Australian Hotel Sector

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Falling $A and rising tourist numbers drive up hotel room rates

Robert Harley
283 words
3 Sep 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Hotel room rates continued to rise in the first six months of 2014, including in many regional locations.

Across the country, real room rates in the first half were 4 per cent higher than in the same half of 2013, reported the Hotels.com Hotel Price Index.

The Asia-Pacific region's managing director of Hotels.com, Abhiram Chowdhry, said hoteliers had a "very solid" start to the year due to the fall in the dollar and the rise in visitors. "With demand set to outstrip supply, the Australian hotel sector is set to see some golden years of growth in the coming years," he said.

Rates rose in 15 of the 18 markets tracked by the index.

Regional destinations, hard hit during the global financial crisis, showed some of the best growth, with rates in the Sunshine Coast up 11 per cent, in the Blue Mountains of NSW by 10 per cent, in Cairns by 9 per cent, and on the Gold Coast by 8 per cent.

Rates fell in the Whitsundays by 9 per cent and in Alice Springs by 7 per cent.

In the cities, Perth rates were 3 per cent lower this year, reflecting the slowdown in resources investment.

As Perth dropped, Sydney reclaimed its position as the country's most expensive metropolitan market, with room rates rising 5 per cent to an average $199 a night.

Rates in Brisbane rose 1 per cent to an average $169 a night; in Melbourne they rose by 3 per cent to $168 a night.

The index tracks real rates on global bookings through Hotels.com.

Robert Harley


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Get a room: Sydney drops six notches in global corporate hotel price ranking

Larry Schlesinger
198 words
11 Sep 2014
The Australian Financial Review
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English
Copyright 2014. Fairfax Media Management Pty Limited.

Sydney dropped from 8th to 14th most expensive corporate hotel market in the world in the first six months of the year, according to a survey by the United Kingdom-based Hogg Robinson Group. Sydney hotel rates fell 17 per cent from £202 a night in the first half of 2013 to £166 a night in the first half of 2014, the report said.

Measured in local currency, the decline was just 1 per cent to $303.60 a night due to a 20 per cent decline in the Australian dollar against the pound.

HRG attributed the weaker Sydney corporate market to an oversupply of hotel rooms and soft corporate demand.

Moscow maintained its ranking as the most expensive corporate hotel market in the world (£250 a night), followed by Lagos, Geneva, Paris and New York.

HRG found that average hotel room rates increased in 31 out of the 50 "megacities" covered in the report, despite the British pound strengthening.

The Asia-Pacific hotel market was the only region where average room rates were higher in 2014 than they were in 2013.


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Time to gear up hotels market as tourism picks up on dollar’s decline
FRANK GELBER THE AUSTRALIAN SEPTEMBER 18, 2014 12:00AM

THE changing nature of demand for accommodation over the next few years will play havoc with Australia’s hotel market. That includes not just the major capital city ­hotels, but other forms of accommodation.

The capital city business travel markets and accommodation in the mining areas have been the strongest sectors. But demand ­associated with tourism, both inbound and domestic, has been dismal. The collapse of demand in Cairns is a classic example. Similarly, overseas student education and associated accommodation has weakened significantly in ­recent years.

All that will change. Mining investment will be much lower, ­affecting the regions and the capital cities which service those ­regions. And the lower Australian dollar will boost domestic trade-exposed industries such as tourism, both inbound and domestic, and overseas student education.

Non-mining business investment will be strong, boosting services sectors in the capital cities.

In the regions, tourism demand has been sluggish for a long time. Most hotel operators, including large, small and B&B operations, have been struggling to survive.

Australia remains an attractive tourism destination, but the strength of the dollar made us expensive compared with overseas destinations. Overseas tourists planning travel often chose better value for money destinations than Australia. And Australian tourists have been travelling overseas rather than to relatively expensive domestic locations on the coast or inland. Even the weekend away has become too expensive.

It’s all about the strength of the dollar. It’s too high to allow a competitive domestic industry. It’s a classic problem of our export (inbound tourism) and import-competing (domestic tourists) industry in the face of the high dollar. Already, even with only a moderate decline in the dollar, overseas tourism has picked up pace. As the dollar falls further, the local industry will benefit from increased ­demand by both overseas and domestic tourists. That may mean substantial investment in remediation and upgrading of facilities, which have been neglected for some time.

The upshot is that, five years from now, the tourism industry will be in a strong growth phase. On the other hand, until recently, the accommodation industry has been struggling to meet demand in mining regions. The surge in fly-in, fly-out workers to mining areas created an enormous boost to ­demand, not just for accommodation, as we fed, clothed, housed, ­entertained and transported these workers on a regular basis.

Already, the number of FIFO workers has dropped sharply. Many of them were working on mine expansions and/or new mining projects. And this is just the beginning. We expect construction associated with mining investment to fall by 40 per cent over the next four years. Although production will continue to grow strongly, they employ more people in the construction than the operational phase. There is a lot worse to come, not just for accommodation, but for the strength of those regions.

Some regions are underpinned by both tourism and mining. But those relying on tourism have been slaughtered. While those servicing mining areas have boomed. Five years from now, the shoe will be on the other foot. Mining-related demand will have plummeted. And, given a lower dollar, tourism demand will have soared.

Meanwhile, in the cities, the hotels markets servicing business travel have been extremely strong with the boost to occupancy rates leading to increased room rates, rising revenue per available room night and hotel profitability.

But most of the shortage of hotel space has been due to limitations on supply rather than strong demand. Development halved following the GFC. Certainly demand was boosted by the mining boom, particularly in Brisbane, Perth and now Darwin. But the non-mining sectors have been weak since the GFC. While business travel has been solid, it has been unspectacular. The problem was that supply didn’t keep up to moderately increasing demand.

With tight supply, city business hotels have been booming for the last three to four years, and only now are we seeing a supply response. But it has gone over the top, sparking what can only be described as a boom in hotel building, primarily in the cities. Demand will rise as the economy strengthens, but mining-related travel will weaken. The strength of building will end up creating oversupply — a classic cycle.

Meanwhile, we haven’t really started to build for the tourist market. While that’s understandable given the weak demand, as the dollar falls and demand increases, we’ll end up getting caught short. This is not a bad time to position into that upswing. This economy will look very different in five years time, creating swings and roundabouts for the hotels markets.

Frank Gelber is chief economist for BIS Shrapnel.

fgelber@bis.com.au

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Strong demand for hotel assets
THE AUSTRALIAN SEPTEMBER 18, 2014 12:00AM

Lisa Allen

Property & Tourism Reporter
Sydney
HOTEL giant Starwood is not content with opening a 280-room W Hotel in Brisbane. The US-backed company is also working on re-entering the Sydney market with a luxury W Hotel and is searching for a suitable property to strike a management agreement, company executives said yesterday.

“The W brand is well suited for the Sydney and Melbourne markets and they are actively seeking development opportunities,’’ added Michael Simpson, managing director, Savills ­Hotels.

“They would not build but they are looking to partner up with a developer or owner.”

Starwood is also close to selling its Sheraton on the Park Hotel in Sydney’s Elizabeth Street for a record $465 million as the company continues to sell its bricks and mortar hotel assets to concentrate on management agreements.

A report into Australian ­hotels from Savills released yesterday foreshadows a number of high profile hotel assets will change hands over the next couple of months with 2014 expected to be another strong year for sales transactions.

Indeed, hotelier Jerry Schwartz is about to buy a yet to be built 600-room Sofitel Hotel at Darling Harbour for $360m from Lend Lease in a deal foreshadowed by The Australian ­earlier this year.

The Savills research reveals interest from both local and international investors has again set a benchmark for hotel ­transactions over the past 12 months.

“The lack of good quality international branded hotels available for sale across Australia, and weight of capital entering into the Australian hotel investment market, is resulting in strong demand for hotels assets,” Savills said.

“Values are increasing as demand outstrips supply, although we are yet to see this filter through to the sub $20m ­regional markets.”

About $2.2 billion worth of hotels sold in the 12 months to June, up 8 per cent on last year with a number of portfolios changing hands and several ­single asset transactions such as the $340m sale of the Four Seasons Hotel Sydney and the $216m sale of The Reef Hotel Casino in Queensland.

Average national room rates grew 4.2 per cent in the 12 months to July, according to data from STR Global with the strong results driven by a 10.1 per cent increase in revenue per available room on the Gold Coast, a 9.5 per cent jump in Adelaide and an 8.3 per cent increase in Hobart. However, Brisbane’s revenue per available room — the standard industry measure of financial return from each hotel room — slumped 3.5 per cent and Perth hotel rooms fell nearly 4 per cent in the 12 months.

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Perth leading hotel surge
Larry Schlesinger
405 words
18 Sep 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
More than a third of new hotel rooms built in Australia's biggest cities in the next four years will be in Perth, ­September figures compiled by research house STR Global show.

The WA capital will add more than 2810 new hotel rooms over the next four years, increasing its hotel market beyond 13,000 hotel rooms.

Brisbane and Sydney will both build more than 2000 rooms, but Melbourne will lag, according to the STR Global ­figures which tally hotels either in the planning, final planning or ­construction phase .

Confirmed Perth projects include two DoubleTree hotels to be developed by the SKS Group for Hilton Worldwide; four new Quest serviced apartment hotels in partnership with local developers; a small luxury hotel as part of Mirvac's $580 million redevelopment of the Cathedral and Treasury Precinct on St Georges Terrace; and a new Ritz Carlton as part of the Elizabeth Quay project, to be developed by Hong Kong-listed Far East Consortium.

Mooted Perth projects include a new five-star hotel by Hong Kong-based Langham Hotels, and Singapore's ­SilverNeedle Hospitality's second Sage Hotel to be built in west Perth.

Perth attracted the attention of hotel investors and operators after room rates surged above $220 a night in 2012 with occupancy levels well above 80 per cent on the back of the mining ­investment boom.

But the subsequent slowdown has forced hoteliers to cut their rates. STR Global recorded the average Perth room rate at $202 a night in July with occupancies at 82.3 per cent.

The latest Hotels.com index put the average room rate for a Perth hotel lower, at $193 a night.

"Over the medium-term, additional supply may have an impact on demand, but this is dependent on whether demand can keep pace,"STR said. Deloitte forecast a fall of 5 percentage points in Perth occupancy from 84.8 per cent to 79.8 per cent between now and 2016, with room rates rising a ­modest 2.5 per cent a year.

STR Global said there were 2352 hotels and 528,109 rooms in development in August in Asia-Pacific in the next four years, making it the most active global region.

The US was the second biggest with 3246 hotels and 391,402 rooms, followed by Middle East-Africa (628 hotels, 147,454 rooms.) and Europe (894 hotels, 142,704 rooms).


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Asian visitors boost traveller numbers
AAP SEPTEMBER 22, 2014 9:30AM

Travellers from China and Japan are driving an increase in international passengers through Sydney and Melbourne airports.

Overseas passenger numbers through Sydney Airport in August were up 1.8 per cent from a year earlier, to 1.06 million, with the strongest growth in traveller numbers coming from Taiwan, China and India.

Melbourne Airport had a rise of seven per cent in overseas passengers in August to almost 677,000, driven by rising numbers from Japan, Hong Kong, South Korea and Taiwan.

Chief executive Chris Woodruff said more direct flights and increased capacity from airlines was contributing to the growth.

Growth in domestic passenger numbers was more subdued, with a rise of one per cent in Sydney and 0.5 per cent in Melbourne.

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Hilton mulls Sydney sale

Samantha Hutchinson and Mercedes Ruehl
189 words
23 Sep 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Sydney's Hilton Hotel is the next ­premium hotel expected to be put to ­market as offshore interest surges for hotel assets in the harbourside city.

Representatives from the hotel have approached Sydney agents and hotel groups seeking submissions on a sale process for the iconic hotel venue with 579 rooms and one of the most ­comprehensive function and ­conference facilities in the city.

Located at 488 George Street, the hotel sits opposite Sydney's Queen ­Victoria Building and within minutes of Pitt Street Mall and Town Hall train ­station. If Hilton Worldwide, a public company owned in part by private equity group Blackstone, go ahead with a sales campaign, it will be one of the most hotly contested assets to hit the market in recent years. Some sources believe the hotel could fetch more than the Starwood Hotels' Sheraton on the Park, which is in the final stages of a sales process, tipped at $46 million.

The newly refurbished Hilton has 23 meeting rooms, 4000 sq m of food and beverage space and an 25 metre indoor pool.


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Hotels cap rates to fall

Larry Schlesinger
230 words
25 Sep 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
The weight of foreign investment looking for assets will continue to drive down hotel yields, according to Savills.

"With hotel cap rates still comparable with A-grade office yields in both Sydney and Melbourne, there will still be a lot of interest from overseas groups," Savills Hotels managing director Michael Simpson said. "Given the current appetite of both local and overseas investors, Savills expects cap rates for well-placed, ­prime-grade hotels to track office yields and compress further over the coming 12 to 18 months. However, this will be at a slower rate than recorded over the past 12 months."

Figures compiled by IPD show hotel cap rates fell by 100 basis points over the past financial year to a weighted average return of 7.91 per cent.

Much of this was in Sydney, Australia's top performing hotel market, where cap rates fell from 8.8 per cent to 7.77 per cent. Melbourne and Brisbane cap rates fell by 29 basis points, to 7.82 per cent and 8.61 per cent respectively.

Savills forecasts total hotel sales to reach $2 billion this calendar year, down slightly on 2013 but well up on the long-run average of $1.3 billion annually.

High-end prime location hotels and premium economy hotels are most sought after by investors, said Savills.


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Melbourne hotel risk

Larry Schlesinger
428 words
30 Sep 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Melbourne is at risk of building too many hotels in the next few years, according to a new hotel report by Colliers International.

The commercial property agents said if all or a "significant amount" of the 26 proposed hotel developments went ahead, room rates and occupancy would be affected.

The 26 proposed hotels in Melbourne's development pipeline have the potential to add 4783 hotel rooms or serviced apartments between now and 2017, increasing the size of the existing market by 25 per cent.

Occupancy rates in Melbourne city hotels are currently high – above 85 per cent – with room rates touching $200 a night, according to June figures from STR Global.

Colliers International research director Nora Farren said the Melbourne market had been broadly undersupplied in terms of investment in new hotels.

"While there is a large number of rooms proposed, only around two-thirds of these projects are expected to proceed. A number have and will encounter feasibility and planning challenges – a number also have heritage concerns," Ms Farren said.

"Clearly if all or a significant amount of this new supply is constructed there will be downward pressure on room rates and occupancy – the timing of these projects will be critical. However, historically Melbourne has done well in absorbing new supply. The Melbourne market has a high proportion of domestic visitors and declines in the Australian dollar should continue to underpin this sector of tourism," she added.

Hotel projects in the pipeline include a Four Points by Sheraton hotel in Docklands, to be operated by Starwood Hotels; a Ritz-Carlton at the top of an ­85-level residential tower on Spencer Street; and a Parkroyal hotel, also in Docklands.

The Colliers International report said development of new hotel stock nationally was at its highest since the early 1990s.

A range of new five-star, boutique, lifestyle and luxury budget hotels are coming to major markets, but with a local flavour.

These include Accor's Sofitel So brand, Marriott's Autograph Collection, IHG's Hotel Indigo and Starwood's Aloft Hotels.

"Local players are also making their mark with the development of new clearly defined brands," said Stephen Burt, managing director of hotels at Colliers International.

These included Amalgamated Holdings with QT and Atura, Doma Group with Little National, and APG's Art Series.

Strong market conditions – an undersupply of hotel rooms, dated existing stock and a weaker Australian dollar – combined with average hotel sector returns close to 12 per cent are encouraging investors to partner with hotel operators on new hotels.


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Singapore’s Royal Group makes foray into Sydney
THE AUSTRALIAN OCTOBER 02, 2014 12:00AM

Lisa Allen

Property & Tourism Reporter
Sydney
Renovation at the Intercontinental Double Bay.Renovation at the Intercontinental Double Bay. Source: Supplied < PrevNext >
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BEFORE the paint is dry, the brass polished and the opulent grey marble floors fully restored, the new owners of Sydney’s Intercontinental Hotel Double Bay are already scouring Sydney for more hotels.

Singapore’s Royal Group (previously Royal Brothers Group) has ploughed about $100 million in acquisition costs into the 140-room hotel in Cross Street ahead of the much-anticipated opening in mid-November.

Replete with a $5000-a-night royal suite and a Los Angeles-style rooftop garden, the hotel is already reinvigorating Double Bay, adding glamour to the village-like suburb and providing much-needed confidence for its long-suffering retailers.

Royal has a portfolio of about $1 billion worth of hotels in Southeast Asia, with four properties in Singapore — including the just opened Sofitel So Singapore in Robinson Road with interiors by Karl Lagerfeld — and is scouring Sydney for more acquisitions.

“We are planning to develop more hotels in Australia,” said Peter Wilding, the Singapore-based managing director of Royal Hotels Australia. “We are looking at a few other opportunities in Sydney.”

Mr Wilding, previously boss of Lend Lease in Asia and a former director of an Abu Dhabi government sovereign wealth fund, Mubadala, is upbeat about Royal’s aggressive plans for Australia — particularly Sydney.

“We are attracted by Sydney’s high hotel occupancies, but also the opportunity for (room) rate growth,” he said.

Internationally, Royal Hotels, part of the Royal Group which was founded in Singapore in 1947, is looking to reposition Sydney office blocks and existing buildings into hotels rather than having new hotels built.

“It could be a conversion or a refurbishment of an existing hotel, our strategy is to be in the market within 18 months of acquisition,” Mr Wilding said.

But Royal Hotels will not touch the two historic sandstone buildings in the heart of Sydney’s CBD which the NSW government is trying to sell for conversion into a grand hotel — deeming the project too difficult, given urban planning constraints.

“We have looked at them but we are not pursuing it,” Mr Wilding said.

“But in hospitality you do need to have diversification, we will pick gaps in various markets, and that is why Double Bay was attractive, we felt that luxury for Double Bay was imperative, and we felt the Sydney market had lost some focus on that sector.”

Mr Wilding said it was unlikely the group would look for budget hotel opportunities, saying it was too difficult to get high room rates.

Apart from Australia — where the Royal Group controlled a significant hotel portfolio about 15 years ago — the company is looking at the Maldives and various parts of Bali, but not Lombok, for more acquisitions.