Property Australia

Smooth sailing for the hotel sector?

PROPERTY AUSTRALIA March 25, 2019

With major players rebalancing their portfolios away from residential to other asset classes, is there room for more activity in Australia’s hotel market? Experts at our recent Hotel Outlook forum think so.

Melbourne boasts “safe-haven status” as one of the most “secure and strong” markets in the region, JLL’s Peter Harper told a packed crowd at the Property Council’s Hotel Outlook event.

According to Harper, head of Victoria at JLL Hotels & Hospitality Group, Melbourne and Sydney occupancy rates currently hover at around 85 per cent, putting Australia’s two largest markets on par with major cities in the Asia-Pacific market.

Underlying Melbourne’s strength is its year-round events calendar of both international drawcards and niche experiences.

“In the past few weeks alone Melbourne staged the Avalon Airshow, Eminem performing to 80,000 fans at the Melbourne Cricket Ground, the start of NRL season and the all-star mile at Flemington Racecourse. This is a snapshot of what is experienced year around,” Harper explained.

Melbourne is attracting investment from global players as airport passenger movements are expected to double to 64 million over the next 15 years, and as a strong corporate commercial office market contributes to the vast majority of hotel accommodation demand Monday to Thursday.HotelOutlook_112

Harper pointed to recent transactions which reveal that across Australia in 2018 “34 per cent of capital inflows are from European and American markets and 26 per cent are from South East Asia.”.

With an estimated $1.7 billion committed to hotel development in Melbourne alone, is it possible to over-cook our major hotel markets?

Not likely, said Dean Minett of hospitality and hotel real estate consultancy Minett Consulting.

“Melbourne’s hotel sector managed to bounce back from the GFC more successfully than other major cities and given the current conditions, the current pipeline of development will be absorbed,” Minett said confidently.

Not only are there new developments underway in CBDs around the country, new offerings are aligning with major retail centres.

Vicinity Centres’ Fiona Mackenzie is general manager of Chadstone – Australia’s largest shopping centre. Mackenzie emphasised Chadstone’s position as a “world-class integrated lifestyle destination incorporating retail, dining and entertainment.” with more than 550 retailers across more than 200,000 sqm - roughly equal to 10 MCGs.

Entering this ecosystem in November will be Hotel Chadstone, a 250-room property managed under Sofitel’s MGallery brand which will service the 24 million people who visit Chadstone each year along with the 17 international and national businesses based at Chadstone.

“We know more than 450,000 international tourists visit Chadstone each year. Combined with a white-collar population of 75,000 in and around Chadstone, as a numbers game it makes sense to have a fully integrated destination at Chadstone,” Mackenzie said.

Integrated, mixed-use design is being driven by discerning customers demanding more for their money, the audience heard. The industry is meeting the market with new food and beverage offerings, health facilities, co-working and even dual branded hotels.

Melbourne Airport’s first foray into dual branded hotels can deliver value to customers at various price points, said Stuart Verrier, the Airport’s head of property development.

Construction of the 464-room hotel – operated under the three-star Ibis Styles and four-star Novotel brands – is underway as the airport meets runway demand.

“We’ve been able to provide enough bang for buck to each segment by offering a range of amenity either as part of the room rate or depending on which hotel you are staying in and package you purchase at a small fee,” Verrier explained.

With architecture by Fender Katsalidis and interiors by global firm Woods Bagot, the hotel features a pool, gym and conference facilities to support the 20,000-plus people who work in the airport’s precinct.

Bronwyn McColl, principal and hotel sector leader in Australia with Woods Bagot, said demand for more shared amenities would inevitably place pressure on room sizes.

“Room sizes will become smaller and smaller for commercial viability, with a resulting emphasis on the front of house offer. This integrated approach is very much what people want.”

As co-working and shared spaces become a larger part of the overall office market, airports and hotels can capitalise on these captive markets.

“People don’t want to work out of a hotel room day in day out, so there are opportunities to create shared spaces,” McColl said.

While there are plenty of possibilities in this sector, the panel offered a word of caution: secondary assets will be most affected by new supply.

“There are a small number of products that are of poorer quality, and some of those hotels are vulnerable. They must refurbish or reposition to remain profitable,” Harper warned.

This article was written by the Property Council’s senior policy advisor in Victoria, Linda Allison.

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