Radical changes in the tourism industry during the past two years are prompting hoteliers and investors to look more closely at luxury and sustainability in 2023, according to Colliers.
The Australian hotel market’s expansionary phase is set to peak in the next 12 months with the opening of 5949 rooms, Colliers’ research says, as investors revisit an industry hit hard during the pandemic.
There are 12,517 rooms currently under construction and scheduled to open during the next three years.
Colliers says this growth coincides with a trend towards higher-end offerings in the hotels space, as well as a greater focus on sustainability credentials, driven by customer demand.
Major new premium hotel projects have been launched in the past year or are in the works including the Langham on the Gold Coast as part of the Jewel development, the Ritz Carlton and Le Meridien in Melbourne and Capella and Q in Sydney.
Investors and industry commentators have been cautious with forecasts for the sector, especially earlier in 2022 as intermittent lockdowns and inconsistent state approaches to reopening impacted tourism and hospitality.
But overseas visitors have shown confidence, which Colliers suggests could offer the “opportunity for a luxury green facelift”.
The number of overseas visitors has consistently risen every month from the low period of the pandemic.
According to the latest Australian Bureau of Statistics figures, in October 2022 alone, there were 1.2 million overseas arrivals, a monthly increase of 141,330.
While this is still not a return to pre-pandemic levels, Karen Wales, who was last year appointed Colliers’ Asia Pacific director of hotels, said this uptick highlighted the opportunity for further growth.
“As global travel returns to pre-pandemic levels, allowing for the fact that foreign travelers typically journey Down Under with a six-month booking window and the cost of flights have yet to stabilise, the continued reinvigoration of Australia’s hotel industry will elevate the already renowned national brand,” she says.
The opening of 3420 rooms in 10 major markets throughout 2022 was moderate compared to the more than 5000 rooms that opened in 2021, but could also be a positive sign.
Wales says that this has allowed hoteliers to respond “dynamically” to changes in tourism demand and spending and market conditions.
“By remaining leaner until international tourism rebounds to pre-pandemic levels, hoteliers are better equipped to navigate trading market fluctuations for resiliency post pandemic,” Wales says.
Melbourne has reportedly dominated new hotel openings with an additional 1421 rooms in the city and 462 new rooms across the broader metropolitan area by the end of 2022, which Colliers says means the city is “well positioned” to leverage an influx of international and state visitors.
The Gold Coast added 702 rooms during the year, followed by Sydney with 424 rooms and Sydney Metro with 315 rooms.
While there has been a focus on luxury offerings which Colliers expects to continue, there has also been a move towards more sustainable hotel options driven by customers.
“The future is also ‘green’ with demand for sustainable hotels growing amongst corporate clients and those travelling for Meetings, Incentives, Conferences and Exhibitions (MICE), who wish to align with businesses who share their social responsibility goals,” Wales says.
“An emphasis on sustainability will also increase due to new government policy driving change in this regard and financial incentives such as Green Financing and Grants, which now exist to encourage developers to pursue ESG certifications for their developments.”
Investment opportunities in the hotel space
Among investors too there has been a growing sense of optimism about the fortune of the hotel industry as the sector rebounds.
As Singapore-based Invictus Developments marked its first Australian acquisition, the five-star Harbour Rocks Hotel in Sydney, in December, JLL managing director of investment sales, hotels and hospitality Mark Duggan said they had seen a “resurgence” in hotel and visitor activity, with Sydney leading the way.
According to global hospitality analytics firm STR, Sydney’s hotel industry recorded its highest performance levels of the pandemic era, with 79.8 per cent occupancy in November 2022, an average daily rate of $273.07 and revenue per available room of $217.79.
Invictus principal Chayadi Karim says that as a result of this brighter outlook the company is targeting $500-million worth of investments in hotels primarily along the east coast of Australia.
“We are committed to further investment across Australia’s Eastern Seaboard in the coming years, which is recovering strongly from the pandemic with both local and international tourism,” he says.
“Focusing on hospitality investments in key gateway markets across Asia Pacific, we aspire to build and value-add to a portfolio of boutique and upper upscale hotels in Singapore, Indonesia, Australia and Japan.”
Elsewhere, hotels were described as an “interesting place to consider deploying capital”, by Barings head of real estate debt portfolio management Nasir Alamgir.
“While hotels can be susceptible to recessions, the ADR (average daily rate) for hotels—a measure of rental revenue earned per occupied room per day—has recovered in the post-pandemic period more quickly than it did following the great financial crisis or dot.com bust,” he says.
“Further supporting the case for hotels, leisure destinations have been outperforming for nearly two years now, and travel is back, with TSA throughputs in excess of 90 percent of pre-pandemic levels, leading to strong upper-upscale and upscale brand hotels outperforming pre-pandemic levels.
“While we are more cautious on large group settings and convention center hotels given that they are still recovering, we believe there are plenty of spots within the sector to allocate capital.”
Article source: Queensland Property Investor