The $1.3 billion takeover of Australia’s biggest accommodation operator Mantra Group by French giant Accor will set the tone for what will be another strong year for the hotel sector as overseas visitor numbers, especially from China, head for new record heights.
Due to bed down in March, Accor-Mantra will create a true hotel giant in Australia with around 400 hotels and more than 54,000 rooms and a dozen brands from budget and serviced apartments to five-star luxury.
The deal, which follows the global merger of Marriott and Starwood to create the world’s biggest hotel company, is all part of a power struggle between the major hotel chains and the digital disrupters led by Airbnb and online travel agents like Expedia, Booking.com and TripAdvisor, who charge commissions on bookings as high as 20 per cent.
“Our No.1 focus for 2018 is reducing the cost of distribution by driving more direct business into our hotels,” says Choice Hotels Asia Pacific boss Trent Fraser.
Franchisor Choice, one of the world’s biggest hotel networks, will rise to second biggest hotel group in Australia this year with 270 Clarion, Comfort, Economy, Quality, Ascend and Econolodge hotels and about 11,000 rooms once Accor and Mantra merge.
“From a marketing perspective, we’ll double down on our investment into the digital space, driving positive, measurable, direct business into our franchisees’ properties,” says Fraser.
This includes its recently launched online platform, Needabreak.com, aimed at inspiring people to take more short holiday breaks this year by staying in a Choice hotel.
While the hotel battle in 2018 will be just as much about digital presence as it will be about bricks-and-mortar property and customer service, all indicators point to strong operating conditions and plenty of appetite from investor for Australian hotels.
November 2017 figures from hotel research firm STR show average occupancy rates held firm at 80 per cent over the past 12 months across the major capital cities markets with an average daily room rate of $179 a night.
Sydney was the clear standout with occupancy rates rising to 86 per cent and average daily room rates hitting $228 a night, and Adelaide the most improved market, while Melbourne hotels continued to trade at high levels of occupancy as the city absorbed a wave of new supply.
Fraser expects 2018 to run in a similar fashion to 2017 “with the markets up and down the eastern seaboard performing well”.
“With influence from the Commonwealth Games [which take place in April], Queensland could further improve with strong international and domestic visitation expected in the first half of the year,” Fraser says..
“In the latter half of 2018, Western Australia should start to recover with above average growth rates and South Australia, Northern Territory and Tasmania growth will remain consistent with 2017.”
While there is a big pipeline of new hotels coming through – around 28,000 rooms with more than 8000 due to be completed in the next 18 months – demand is expected to ramp up to more or less meet supply. Tourism Research Australia forecasts international visitor numbers to rise 75 per cent to 15 million annually by 2026-27, led by Chinese visitors who by then will be spending $26.2 billion a year in Australia.
Forecasts from hotel analysts Dransfield are for the average daily room rate in the major capital cities to reach $205 by 2020 and $250 a night by 2025. A night in a Sydney hotel will cost $346 by 2025 and $272 in Melbourne, according to Dransfield.
The wave of new hotels includes the entrance of luxury brands like Shangri-La and Mandarin Oriental in Melbourne, new Ritz Carlton and W Hotels by Marriott alongside successful designer brands like EVENT Hospitality & Entertainment’s QT hotels and Mantra’s Art Series hotels.
According to CBRE Hotels’ annual Check IN report lifestyle hotels – boutique hotels with a heavy focus on being both creative and innovative – are slowly emerging as the next growth sector in Australia as hotel owners recognise the threat of Airbnb and the changing accommodation preferences of Millennials and Generation Z.
“The latest generations are becoming key drivers of the lifestyle and leisure segment, with preferences for experiences, highly social spaces, constant connectivity and availability of food and beverage services,” says CBRE research manager Benjamin Martin-Henry.
Great examples of lifestyle brands, Martin-Henry says, include Marriott International’s W Hotel chain which is coming to Sydney, Melbourne and Brisbane, and IHG’s EVEN wellness hotels which are coming to Australia courtesy of developer and operator Pro-invest.
Norman Arundel, director of hotel and resorts operations at ASX-listed EVENT, which pioneered the hugely successful QT brand with its eclectic artworks and funky designs, says he is “relatively optimistic” about the year ahead.
‘Business is very good in most places we operate. Melbourne, Sydney, Adelaide and Canberra have been terrific. It’s been a big tougher in Brisbane and Perth, where there has been a lot of new supply,” he says.
“Supply is also creeping into Melbourne, but it’s not having as much of an impact this cycle as there is very healthy demand at the moment.”
EVENT, which operates about 60 hotels and around 10,000 hotel rooms – the fifth biggest group in the country – will grow its portfolio this year when it takes over as manager of the 130-year-old Victoria Hotel in Melbourne and the Crowne Plaza Newcastle (to be rebranded as Rydges) both of which are owned by Sydney hotel tycoon Jerry Schwartz.
Arundel says the merger of Accor and Mantra highlights the strength of the Australian market.
“Global companies are discovering what a good market Oceania is. They are all here now. We think it’s good for a local player like us, which have lots to offer.” he says.
While 2017 was a relatively quiet year in terms of hotel investment with just $1.4 billion of deals recorded compared with $2.5 billion in 2016 according to JLL Hotels & Hospitality figures, this was due to a lack of assets on the market, rather than weaker investor appetite.
CEO Craig Collins points to the recent sale of the Intercontinental Double Bay hotel in Sydney to China’s Zobon Real Estate and Shanghai United for $140 million – a record rate of $1 million a room outside the Sydney CBD – as an indicator of the level of demand out there.
Collins, who, with colleague Andrew Langsford, is selling Meriton’s 199-room Meriton Suites North Ryde for $150 million, says it was a record per key rate for a hotel outside of the Sydney CBD.
“Given the lack of available assets in tier-one markets, investors continue to look for assets in regional and metropolitan markets,” he says.
JLL Hotels & Hospitality’s Peter Harper says Melbourne will be a major focus of global capital in 2018 as seen by the $230 million sale of the Hilton South Wharf to Singapore’s UOL Group and the sale of the new W Hotel to be built at Collins Arch to Japan’s Daish for about $220 million – the two biggest deals of 2017.
He says another strong market is Hobart, which is experiencing “unprecedented investor interest” and where he is selling Federal Group’s 114-room MACq 01 waterfront hotel for more than $60 million.
Signs look good
Heading into 2018 the signs look good with German investment giant Commerz Real buying the Brisbane Mercure and Ibis hotels – its first hotels in Australia – from Singaporean hospitality trust CDL for $77 million just before Christmas and Hong Kong’s Ovolo Hotels acquiring boutique hotels in Brisbane and Canberra.
Wayne Bunz, from CBRE Hotels, who negotiated the sale of the Brisbane hotels to Commerz Real and Ovolo’s $40 million purchase of the Emporium Hotel in Brisbane, believes these all point to a strong 2018 and investor demand extending beyond Sydney and Melbourne.
“CBRE continues to field investor demand for investment opportunities. The Emporium Hotel sale was negotiated in a record time of just four weeks,’ he says.
There are some potential headwinds though – the rising Australian dollar, forecast to reach US84?? by mid-year and the potential for the Reserve Bank of Australia to lift interest rates around the same time could put a dampener on hotel demand as they have done in past cycles.
There is also the exponential growth of Airbnb to factor in. The online platform now has around 115,000 private rooms and whole homes on offer in Australia and counts Sydney and Melbourne among its fastest growing markets globally.
And while the major hotel chains can leverage off their enormous customer loyalty programs to win more direct business through special member rates and discounts, Airbnb is also building loyalty through partnership including last year with Qantas’ Frequent Flyer program..
Ominously for hotel operators, Airbnb co-founder Brian Chesky recently tweeted: “If Airbnb had a guest membership program, what benefits would you want?”
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