SYDNEY — Nick Hill with CBRE Asia-Pacific did not sugarcoat regional market difficulties while speaking at Hotel Investment Conference Asia Pacific's Australia and New Zealand summit.
“It’s been quite a challenging year," said Hill, who serves as negotiator, capital markets and hotels for business consultancy CBRE Asia-Pacific. "Rising interest rates pose a pretty big challenge for the hotel capital markets."
But optimism is on the horizon.
"As we enter the end of the year, it’s looking up," he said. "America is set to cut rates by the looks of things in September, which I think will bode well for the [Reserve Bank of Australia] following suit in the short-term future,” he said.
At its August meeting, the Reserve Bank of Australia left interest rates unchanged at 4.35% and stated rate cuts were not expected in the next six months.
Speaking on a panel of emerging hotel leaders in the region, Hill said this challenging scenario has been a great learning curve for the industry’s incoming generation.
Rising interest in hotel development
Nicole Burg, business development executive at Woolloomooloo, Australia-based La Vie Hotels & Resorts, is optimistic about big-picture sentiment for the region and the hotel segment in particular.
“I think it’s really telling that owners and developers from other asset classes are wanting to come into the hotel space. That just shows that they’re seeing the value of investing in it. That’s really reassuring,” she said.
La Vie's portfolio includes hotels from Marriott International, Accor and Radisson Hotel Group in Australia, The Maldives and Sri Lanka. Hotels in the pipeline are in Europe, Myanmar and Thailand.
Burg joined La Vie in January to help steer the transition of newly acquired properties to the portfolio.
On the investment front, Amelia Perez, development manager of Australasia for Hilton, said she is seeing rising interest in repurposing B-grade office buildings as hotels.
Because B-grade office buildings "are experiencing significant devaluations this year," hotels are becoming an alternative for investors, Perez said.
This "can potentially give them another life. Depending on the location, it could become a quirky lifestyle hotel, or it can be a select-service midscale property. Sydney [central business district] is definitely an interesting market, as is Brisbane, and we’ve seen a lot of interest in that type of asset,” she said.
“It depends on how much money I have,” Hill said as to where and in what type of hotel panelists would invest. “I think a midscale hotel in Sydney [central business district] in an ideal world. I’d try and get it at below replacement value so you can refurbish, reposition and rebrand it. I think that would allow some pretty good cash flow and capital appreciation.”
Hayden Longmuir, an analyst at business consultancy Dransfield Hotels and Resorts, said he, too, would target hotel opportunities in downtown Sydney “but more the upper upscale-slash-luxury in a mixed-use development.”
“If you could find that gem,” he added. “In Sydney, it would have to be residential. Residential rates are selling at three times the rate per square meter … and just being able to brand it, that’s why I would go more with the luxury, upper-upscale brand. And to really drive the hotel and offer the services to the residential section.”
New brand options, new demand
La Vie's Burg said she would love to be able to bring something new to the region, which, in her opinion, needs to look overseas at what’s resonating with guests.
“Coming from the [United] States, there’s a lot of really funky, cool, weird lifestyle brands, and I think in Australia — in Sydney and Melbourne — people are really hungry for something unique and different. The StandardX just opened here, and Standard is a really awesome brand,” she said.
Young, affluent Australian consumers are looking for more of that kind of hotel, Burg said.
“Something in Sydney. Maybe something like Surry Hills, Paddington area … Something that really resonates,” she added.
Performance, opportunities tick up
Speakers cited a recent JLL report showing that high interest rates and the rising cost of capital contributed to a 50% year-over-year drop in investment volume in Australia for the first half of 2024. The economy has affected performance as well.
Matthew Burke, STR's regional director of the Pacific, Japan and South Asia, said Sydney is leading the way and operates “without the medium-term supply shackles” of Melbourne. He said the current revenue per available room in Sydney of approximately 247 Australian dollars ($165) is forecast to rise to approximately AU$300 by 2028.
Average daily rate "is up by over 30% in Sydney and Melbourne relative to 2019. Occupancy has stabilized on weekends while continuing to improve midweek,” he added.
Perez said she believed “the industry is going to change on a positive note,” throughout the rest of 2024, particularly with “sustainability becoming the norm.”
“It’s going to be more than just energy-efficient. … We’re going to see a lot more net-zero hotels,” she said. “There’s a lot more encouragement for owners to do it. … We’re seeing a lot more funding, there are interest-rate benefits if you have a sustainable build.”
Environmental, social and governance guidelines will become the norm and be “fully integrated and full force” in the hotel industry, Burg added.
“It’s just a matter of everyone catching up and keeping up with that,” she said.
Another trend, she added, is that Australia’s major cities are increasingly congested.
She said she predicted “new areas are going to pop up out of nowhere” for developers.
“I think it’s just a matter of time that things will start to expand more and more and that bubble will become bigger and bigger. A central business district will always be a hot location, but I see a lot of big developments like that happening in new mini cities, massive projects, finding other ways to bring people to other parts of the country,” she said.