sydney, Melbourne and the Gold Coast will elevate Average Daily Rates in the luxury market segment. It is also a segment that represents the most promise as an inflation hedge due to its less price-sensitive clientele.
Relative to peer countries, the number of new hotel rooms to be delivered in Australia remains conservative. We see good opportunities for further development following the stabilisation of market conditions, normalisation of supply chains and moderation of interest rates.
CHOICE HOTELS ASIA-PAC
Scott Armstrong, Director of Development, Australia and New Zealand
Franchising is emerging as a smart option for future-proofing hotels against tough economic headwinds and helping owners navigate in a hypercompetitive market still struggling with labour shortages.
Cost efficiencies and savings are top priorities right now, and Choice Hotels Asia-Pac brings distribution savings, smart procurement, direct reservations leveraging our loyalty program, and sophisticated book direct strategies to the table. These savings can make a significant difference to hotel profitability and day-to-day operations.
As more inventory supply is anticipated to come into central business district and metropolitan markets over the next two years, we are focused on increasing the visibility of our hotels and competitiveness for owners. Our known and trusted brands, combined with strong national and local area marketing, will help our hotels stand out and compete effectively in the marketplace.
We are still finding many owners of individual properties are busy working in their business, not on their business, picking up the slack for ongoing labour shortages. Our franchisee support services provide much-needed revenue and business support to ensure high yields. Revenue management has been a game-changer for the group over the past 18 months and will continue to drive profitability. Hotels that adopted our revenue management services averaged a RevPAR premium in 2022.
White-label management and franchising partnerships are proving to be a strong source of growth for Choice in 2023 attractive for both investors looking to expand their portfolio and owners who are ready to step back from the day-to-day operations.
The benefits of these partnerships are many, but owners are particularly attracted to our global brand exposure and revenue intense focus, combined with the specialist day-to-day operations and profitability focus from our white label management partners.
We’re excited to announce a new signing alongside Gatehouse Hospitality, bringing two properties in Barham NSW into our portfolio. We now have 10 properties managed between three of our white label management company partners through the APAC region with several more in the pipeline to be announcement in the near future.
COLLIERS
Karen Wales, Head of Hotels – Australia
Australia’s accommodation market has continued to expand with the opening of around 3,420 rooms through 2022 in the ten major markets. Whilst projects opening in 2022 represented a moderation from the more than 5,000 rooms which opened in 2021, the expansionary phase of the hotel market cycle is expected to continue over the medium term with a further 12,500 rooms currently under construction and scheduled to open over the next three years. This will result in a 10% increase on the December 2021 base inventory. 2023 now presents as the peak of the hotel accommodation supply cycle.
In terms of new hotel projects, proposed rooms have, for the time being, moderated. The delivery of new hotels is for now held back by both escalating construction costs and investors taking a ‘watch and wait’ position as demand catches up with supply and trading markets ‘normalise’.
The Rider Levett Bucknall (RLB) report on Construction at Q1 2023 highlights how Australia, like many other countries, has experienced sharp increases in construction escalation over the last two years due to a variety of factors, including sharp changes in material prices, labour costs, and other significant internal and external factors. The government is also fast-tracking major transport projects putting additional pressure on costs with nine projects of more than $5 billion underway.
Escalation forecasts of RLB’s offices indicate a slowing of the increases seen over the past two years, with 2022 being the peak rate of escalation for most capital cities. Increases remain higher however than the decade averages previously seen across the country.
EVT
Mathew Duff – Director, Commercial
Despite the challenges of the escalation in construction costs in recent years, the strong recovery in hotel trading due to increased travel demand still presents development opportunities for well-located properties in key locations. New or refurbished hotels, if well-executed, have a competitive advantage and create value for longterm asset holders.
Whilst we have seen some recent slowing in the construction cost escalation, pressure on the labour market and financial difficulties experienced by a number of construction contractors is expected to put continued pressure on construction pricing. This will remain an issue for a number of proposed developments and will require innovative design and planning to maximise the revenue generating opportunities from any development.
At EVT, our strategic goal is to maximise our assets to drive bottom line profitability. Our recent transformation of Rydges Melbourne is a testament to this approach, where we incorporated innovative design concepts to create an exceptional guest experience and significantly enhanced conference and F&B facilities in previously underutilised spaces. This property will be a flagship for the Rydges brand.
Mixed use developments will also continue to provide opportunities for development. We are excited about recently receiving the City of Sydney’s Stage 2 Development Application approval for our 525 George St property in Sydney. The proposed mixed-use development includes approximately 115 residential apartments, 290-room QT hotel with conference and F&B facilities, six screen boutique cinema and retail. In line with our sustainable design focus area, we are targeting a minimum five-star Green Star rating for the building design for this development, and a minimum five-star NABERS rating for the building operation.
HILTON
Tushar Raniga, Director of Development, Australasia
Economic growth is creating a more agile global travel landscape, and there are over one billion Asians set to join the global middle class by 2030. This growing segment is looking for brands and experiences that deliver value at an affordable price point. They are travelling more often, at a younger age compared to previous generations, and they want to explore the world, including Australasia. Our Hilton Garden Inn brand offers an attractive accommodation option that checks all these boxes.
We are also seeing increased interest from owners in the mid to upper-midscale sector as cost control and flexibility are now more paramount than ever before. For owners looking to capture demand from both business and leisure travellers in this fast-growing segment, Hilton Garden Inn’s efficient prototype and kit-of-parts approach make upfront investment costs more attractive and its lean operating model drives profitability. Given our region’s vast destination landscape, the brand is highly adaptable for mature and emerging hospitality destinations, as well as across capital cities, regional cities, CBDs, airport and resort locations.
That said, we have an ambition to double our Hilton Garden Inn footprint across Australasia over the next five years, with six projects already in planning or under construction in Australia and Fiji. Hilton Garden Inn Busselton is due to open later this year (Q4 2023) and next year we are scheduled to open Hilton Garden Inns in Brisbane (City Centre North – Q2 2024) and Sydney (Kingswood – Q4 2024). We plan on accelerating this growth via franchising and are confident that this will unlock valuable opportunities for more owners to access one of Hilton’s iconic brands and leverage our powerful commercial engine, robust supply chain, and extensive support network.
IHG HOTELS AND RESORTS
Cameron Burke, Director of Development – Australasia and Pacific
There’s no doubt that prevailing macroeconomic headwinds have suppressed the unprecedented level of growth previously sustained by some quarters of the market. However, hotels remain an extremely attractive asset class for investment serving as an inflationary hedge – with investors measuredly adjusting their return thresholds in order to effectively deploy capital. The confluence of these factors has resulted in a spate of recent development activity for IHG.
At HM’s AHICE 2023 event, we were incredibly excited to announce the signing of Crowne Plaza Fiji Nadi Bay Resort and Spa, a 324-key conversion that will set a new standard for Crowne Plaza.
It has also been incredibly pleasing to see the high level of demand for our Hotel Indigo brand in the upscale lifestyle segment. Pro-invest will bring eagerly anticipated conversions to Australia’s largest capital cities this year, with both Hotel Indigo Sydney Potts Point and Hotel Indigo Melbourne Flinders Lane opening soon.
IHG’s broader estate continues to develop courtesy of strong brand resonance across our entire portfolio. We’ve had world-class (and some world-first) examples of the Kimpton, Voco and Vignette Collection brands opening in Australia over the past couple of years, and we’ll be preparing to welcome the luxury wellness brand, Six Senses, to our shores in 2025.
Of course, our core brands InterContinental, Crowne Plaza and Holiday Inn continuing to remain attractive to investors looking to enhance owner economics – with InterContinental Auckland, InterContinental Lifou, Crowne Plaza Melbourne Carlton, Holiday Inn and Suites Geelong and Holiday Inn Dandenong all expected to open in 2023.
LA VIE HOTELS AND RESORTS
Chris Batterham, Chief Development Officer
2023 is off to a flying start and what an exciting time it is to be in the hotel space. We have seen significant growth over the last 12-18 months and now it is about consolidating our position, aligning with key brands and building strong partnerships with operators, developers and financial institutions.
We continue to invest in human capital resources across operational, commercial and functional disciplines to build a strong support network of industry professionals to service our existing portfolio while ensuring we are well positioned for the next phase of growth. We align ourselves with owner outcomes, so it is important that we can deliver on those expectations with the right support.
In Bangkok, we are extremely excited to welcome Chris Sathispornkitti, Director of Growth and Business Development to our development team. As interest in our operating model gains momentum, we see strong opportunity for new-build and conversion projects across South and South East Asia. Within South East Asia we are being contacted by owners who historically have been owner operators as they had no other option. Now, they are seeing the benefits of white label management and the professional operating platform that La Vie can provide.
Moving forward, we continue to see solid interest in our model across Australia and New Zealand with owners having an appetite for bringing lifestyle brands to regional hubs. Within South East Asia, we see strong interest across Thailand, Cambodia and Laos and expect Vietnam to return towards the back end of 2023, on the radar is Dubai, Malaysia and Indonesia.
MARRIOTT INTERNATIONAL
Richard Crawford, Vice President of Hotel Development ANZP
It’s no secret that as a NASDAQ listed company, Marriott International’s shareholders demand growth, and we are certainly upholding our end of the bargain in the Australia Pacific region. Globally, Marriott continues to open a new hotel every 14 hours, but while the pace in Australia Pacific is far slower, five openings in the region in the past year is sound growth.
Importantly though, it’s not the number of hotels that is defining our growth, but the quality. Globally, Marriott has more than 800,000 people, but in our Hotel Development team there are only around 130 specialist personnel, stationed in various countries to collaborate with the hotel investment community.
Each year we assess around 200 new hotel opportunities in Australia Pacific, but we will only sign six to eight projects. That means we say ‘no’ often, only putting energy into competing for projects with the right location, the right brand fit, the right commercial terms, and the right owners. In short, we don’t open hotels for the sake of planting another flag in the ground.
Right now, record room rates are giving confidence to hotel developers, who recognise that a strong business case exists for the development of new hotels and resorts across Australia, particularly in the luxury segment. This investor appetite has seen Marriott recently announce new-build world-class resorts on the Gold Coast, under our iconic Ritz-Carlton and St. Regis brands. And more announcements will follow in the second half of 2023, with negotiations well-progressed for projects in Sydney, Melbourne, and Adelaide.
It is well known, however, that escalating construction costs, increasing interest rates, and debt challenges have weakened the business case for some hotel developments. Our response to those headwinds has been to extend contracted milestone dates, to give projects every chance of materialising.
RADISSON HOTEL GROUP
Ramzy Fenianos, Chief Development Officer, APAC
The outlook for investment in Australasia is forecast to be relatively modest for the year ahead (2.9%), which is likely to result in significant challenges for hotel developers in the region. As a result, hotel operators need to be innovative and agile in operating and provide owners with the best possible solution to maximise revenue and efficiencies.
At Radisson Hotel Group, we understand the need to continue to provide flexible and innovative business models that meet the needs of owners and developers. This spurred us to strengthen our partnership with La Vie Hotels and Resorts by signing a Master Collaboration Agreement to develop over 30 hotels together.
As we continue to grow the Group’s portfolio across the region, we have also seen a rise in the number of independent and small-scale hotel companies looking for different business models to support their growth, especially post-pandemic. This trend is likely to stay as independent owners continue to navigate operating in the postpandemic era.
As a result of this growing demand, we brought the centralised franchising service model into the region so that owners can harness the power of Radisson Hotel Group’s global network. This model comes with numerous benefits for seasoned owners, enabling them to independently operate their hotels. It allows them to leverage the support, brand recognition, and global distribution network of the Group through proprietary systems and business intelligence tools.
Most importantly, the Club of Revenue Management by Radisson Hotel Group (The Club) will be provided to owners in the region, enabling hotels to revolutionise their revenue management with cost-effective, cutting-edge systems for maximum efficiency and rate optimisation. Moving forward, it is important to provide more opportunities to help streamline operations and maximise efficiencies for our owners.
TFE HOTELS
John Sutcliffe, Director of Development
The challenges we are seeing in the current environment are likely to continue well into 2024. The reduced appetite and increased cost of lending; an increase in building costs; along with a nervousness around a potential softening in the market means that it remains more difficult for developers to stack up new hotel builds.
Pleasingly, this is not reducing the appetite to develop hotels. At TFE, we are continually approached by developers who are aware we can tailor commercial agreements to support their individual financing or valuation requirements and engage our Sydney-based technical services team to partner with them from the outset to ensure the optimal design for their hotels.
We are seeing an increase in hotels being considered as part of a mixed-use development that was originally designed with an alternate use in mind. Much of our current portfolio forms part of larger mixeduse precincts, and TFE’s demonstrable success in this area holds wide appeal for owners seeking complementary uses as part of their larger developments. Our recently opened Vibe Hotel Adelaide and Adina Apartment Hotel Pentridge Melbourne are examples of this in action. TFE is extremely proud to have partnered with these owners and the properties really are testament to the owners and their ability to develop outstanding hotels.
As hotel owners and developers ourselves, we are uniquely placed to fully appreciate the challenges currently faced and have the flexibility to find solutions that mitigate the current headwinds for our owners. This partnership approach is our commitment to support developers in ensuring their hotel builds are attractive, even during more challenging times.
WYNDHAM DESTINATIONS
Dave Wray, SVP Acquisitions, Property Development, Procurement and Technical Services
With the appetite for leisure travel strong despite continued global uncertainty, in Q1 Wyndham Destinations saw high bookings at properties across Australia and the South Pacific, many of which reported occupancy rates exceeding those during the same period last year. Our vacation club, Club Wyndham, continues to grow as people see the value of investing in pre-paid vacations in today’s inflationary environment. A boom in family travel is adding to the Club’s appeal since it offers spacious apartments and villas.
These trends might indicate that Australasia’s travel and hospitality segments are making a comeback, even as cost pressures throughout the ecosystem – from the price of flights to front-line staff – remain a concern. To stay ahead of the curve, we are consciously if not cautiously expanding our portfolio in Asia Pacific by seeking unique places and powerful partnerships.
Beach and waterfront resorts as well as vineyards and foodie destinations throughout Australia, New Zealand and Fiji remain popular. We also are seeing a resurgence in visitors to capital cities as people seek immersive cultural experiences and entertainment.
When it comes to partnerships, mixed-use projects like Club Wyndham Airlie Beach with Club and hotel inventory at the same property are particularly attractive. This model not only enhances the end-to-end experience for guests but presents win-win-win opportunities to boost yield and reduce risk for developers, owners, and tenants alike.
By coming together, I believe we will come back stronger than ever.
WYNDHAM HOTELS AND RESORTS
Matt Holmes, Vice President of Business Development SEAPR
Persistent interest rate hikes have a knock-on effect on the construction of new hotels as cost of debt for hotel developers and would-be buyers has increased significantly. This higher cost of debt further compounds the existing challenges that the industry has been experiencing for the last few years – higher costs for construction, materials, labour, as well as labour shortage which also results in longer build times.
Thankfully, this can be partially offset by better valuations from a greatly improved trading environment; buoyed by strong corporate and leisure travel demand. The hotel industry is on a firmer footing as hotels remain to be a viable inflation hedge, with the ability to adjust room rates dynamically to accommodate an environment of higher operating costs and demand.
Despite these challenges, hotel development opportunities abound. According to hospitality analytics firm STR and discussed at the recent AHICE 2023, the Revenue Per Available Room (RevPAR) between new and incumbent hotels has never been smaller.
Recent trends reflect that travellers are more interested in experiencing stays at newer hotels, adopting them at a far quicker pace than previously. This means that the protracted stabilisation periods are either greatly retracting or becoming non-existent.
We warmly welcome the increasing interest in the franchise model – with more companies that were more heavily focused on direct management now moving into this space. Alongside this trend is also the emergence of white label management operators that we continue to engage with. In fact, some of our recent signings across Australasia and South East Asia have been in conjunction with these white label hotel management partners, and we will continue to leverage this model where it makes sense for the overall betterment of hotel owners.
