“A travel evolution reinforced by the pandemic” is driving the growth of Australia’s boutique hotel market at just the right time.
International tourists have returned to Brisbane, the capital city of Queensland. And within the next decade, Brisbane will welcome athletes, media and spectators from around the world when it hosts the 2032 Summer Olympic Games.
Troy Craig, regional director of hotel valuation and advisory services at CBRE Hotels, said during the pandemic, leisure-based domestic tourism fueled a “fundamental shift in the profile of underlying room demand amid heightened demand for unique and hyper-personalized hotel stays.”
Historically in Australia, boutique hotels have achieved lower occupancy, average daily rate and revenue per available room than big-box luxury hotels. But for the past two years, the tables have been turning.
Data from CBRE and STR, CoStar’s hospitality analytics division, show boutique hotel occupancy at a 21% premium compared to “big box” hotels at the start of the last Australian summer, December 2022. Revenue per available room for the same period was 54% higher at 286 Australian dollars ($186).
Many of the new boutique hotels entering the market in the past couple of years have been able to charge higher rates because of lower room counts.
That trend is continuing, even if the international tourism rebound to Australia remains lagging.
“The numbers we got for Sydney, Brisbane and Melbourne are fairly indicative of the resilience of the boutique hotel sector. The new wave of boutique hotels is leading the recovery, with international travel to Australia still only at 70% of what it was,” Craig said.
“Consumer preference has been strongly in favor of the smaller, boutique hotels, and there has been more offering and more choice in the space, so we’ve seen a big change in their performance. That is indicative of the quality of some of the new stock that’s come online. They have been able to move the needle on some of those rates,” he added.
According to more STR data from that report, three capital city markets — Brisbane, Sydney and Melbourne — are spearheading boutique hotel performance.
Stuart Nielsen, head of growth and development at Vista Hospitality Group, said his firm has been eager to enter boutique hotel management. Last year, the firm signed a hotel management partner deal with a joint venture of owners Pro-invest Group and Next Story Group.
That seven-brand portfolio deal includes global brands such as IHG Hotels & Resorts’ boutique lifestyle brand Hotel Indigo, Nielsen said, “with Sydney and Melbourne opening in the last quarter.”
The Hotel Indigo brand debuted in the market with the July 2022 opening of the Hotel Indigo Brisbane City Centre in a direct partnership with IHG.
Nielsen said signs indicate an upswing in the boutique segment of the Australian market.
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“That offering to service that market is certainly a trend lately. The shift I think lies in the appetite of the inbound and outbound guest, and where they are wanting to stay post-COVID. … They are looking for that boutique experience, which is more personal, rather than a big box.”
The 212-room hotel on the city’s North Quay “tells Brisbane's story through hand-painted artworks, sculptures and overhead installations,” said Tim Sherlock, managing director at Pro-invest.
A Bit of Both
Nielsen said a combination of opening boutique and big-box hotel developments increasingly goes hand in hand for a group such as Pro-Invest.
Speaking of Vista’s part in the joint venture, he added “we are also going in on big-box developments, particularly upscale, as well. Certainly, a big focus is looking at more boutique hotels developments but also repositioning assets to that Hotel Indigo brand neighborhood offering where it's more personal in the community.”
CBRE's Craig said this is a good example of how “major operators have been very diligently seeking out and growing their own boutique brands as well. … They’ve developed those organically or bought boutique brands.”
There remains a focus on guest experiences in the boutique sector, said Roberto Russo, general manager of a group of Brisbane hotels under the Ovolo Hotels brand, which has eight of its 12 hotels in Australia.
Russo said curating personalized and unique experiences is part of the firm’s DNA. Brisbane is currently leading the boutique boom in Australia as it prepares to host the 2032 Summer Olympic Games.
“The city has been given a great opportunity thanks to the Olympics. There has been a growth in the number of arrivals into the city, both leisure and corporate travelers traveling more aggressively,” he said.
Brisbane has the highest occupancies in the country at 73%, Russo said, while ADR is close to the AUS$300 mark.
“There’s been a massive growth in rates, and huge demand, huge appetite. ADR is up there with Sydney almost, which has traditionally led the way. We are the only city together with Perth that had a 35% increase in ADR year on year, and it’s a growth that will continue. It’s very exciting. … Lots of capital infrastructure projects are in the city that will continue to create that demand, whereas Sydney and Melbourne are struggling for occupancy,” he added.
Ovolo’s two Brisbane hotels opened within months of each other in 2018 — first, the 50-suite The Inchcolm by Ovolo, then the 103-room Ovolo The Valley, formerly the Emporium Hotel.
According to Russo, the timing was right for Ovolo and other boutique offerings.
“The shutdown gave the opportunity for some of these amazing hotels to come to life and for Brisbane to come into its own when it comes to boutique hospitality. … We didn’t really know then how the market would react. But thanks to COVID, we were a bit ahead of the game in bringing unique experiences. The market was really ready to have something fresh, something fun,” he said.
Nielsen said Vista has a pipeline to develop approximately 5,000 hotel rooms by 2027, for which it is looking at more boutique properties in Australia and beyond, particularly for the Hotel Indigo brand.
“Canberra, Melbourne and Sydney are the key markets, and there is definitely that push for boutiques underway in those. And we are absolutely looking for other locations in that brand in Australia and New Zealand,” he said.