Hotels RFR Second Half 2015

Research and
Forecast Report
Second Half 2015
Australia
HOTELS
Destination Australia
Arrivals increase as accommodation
sector takes off
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Australia and New Zealand Australia and New Zealand Australia Australia & New Zealand
INDUSTRIAL RETAIL HEALTHCARE AND RETIREMENT LIVING CBD OFFICE
Size does matter New breed of tenants

Large format retail outperforms Strategic owners adapt to change
Building scale Changing

Investors expand collections
of the guard
Boutique to corporate -
a shift in ownership
Accelerating success. Accelerating success. Accelerating success. Accelerating success.

Metro Office
HOTELS
Contents
A note from our Managing Director 4
Rising demand and strong growth in tourism 5
Market dynamics 6
Investment market overview 9
Around the nation 11
Our perspective hotels 18
Australian aviation trends 20
Hotel management company investment strategies 22
Spotlight on Tasmania 26
Lifestyle hotel brands 30
Hotel performance indicators 32
Hotel refurbishment 34
Our experience hotels 36
Have you met our team? 38
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and Consultancy team Colliers International
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Hotels | Research & Forecast Report | Second Half 2015 3

A note from our
Managing Director
phen Burt Australia
W
elcome to the latest research publication from Colliers International Hotels. Australias best hotel
research team of Denise Kirk and Nora Farren have again done a marvellous job together with
our executive team to bring together a range of articles and market information that provide a
wide ranging insight into what is happening, or might happen in the Australian hotel market.
Looking at hotel property sales over the last two years we have witnessed record levels of transactions
but Sydney, and to a lesser extent the Gold Coast, have attracted the bulk of the action. Sydney has
the best supply and demand dynamics of any hotel market in Australia. There are certainly new rooms
coming into the market but there will also be some 1,000 rooms taken out of city inventory over the next
18 months due to redevelopment of older hotels to commercial or residential usage. On the demand side,
new infrastructure (extension of the light rail network, new convention and exhibition facilities, new upscale
hotels, rejuvenation of Darling Harbour) and the extension of a constrained CBD into Barangaroo will all
stimulate room demand.
Investor demand for Gold Coast hotels and resorts has dramatically ramped up on the back of improved
infrastructure and the expectation the famous resort mecca might become more dominant on the itinerary
of travelling Chinese tourists. Certainly Dalian Wanda and Ridong Group are assisting this process with their
massive Jewel development. Our article on Australian aviation looks into the extent this sector is having on
Chinese visitors travelling directly to the Gold Coast.
Going forward, we can now anticipate Melbourne will be the focus of investor activity, certainly over the
next 12 months. Despite Sydney being the larger city, Melbourne now has equal number of short term
accommodation rooms but its average room rate growth has been superior to Sydney year to date. The city
has good occupancy but the big factor for its room rate performance relative to Sydney is the opportunity to
push rates over so many days during a packed events calendar.
Hotel values have certainly increased in Melbourne but unlike Sydney there has been very little sale
evidence of major CBD hotels to specifically underwrite the new level of values. This will all change over
the next 12 months with a number of major properties confirmed and potentially coming to the market.
For those investors looking for emerging markets I recommend reading our article on Tasmania. In terms
of future prospects a lot depends on the proposed extension of Hobart Airports runway in order to support
more direct flights of larger planes from both mainland Australia and Asia.
Finally, I also recommend the article examining the investment strategy of the recognised international
chains and the emerging international operators that have predominantly grown out of Asia. Our
assessment is that existing regional chains of five thousand rooms or more could be in big demand
from predatory hotel companies looking to increase their presence with acquisition of existing
management platforms. This could have interesting consequences for regional hotel companies worldwide;
including Australia.
Hope you enjoy the read and as always we welcome your feedback.
Stephen Burt
Managing Director
Hotels | Asia Pacific
stephen.burt@colliers.com
4 A Colliers International publication

Metro Office
HOTELS
Hotel property capital

flows to alternative
assets
Asset owners across Australia are taking advantage of rising demand
and strong tourist traffic to dispose of trophy properties. We are
also seeing increased activity from hotel operators moving cash
off balance sheet by selling hotel assets subject to long term
management. Continued strong growth in both international visitor
arrivals and domestic travel is providing a significant contribution
to economic activity.
By Denise Kirk
Analyst | Hotels
denise.kirk@colliers.com
The number of Australians holidaying overseas was steady during 2014-15, after increasing by over
130 per cent between 2006 and 2014. The lower Australian dollar is encouraging more Australians
to holiday at home and we expect this will be even more evident in the upcoming summer holiday
season. International visitor arrivals reached a new high of 7.12 million during 2014-15, showing
annual growth of 6.6 per cent. Importantly, spending by international visitors grew by 10 per cent to
a record $33.4 billion last financial year this is the strongest year-ending June growth since 2001,
the period of the Sydney Olympic Games.
The general trend has been improving revenue and further tightening in hotel property capitalisation
rates especially at the top end of the market where there has been transactional evidence below five
per cent. The main investor interest is in prime CBD locations and continues to be primarily from
overseas buyers. In contrast the regional markets have a lower level of interest and largely comprise
domestic purchasers. Current asset pricing and yield compression is being driven by individual
market performance outlook and supply pipelines; the cost of debt and offshore investment; and the
limited availability of investment opportunities.
The Sydney market continues to benefit from strong fundamentals, which is reflected in strong
investment activity and interest from offshore investors. After the sale of a significant number of
high profile hotels in Sydney we are expecting to see more focus on Melbourne, as vendors who
are aware of record prices being paid in the Australian hotel market, take advantage of the current
window to divest. Owner operators continue to be active as both vendors and purchasers. Domestic
interest is also being expressed by private equity groups, syndicators and high net worth individuals.
Offshore parties and Investment Visa applicants (predominantly from China) remain active and
continue to express interest in potential acquisitions. Developers are also active for strategic office
assets offering a conversion opportunity.
Leisure destinations in Queensland have also seen an improvement in demand, trading conditions
and value levels. Supported by a lower Australian dollar and with minimal supply forecast in the
short to medium term, value levels are expected to continue to show growth, with some evidence of
yield tightening emerging. There is considerable mooted supply proposed and under construction in
a number of capital city markets across Australia. This may challenge market absorption in the
short-term.

Research and
Forecast Report
Second 2015
MARKET DYNAMICS
Australian accommodation indicators
Occupancy rates increased four per cent to $169.85. A fall in average daily
rates was recorded in four of the major Australian city markets
According to data from STR Global for the year to June 2015, the
across the year to June 2015. The largest decline was recorded
average occupancy levels across the major Australian city hotel
in Darwin where rates fell 2.9 per cent to $166.32, followed by
markets was 75.8 per cent, holding steady when compared with
Brisbane where rates fell 2.4 per cent to $173.49. Overall for the
the previous year. The highest occupancy rate during the year
year to June 2015 average daily rates across the major Australian
to June 2015 was maintained in Sydney City at 87.1 per cent,
city markets increased one per cent.
followed by Melbourne City at 85 per cent. The strongest growth
in occupancy during the year to June 2015 occurred in Cairns, AVERAGE DAILY RATES MAJOR AUSTRALIAN CITY HOTEL
where occupancy grew by 8.2 per cent to 73.4 per cent. Solid MARKETS YEAR TO JUNE 2015
growth was also recorded for Canberra up 6.1 per cent to 72.5 $250
$225.40
$205.75
per cent; and for the Gold Coast up 3.9 per cent to 69.9 per cent. $200
$199.67
$169.85
Four of the major markets recorded declines during the period, $173.49 $166.32
Average Daily Rate
$162.75
$150.99
$150
the largest being Darwin, down 10 per cent to 64.2 per cent; $122.12
and Adelaide which fell 4.2 per cent to 76.5 per cent. Overall $100
for the year-to-June 2015 average occupancy across the major

$50
Australian city markets was flat, improving just 0.1 per cent.
$0
OCCUPANCY RATES MAJOR AUSTRALIAN CITY HOTEL Sydney Melbourne Brisbane Adelaide Cairns Gold Coast Perth Darwin Canberra
MARKETS YEAR TO JUNE 2015 City City
100 Source: STR Global/Colliers Edge

90 87.1 85.0
81.0
80 72.8
76.5
73.4
69.9
72.5 RevPAR
70 64.2
% Occupancy
60 According to data from STR Global for the year to June 2015,
50
average growth in RevPAR across the major Australian capital city
40
30 markets was 1.2 per cent, but the rate of growth varied widely
20 across markets. The highest RevPAR nationally continues to be
10
0
Sydney Melbourne Brisbane Adelaide Cairns Gold Coast Perth Darwin Canberra
City City
Source: STR Global/Colliers Edge
Average daily rates

According to data from STR Global for the year to June 2015,
the average daily room rate across the major Australian city
markets was $175.15, showing an increase of one per cent over
the previous year. The strongest growth in average daily rates
during the year to June 2015 occurred in Melbourne, where rates
grew 5.3 per cent to $205.75. Solid growth was also recorded in
Sydney up 4.7 per cent to $225.40 and on the Gold Coast, where The Town Hall Hotel, Fitzroy
Leasehold interest sold by Colliers International

Metro Office
HOTELS
growth at 20.8 per cent to reach 933,500 closely followed by

growth out of India at 20.5 per cent. Arrivals from Japan declined
0.8 per cent. The most frequently cited main reason for visiting
Australia was holiday (46 per cent) followed by visiting friends and
relatives (28 per cent) and business (nine per cent). The average
length of stay remained stable at 11 days. New South Wales was
the intended state of stay for 38 per cent of visitors to Australia
in the year ended June 2015; Victoria accounted for 24 per cent;
Queensland 22 per cent; Western Australia 11 per cent; South
Australia three per cent, with the remaining states accounting for
one per cent each.
SHORT-TERM VISITOR ARRIVALS BY COUNTRY

OF RESIDENCE
Hong Kong +2.9% 2014/15
South Korea +7.0% 2013/14
India +20.5%
Japan -0.8%
Hilton Sydney, Sydney CBD Malaysia +6.3%

Valued for purchaser by Colliers International Singapore +2.6%
USA +9.3%
Sydney City at $196.33, showing growth of six per cent. The
UK +2.4%
strongest annualised growth in RevPAR occurred in Cairns which China +20.8%
increased 10.2 per cent to $89.65, although this market continues New Zealand +3.8%
to show the lowest RevPAR of all the major Australian markets. 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000
Solid growth was also recorded on the Gold Coast, up eight per Source: ABS/Colliers Edge
cent to $118.72. Declines in RevPAR were recorded in four major
Australian city markets during the year to June 2015. The largest Outbound travel by Australians
decline was Darwin, where RevPAR fell 12.7 per cent to $106.75; During the month of June 2015, there were 777,600 short-term
and Brisbane fell 5.6 per cent to $126.36. resident departures from Australia, a decrease of 0.1 per cent
REVPAR MAJOR AUSTRALIAN CITY HOTEL MARKETS YEAR compared with May 2015. This followed a monthly increase of 0.1
TO JUNE 2015 per cent in April 2015 and no change in May 2015. The current
$250
annual trend estimate for departures in June 2015 is 2.4 per cent
$200
$196.33 higher than in June 2014. Total short-term resident departures
$174.91
$161.83 during 2014-15 reached 9.22 million, up from 8.94 million in
RevPAR
$150
$126.36
2013-14 showing growth of 3.1 per cent. Short-term resident
$115.48 $118.72 $118.05
$100 $89.65
$106.75
departures continue to exceed short-term visitor arrivals this has
been the case since the year ended June 2008. In the year ended
$50
June 2015, short-term resident departures exceeded short-term
$0
visitor arrivals by 2.1 million movements, which is lower than the
Sydney
City
Melbourne Brisbane Adelaide
City
Cairns Gold Coast Perth Darwin Canberra difference in 2013-14 at 2.3 million. New Zealand remained the
most popular destination for Australian travellers during 2014-15,
Source: STR Global/Colliers Edge
with 1.23 million journeys taken there. Of the top 10 destination
International visitor arrivals countries in the year ending June 2015, short-term departures to
During the month of June 2015, there were 612,700 short-term Japan recorded the strongest growth, increasing by 22.9 per cent.
visitors to Australia, an increase of 0.2 per cent compared with Strong growth over the same period was recorded for departures
May 2015. This followed monthly increases of 0.6 per cent in to Indonesia (+10.5 per cent) and India (+9.9 per cent). Declines
April 2015 and 0.4 per cent in May 2015. The current annual were recorded for Thailand (-10.1 per cent) and Singapore (-3.5
trend estimate for arrivals in June 2015 is 6.6 per cent higher per cent). The median age for all short-term resident departures
than in June 2014. Total short-term visitor arrivals during 2014- remains constant at 41 years; with growth recorded in the 50-69
15 reached 7.12 million, up from 6.66 million in 2013-14. New years age group and declines in the 25-49 years ago group. During
Zealand remains the largest contributor to short-term visitor 2014-15, the most frequently stated reason for overseas travel by
arrivals into Australia recording 1.26 million movements, reflecting Australians was holiday (59 per cent); this was followed by visiting
growth of 3.8 per cent. Of the top 10 source countries in the year friends and relatives (24 per cent) and business travel
ending June 2015, arrivals from China recorded the strongest (nine per cent).

Capital Territory (up 21 per cent). Moderate growth continues to
be recorded in our largest markets of New South Wales, Victoria
and Queensland.
DOMESTIC VISITOR NIGHTS

ACT +21%
2014/15
NT +42% 2013/14
Tas +14%
WA +14%
SA +6%
Qld +4%
Vic +4%
NSW +3%
SHORT-TERM RESIDENT DEPARTURES BY
DESTINATION COUNTRY 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000
Millions
Japan +22.9% 2014/15 Source: TRA/Colliers Edge
India +9.9% 2013/14
Fiji +1.0%
Passenger and aircraft movements
Singapore -3.5%
China +3.2% During the 2014-15 financial year total passenger movements
Thailand -10.1% were 147.3 million showing an annual increase of 0.6 per cent,
UK +1.2%
down on` growth of 2.7 per cent recorded for 2013-14. Average
USA +4.9%
Indonesia +10.5%
annual growth over the last five years has been three per cent,
New Zealand +3.7% slower than the long-term (10 year) average which sits at 4.1
0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 per cent. Growth in aircraft movements was negative during
Source: ABS/Colliers Edge 2014-15 at -0.7 per cent, down from growth of 0.9 per cent
recorded during 2013-14. This is well below both the five and 10
Domestic visitor market year average annual growth rates which sit at 2.2 and 1.8 per
cent respectively. According to the International Air Transport
Domestic travel by Australians increased five per cent during the
Association (IATA) airlines in Asia Pacific have very diverse
year ended June 2015, to a new high of 83.2 million overnight
performances. On average, profit per passenger has increased
trips. Domestic visitor nights increased six per cent to 313 million
as lower fuel costs and stronger cargo markets (particularly
and expenditure on domestic tourism was $55.4 billion during
important to manufacturing in the region) helped to boost net
2014-15, up four per cent. Tourism expenditure contributed $107
margins and profits. This was reflected in recent reporting from
billion during 2014-15; this along with the $53.7 billion in planned
Qantas which recorded its strongest profit since before the global
investment confirms the industrys position as a key driver of
financial crisis. Positive impacts on local airline performance
economic growth moving forward. The largest contributions to
during 2014-15 include lower fuel prices, higher revenue per
growth in domestic overnight trips for the year ended June 2015
available seat kilometre, and the repeal of the carbon tax.
came from an increase in Australians travelling for business,
which grew to 17.3 million, and visits to friends and relatives AUSTRALIAN AIRCRAFT AND PASSENGER MOVEMENTS
20%
which reached 29.3 million. Holiday expenditure increased
15%
marginally to $27 billion making up around 49 per cent of all 10%
domestic overnight spending. However, overnight trips for holiday 5%
weakened slightly to 33.1 million during the year to June 2015.

Annual Growth
0%
-5%
This was a result of family groups and those aged 15 to 24 years
-10%
taking fewer trips for this purpose. Interstate domestic overnight -15%
trips increased by seven per cent to 27 million during 2014-15 -20%
these trips are important for domestic tourism as they typically -25%
2008-09
2000-01
2001-02
2002-03
1999-00
2006-07
2009-10
2003-04
2004-05
2005-06
2007-08
2013-14
2014-15
2010-11
2011-12
2012-13
involve longer stays and visits to more locations. The strongest

growth in domestic overnight visitors by state was recorded in Aircraft Passenger
the Northern Territory (up 42 per cent) and in the Australian Source: Bureau of Infrastructure, Transport and Regional Economics/Colliers Edge
How else can we help you? For more information please contact:
Speak to one of our property experts today. Denise Kirk
au.hotels@colliers.com Analyst | Hotels | Tel +61 2 9257 2046
denise.kirk@colliers.com

Metro Office
HOTELS
Research and
Forecast report
Second Half 2015
INVESTMENT MARKET OVERVIEW

Strong demand and competitive tension has been the leading market in transactional volumes in 2015
continuing on from 2014. The strong Sydney residential market is
The strong volume of hotel transactions recorded in 2013 and
also resulting in the sale of hotel assets for residential conversion.
2014 are enduring in 2015, with sales activity for year to 2015
It is likely we will see more of these conversions which will
already nearing total volumes reached during calendar year
further tighten the supply outlook in this market.
2014. Year to August 2015 there has been over $2.44 billion of
hotel assets transacted, closing in on the $2.66 billion concluded ORIGIN OF HOTEL PURCHASERS BY VALUE
in 2014. We anticipate total volumes for 2015 will exceed those $2,800
$2,600
recorded in 2014. So far in 2015 there have already been 14 $2,400
$2,200
hotels sold with values greater than $50 million, and five of those $2,000
over $100 million. The Australian market continues to attract $1,800

$1,600
Millions
strong levels of foreign capital, led by investors from China. Yield $1,400
$1,200
compression across core markets highlights the competitive $1,000
$800
tension between investors. This has been driven by strengthening $600
$400
hotel operating metrics and the current macro-economic $200
environment. $0
2015 YTD
2011
2006
2007
2008
2009
2010
2012
2013
2014
HOTEL SALES IN AUSTRALIA Australia Hong Kong Other Singapore UK USA Japan China
$2,750 Source: Colliers Edge

$2,500
Value of Transactions ($ millions)
$2,250
$2,000
$1,750
$1,500
$1,250
$1,000
$750
$500
$250
$0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD
Source: Colliers Edge
The average value of major hotel transactions so far in 2015

is $63.1 million. This has increased throughout the year with a
number of large individual transactions occurring. This compares
with an average value of $37 million in 2014; $33.4 million in
2013 and $55.3 million in 2012 (excluding portfolio transactions).
Year to 2015 the largest hotel transaction has been the sale of
The Westin Hotel in Sydney for $445.3 million to a joint venture
between the Far East Land and Housing Development Company
and Sino Land Company; the vendor was GIC. This was closely
followed by the sale of the Hilton Hotel in Sydney for $442
million to Bright Ruby. Asset owners across Australia are taking
advantage of good investor demand and strong tourist traffic to
dispose of trophy properties. The New South Wales hotel market Bell City, Preston VIC
Sold by Colliers International

The purchaser profile of the Australian hotel investment market increase in capital growth to five per cent for the year to June
continues to be dominated by Asia based investors. Similar to 2015, up from 1.8 per cent for the same period in 2014. Income
trends in other property sectors, the rise of Chinese investors returns remained broadly stable for the year at 8.7 per cent. The
has continued in 2015 following their prominence in 2014. This CBD hotel market continues its upswing returning 14.6 per cent.
incorporates two different categories of investors those looking Returns for non-CBD hotels increased by 5.8 per cent over the
to acquire trophy assets at the top end of the market; and within year to June 2015 to reach 13.5 per cent. The hotel sector in New
the mid and lower end of the market, investors continuing to take South Wales performed well returning 18.7 per cent, followed by
advantage of the Significant Investor Visa program. Year to 2015, Victorian assets at 17.3 per cent, and hotels in Queensland at 10.2
Chinese investors have already acquired nine Australian hotel per cent. Total returns from the hotel sector outperformed other
assets worth over $811.8 million accounting for 33.2 per cent of major commercial property sectors during the year to June 2015.
total transactions by value. The next most active purchasers have For the same period industrial property returned 12.9 per cent,
been investors from Singapore, who have purchased over $681.3 office 11.3 per cent, and retail 10.8 per cent with the All Property
million worth of hotel property year to 2015, making up 27.8 per index showing a return of 11.3 per cent.
cent of sales. This is followed by activity from local investors
AUSTRALIAN HOTEL PROPERTY INDEX RETURNS
making up 23.5 per cent of transactions by value, with $574.6
25
million worth of acquisitions. 20
15
Annualised Rolling Return %

Hotel returns outpace other sectors 10
5
According to the latest index from MSCI Investment Property 0
Databank (IPD), there was a strong improvement in returns -5
-10
delivered by the Australian Hotel sector over the year to June
-15
2015. Total returns from hotels were 14.2 per cent over the -20
Jun-08
Jun-09
Jun-11
Jun-13
Jun-14
Jun-15
Jun-06
Jun-07
Jun-10
Sep-11
Jun-12
Sep-13
Sep-14
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-12
Dec-09
Dec-11
Dec-12
Dec-13
Dec-14
Dec-06
Dec-07
Dec-08
Dec-10
Mar-09
Mar-11
Mar-13
Mar-14
Mar-15
Mar-07
Mar-08
Mar-10
Mar-12
12 months to June 2015, up from 9.9 per cent for the year to
June 2014. Hotel returns are now at their highest level since Capital Return Income Return Total Return
March 2012, and higher than the long-term index average for the Source: Colliers Edge/IPD
sector at 11.5 per cent. The improved returns were driven by an
The Westin, Sydney NSW

Sold by Colliers International and JLL

Research and
Forecast Report
Second Half 2015
AROUND THE NATION

New South Wales
By Michael Thomson
National Director, Valuation | Hotels
michael.thomson@colliers.com
MAJOR TRANSACTIONS
HOTEL ROOMS RATING DATE PRICE $ PER ROOM
Novotel Brighton Beach 296 4.0 Jan-15 $84.75* $286,318

Diamant Hotel Potts Point 76 4.0 Feb-15 $23.20 $305,263
Quest Dubbo 65 4.0 Feb-15 $14.70 $226,154
Chateau Elan, Hunter Valley 100 4.5 Feb-15 $23.00* $230,000
Sydney Conference & Training Centre 56 4.0 Feb-15 $12.50 $223,214
Hilton Hotel Sydney 579 5.0 May-15 $429.00* $740,933
Westend Hotel Sydney 86 N/A May-15 $18.60 $216,279
The Westin, Sydney 416 5.0 May-15 $445.30 $1,070,433**
Bounce Hotel, Sydney 35 3.0 May-15 $18.30 $522,857
Mercure Hotel, Potts Point 227 4.0 Jun-15 $131.00* $577,093
* Hotel or resort apportionment only (non hotel components including retail excluded)
** Freehold equivalent value excluding retail component estimated at $1,206,276 per room
The above table represents our understanding of some of the Average room rates are the highest in the country with
more significant sales achieved in New South Wales in 2015. The growth on a year to date basis of approximately five per
table demonstrates the New South Wales hotel market has been cent. Upscale hotels are achieving a higher growth rate.
the leading market in transactional volumes in 2015 continuing
Future supply
on from 2014. The two most significant sales have been at the
In comparison to Brisbane and Melbourne the supply outlook
top end of the Sydney market and include the Hilton and The
remains relatively benign.
Westin with the latter attracting a premium due to the nature
of the unexpired term of the management agreement; whereas The most significant additions to supply are the 281 room
the Hilton was sold by the operator subject to a long term Tankstream Hotel which has now opened; the Four Points
management agreement. The Mercure sale needs to be treated by Sheraton extension with a further 222 rooms in 2016;
with caution as it was purchased as a residential development and the 616 room Sydney Convention Centre Hotel to be
opportunity rather than on a going concern basis. operated as a Sofitel opening in 2017.
Market drivers Capital market participants

After the sale of a significant number of high profile hotels
Trading environment
in Sydney in 2014 and year to date, we are anticipating
Sydney, according to STR Global Research, continues to
a slowdown in transactions. The dominance of overseas
grow occupancy trading in the high 80s and some hotels
purchasers has continued with the Hilton selling to a
even achieving in the low 90s. Taking into account off peak
Chinese purchaser and The Westin selling to joint venture
periods the city is trading close to capacity.
parties from Hong Kong and Singapore.

The strong Sydney residential market has resulted in the sale the Chateau Elan in the Hunter Valley to mainland Chinese
of the Mercure in Potts Point for residential conversion which demonstrates that for the right property purchasers will look
is on the back of the sale of the Vibe Hotel in North Sydney. outside the CBD.
It is likely we will see more of these conversions which will
Stock availability
further tighten the supply outlook.
Colliers International is aware of 14 New South Wales hotel
Value benchmark implications and motel transactions to date in 2015, which compares to
The general trend has been improving revenue and further 31 in 2014 and therefore suggests some slowing in activity.
tightening in capitalisation rates especially at the top end Summary of future outlook
of the market where there has been transactional evidence Sydney will benefit from major new infrastructure
below five per cent. currently under construction in the city and in particular
The main investor interest is in prime CBD locations and the new Sydney Convention Centre, which is due to open
continues to be primarily from overseas buyers. In contrast, in December 2016 together with the new Lend Lease
the regional markets have a lower level of interest and Barangaroo mixed residential and commercial precinct. With
largely comprise domestic purchasers. However, the sale of limited new supply we anticipate the continuance of high
occupancy rates and the opportunity for more rate growth.
Victoria
By Michael Thomson
MAJOR TRANSACTIONS
Bell City Preston 828 3.0 Dec-14 $117.00* $141,304

Quest Shepparton 69 4.0 Feb-15 $11.80 $171,014
Quest Caroline Springs 80 4.0 May-15 $12.20 $152,500
Hotel Charsfield, Melbourne 41 4.0 Jun-15 $28.00 $682,927
Citadines on Bourke, Melbourne 398 4.5 Jul-15 $158.50 $398,241
* Hotel component only
The above table represents our understanding of some of the Average room rate growth in Melbourne on a year to date
more significant sales achieved in Victoria in 2015. Due to the basis has been the highest in Australia at approximately six
size of the transaction we have also included the sale of Bell City per cent. This is a remarkable outcome considering the level
to funds manager Elanor which occurred at the end of the 2014 of new supply that has entered the Melbourne market relative
calendar year. The chart demonstrates the lack of transactions in to the Sydney market. The closure of the Sydney Convention
comparison to New South Wales. It should also be noted that the and Exhibition centre in December 2013 may in part explain
sale of Citadines was between related parties. In looking to the Melbournes rate growth but other more important factors are
remainder of 2015 and 2016 we are aware of several significant the superior quality of Melbournes room inventory relative to
Melbourne hotels which are likely to be placed on the market to Sydney plus the high level of event based demand offers more
take advantage of the current strong trading climate and good opportunity to attract higher rated business.
level of interest in Australian hotels from overseas buyers.
Future supply
Market drivers In comparison to Sydney there is the potential for some
significant growth in supply with Colliers identifying
Trading environment
approximately 47 proposed hotel and serviced apartment
Melbourne according to the STR Global Research has
developments. Clearly not all of these will be constructed.
maintained occupancy in the mid 80s and is the second
However, this represents a 23 per cent increase in the
highest performing market in both rate and occupancy
number of hotels and serviced apartments operating in
behind only Sydney.
the market.

Metro Office
HOTELS
Capital market participants Whilst the calendar year will be quieter than last year the
After the sale of a significant number of high profile hotels in underlying activity is very high and 2016 is likely to be a
Sydney we are expecting to see more focus on Melbourne, record year for Melbourne hotel sales.
as vendors who are aware of record prices being paid in Summary of future outlook
the Australian hotel market, take advantage of the current The size of the Melbourne hotel market continues to expand
window to divest. at a faster rate than Sydney and if the trend continues will
The strong residential market in Melbourne may dampen the outgrow Sydney in respect to its total room capacity. Its
impact of new supply with the conversion to residential of strong event calendar and popularity with international
some older hotel stock. investors means it will continue to be highly sought.
Historically it has always done well in absorbing new supply
Value benchmark implications
and it remains to be seen what the impact of the next wave
Similar to Sydney the general trend has been improving
of supply will be. This will be a function of how much of the
revenue and further tightening in capitalisation rates with the
mooted supply is actually constructed, how spread out it
consequence being growth in values.
is and how much new demand is generated from the
Stock availability new stock.
Colliers International is aware of only four major hotel and
motel transactions to date in 2015, compared to 14 in 2014.
Queensland
By Baden Mulcahy
baden.mulcahy@colliers.com
MAJOR TRANSACTIONS
Next Hotel, Brisbane 304 4.5 Jan 2015 $103.00* $338,816

Daydream Island 296 4.5 Mar 2015 $30.50 $103,041
Paradise Resort, Surfers Paradise 358 4.0 Mar 2015 $59.30** $165,642
Marriott Surfers Paradise 327 5.0 Apr 2015 $84.50 $258,410
Adina Brisbane 162 4.5 May 2015 $48.00 $296,296
Pullman Cairns Hotel 321 5.0 May 2015 $75.08 $233,894
Rendezvous Hotel Brisbane on
99 4.0 Jun 2015 $29.50 $297,980
George
Crowne Plaza Surfers Paradise 269 4.5 Jun 2015 $54.20 $201,487*
Islander Resort, Surfers Paradise 153 3.0 Jun 2015 $26.25 $171,569
Pacific Hotel, Cairns 176 4.5 Jun 2015 $24.00 $136,364
* Hotel or resort apportionment only (non hotel components including retail excluded)
** Resort component only. Excludes development land
Market drivers The Gold Coast (up four per cent) and Cairns (up eight per
cent) markets continue to experience good demand growth,
Trading Environment
which pushed occupancy levels on the Gold Coast into the
The Brisbane market continues to experience supply
low 70 per cent range and Cairns into the mid 70 per cent
growth outstripping demand over the first half of 2015,
range. This led to reasonably strong ADR growth in the Gold
which resulted in a softening in occupancy by three per
Coast of four per cent to five per cent, and RevPAR growth
cent to the low 70 per cent range. ADR has also softened
of nine to 10 per cent. ADR growth has been more moderate
by approximately two per cent, resulting in RevPAR
in Cairns given the higher volume of inbound business,
declining by approximately six per cent in comparison to the
growing at just two per cent, leading to RevPAR growth of
corresponding period of the preceding year.
just over 10 per cent.

Conditions within regional markets remain varied. Business Value benchmark implications
demand generally improved across most regions, with some Trading conditions have softened in the Brisbane market.
stability returning to markets previously impacted by the Future supply increases are expected to reduce market
slowdown in the resources boom. Some of these markets, occupancies and moderate ADR growth prospects in the
however, have been impacted by supply additions in the face short to medium term. The new hotels are expected to gain
of moderate demand. Domestic leisure demand, however, their fair market share, which will in turn put pressure on
has generally been softer across many regions. Inbound value levels, particularly for older and lower grade stock.
demand has grown strongly across the state, including long Capital markets, however, appear to be taking a medium
haul markets from Europe, the United Kingdom and to longer term view to asset performance for better
United States. quality stock.
Future supply Leisure destinations have typically seen an improvement in

The Brisbane accommodation market has seen over 1,500 demand, trading conditions and value levels. Supported by
rooms added since the beginning of 2014, with a further a lower Australian dollar and with minimal supply forecast
3,000 plus new rooms expected to be added over the next in the short to medium term, value levels are expected
three years to 2018. This amounts to an increase of 35 per to continue to show growth, with some evidence of yield
cent in room stock to the Brisbane Tourism Region and is tightening emerging.
expected to negatively impact market occupancy levels and
Stock availability
moderate ADR growth prospects.
The Brisbane market continues to be reasonably tightly held,
The Destination Brisbane Consortium (Echo Entertainment with owners taking a wait and see approach to future supply.
Group, Far East Consortium and Chow Tai Fook Enterprises) Given the strength of the site market, some owners of lower
have been announced as the preferred proponent for the quality stock may take the opportunity to divest rather than
Queens Wharf Integrated Resort Development. This project re-invest.
is proposed to include a new casino and over 1100 hotel
A number of major leisure assets have sold over the past
rooms. Construction is anticipated to commence in 2017.
year. We expect owners to continue to consider potential exit
The Gold Coast has two new hotel projects (Jewel 300 strategies in these markets as conditions provide potential
rooms and the Jupiters Casino 80 suite expansion) which trading upside and new buyers emerge.
are expected to open by 2018. The Singaporean based
Activity within regional markets is expected to improve
Banyan Tree has amalgamated a site for the development of
where trading conditions have stabilised and business
a new concept hotel and apartment development under the
demand proves sustainable.
Cassia brand.
Summary of future outlook
The futures of the proposed major Casino Resort projects
The Brisbane trading market is expected to be challenged by
on the Gold Coast and in Cairns remain uncertain. These
the volume of new room supply entering the market to 2018
proposals could significantly alter the longer term supply
and the perceived impact by purchasers on trading levels.
outlook for their respective regions.
This will most likely to be felt in lower grade and older stock
Capital market participants as the better quality existing and new hotels buy business.
Major asset transactions include the sale by Silverneedle
The lower Australian dollar and forecast increase in Inbound
of Next Hotel to Challenger (subject to a leaseback),
business is expected to continue to support leisure market
Cockpit Hotels sale of Crowne Plaza Surfers Paradise to a
trading conditions, and hence capital values and
private Singaporean investor, the sale of Pullman Cairns to
transaction activity.
Shakespeare Property Group by Ascendas/TMG and the sale
of Marriott Surfers Paradise by Indonesian Rajawali Group to Regional markets are expected to continue to show divergent
Marriott Vacation Club. trading and hence value trends dependent upon individual
market dynamics and economic conditions.
Offshore parties and Investment Visa applicants
(predominantly from China) remain active and continue to There is strong anecdotal evidence that all of the major
express interest in potential acquisitions. Queensland markets (Tropical North Queensland, Brisbane
and Gold Coast) will continue to see transactional activity
Developers are also active for strategic assets which occupy
on the back of a lack of stock to meet investor demand that
larger land holdings and offer redevelopment opportunities.
cannot be satisfied in the two preferred markets of Sydney
and Melbourne.

Metro Office
HOTELS
Western Australia
By Michael Thomson
MAJOR TRANSACTIONS
Ibis Budget, Perth 73 2.5 Jan-15 $15.50 $212,329

Four Points by Sheraton, Perth 278 4.0 Aug-15 $91.50 $329,137
The above table represents our understanding of the two Capital market participants
significant sales achieved in Western Australia in 2015. A smaller The purchaser and vendor in respect to the Sheraton Four
market than Sydney and Melbourne with both buyers and Points sale were both Singaporean with Perth offering
sellers having waited on the sidelines to see how much further advantages over the Eastern Seaboard of closer physical
the market was going to soften subsequent to the end of the proximity and being in the same time zone.
resources boom. With these two sales, we now have a firmer
Value benchmark implications
view on market sentiment. It is Colliers view the market will
The market is experiencing a slight decline in revenue as
remain relatively subdued until we see a positive trend once more
it replaces higher yielding corporate business with leisure.
in RevPAR growth. However, it should be remembered Perth is
However, this is being offset to a certain degree by the
still coming off historic highs in respect to occupancy and room
nationwide trend of contracting capitalisation rates due
rates which at the height of the resources boom were the highest
to cheaper finance and investor demand exceeding sell
in the country.
side opportunities.
Market drivers
Stock availability
Trading environment Colliers is aware of only two major hotel and motel
Perth according to the STR Global Research has continued transactions to date in Perth in 2015 which compares
to experience some decline in occupancy in 2015 falling to to one in 2014 and therefore suggests a continuation of
just above 80 per cent. Room rates which were in excess limited market activity. However with the amount of new
of Melbourne in 2014 or the second highest in the country supply being constructed it is likely we will see more
are now the third highest and have dropped to an average of buying opportunities in the next three years as not all these
just below $200. This reflects a modest fall only on 2014 of developers will want to hold on to their stock.
below two per cent suggesting a market that while still going
Stock availability
backwards, it is at a slow rate only rather than a
Anecdotal evidence suggests Perth hotels have aggressively
steep decline.
pursued new markets to replace the lost business post the
Future supply resources boom. While these new markets have replaced
There is the potential for some significant growth in supply lost occupancy this has generally been at the cost of lower
with Colliers identifying approximately 19 proposed hotel and average rates. It remains to be seen what the impact of the
serviced apartment developments. Clearly not all of these next wave of supply will be. There is the potential for some
will be constructed however this represents a total of 4,001 of the new five star stock being constructed such as the
rooms or a potential 39 per cent increase in supply. The Westin and the Ritz Carlton to set new benchmarks in room
one redeeming feature of the new supply is that Perth has rates in respect to the top end of the market and it is likely
the poorest quality upscale room inventory of any mainland to force some of the older premium stock in the market to
capital city and better quality product is likely to generate refurbish or struggle to compete.
new demand.

South Australia
By Christopher Milou
Director, Valuation | Hotels
christopher.milou@colliers.com
The South Australian hotel market continues to be tightly held Value benchmark implications
and we are not aware of any significant transactions that have While the market is experiencing a decline in revenue this
occurred over the last 12 months. is being offset to a certain degree by the overall trend of
Market drivers contracting capitalisation rates due to cheaper finance
and demand exceeding supply in respect to acquisition
Trading environment opportunities.
Adelaide experienced good growth in occupancy and
room rates according to the STR Global Research in 2014 Stock availability
on the back of the reopening of the Adelaide Oval and Colliers International is not aware of any current open market
strong conference activity. However, in 2015 the market campaigns of hotels in the Adelaide hotel market. However,
has experienced some decline in occupancy falling to the with new supply being constructed it is likely we will see more
mid 70s. Over the same period average room rates have buying opportunities in the next three years as not all of the
remained relatively stable at just under $150. This is a developers will want to hold on to their stock.
consequence of supply increasing at a faster rate than Summary of future outlook
demand with three new hotels having entered a relatively The Adelaide hotel market showed good growth in occupancy
small market with a 311 room Ibis hotel plus a Quest opening in 2014 up to approximately 80 per cent but has slipped on
in the second half of 2014 and the 170 room Mayfair Hotel a year to date basis with average rates stable over the two
opening in January 2015. periods. New supply over the next three years will hurt the
Future supply market unless we see new demand growth which is possible
We are aware of six more hotels proposed between 2016 once the Convention Centre and Royal Adelaide Hospital
and 2019 which could add a further 17 per cent supply in developments are completed. There is the potential for some
rooms to the market on top of the recent eight per cent of the new stock being constructed such as the Sofitel to set
increase in supply. new benchmarks in respect of the top end of the market and
it is likely we will see existing stock refurbishing in order to
remain competitive.
Stamford Plaza, Adelaide

Valued for Stamford Land Corporation by Colliers International

Metro Office
HOTELS
Australian Capital Territory

By Christopher Milou
Director, Valuation | Hotels
christopher.milou@colliers.com
MAJOR TRANSACTIONS
Brassey Hotel, Barton 75 3.0 Jun-15 $7.40 $98,667
The ACT hotel market continues to be tightly held with just two Capital market participants
significant hotel transactions in 2014, being the Abode Woden and The Canberra market has traditionally been dominated by
Ibis Styles Eagle Hawk (just inside the New South Wales border); local players however the purchase of The Abode in October
and one major transaction year to date 2015 being the Brassey 2014 by a Melbourne based fund manager suggests there
Hotel acquired by the Canberra based Doma Group. may be greater ownership diversity in future.
Market drivers Value benchmark implications
Trading environment The recovery in revenue which is being occupancy led
Canberra has experienced good growth according to the should be dropping to the bottom line of hotels and
STR Global Research in 2015 with occupancy boosted by increasing profitability. Combined with contracting
hosting six matches in the Asian Soccer Cup in January. The capitalisation rates we can anticipate uplift in hotel values.
trend has continued with occupancy on a month by month Stock Availability
comparison consistently in excess of the corresponding Colliers International is aware of only one current open
months of 2014. Average room rates in comparison have market campaign for a Canberra hotel.
shown modest growth.
Summary of future outlook
Future Supply The Canberra hotel market is showing growth in occupancy
One new hotel opened in the last quarter of 2014 being the from high 60s in 2014 to low to mid 70s in 2015 and the
Avenue plus the 147 room Hotel Kurrajong reopened post trend appears to be a sustained one. Average room rates
an extensive refurbishment. The 120 room Little National have been relatively stable and similar to 2014 although with
developed and operated by Doma Group opened early occupancy a forward indicator of average room rate growth,
September 2015. The new 191 room Vibe Hotel at Canberra we should start to see rate growth especially in 2016.
Airport is scheduled to open in November 2015.

Our perspective HOTELS
HOTEL MARKET INDICATORS - YTD JUNE 2015 LARGEST HOTELS TRANSACTION
SYDNEY CITY MELBOURNE CITY BRISBANE
OCC: 87.1% ( 1.3%) OCC: 85% ( 0.1%) OCC: 72.8% ( 3.3%)

ADR: $225.40 ( 4.7%) ADR: $205.75 ( 5.3%) ADR: $173.49 ( 2.4%)
RevPAR: $196.33 ( 6.1%) RevPAR: $174.91 ( 5.5%) RevPAR: $126.36 ( 5.6%)
ADELAIDE CAIRNS GOLD COAST
OCC: 76.5% ( 4.2%) OCC: 73.4% ( 8.2%) OCC: 69.9% ( 3.9%)
ADR: $150.99 ( 0.4%) ADR: $122.12 ( 1.9%) ADR: $169.85 ( 4%)

RevPAR: $115.48 ( 4.6%) RevPAR: $89.65 ( 10.2%) RevPAR: $118.72 ( 5%)
PERTH DARWIN CANBERRA SOLD
OCC: 81% ( 1.5%) OCC: 64.2% ( 10%) OCC: 72.5% ( 6.1%) THE WESTIN, SYDNEY
ADR: $199.67 ( 1.5%) ADR: $166.32 ( 2.9%) ADR: $162.75 ( 0.7%) PRICE: $445.3 million PURCHASER: Joint venture
RevPAR: $161.83 ( 2.9%) RevPAR: $106.75 ( 12.7%) RevPAR: $118.05 ( 6.8%) between Far East Land and
DATE: May 2015
Housing Development Company
VENDOR: GIC and Sino Land Company
TOP 3 INTERNATIONAL VISITOR TRENDS
$33.4 billion of international

visitor spending up 10%
7.12 million international 2014. Strongest growth since Holiday arrivals up 5%
visitors (year ending 2001 Sydney Olympic Games and visiting friends and
June 2015) annual relatives is also up 6%
growth of 6.6%
How else can we help you?

Speak to one of our property experts today.
au.hotels@colliers.com
AUSTRALIA
SECOND HALF 2015
TOP 5 MARKETS CONTRIBUTING TO AUSTRALIAN TOURISM CHINA TAKES THE LEAD AS

STRONGEST PURCHASER IN 2015
ION 33.2% 27.8%

$7.0 BILL
$2.5 BILLION
$3.5 BILLION
N CHINA SINGAPORE
$1.3 BILLIO
23.5% 9.1%
$3.0 BILLION
AUSTRALIANS TRAVELLING OVERSEAS AUSTRALIA HONG KONG

3%
OTHER
INTERNATIONAL AIRLINE ACTIVITY
The number of seats available on international routes We have seen an extra 6 million more passengers
to/from Australia has increased from 35.6 million in on international airlines an increase of 24% over
2010, to 44 million in 2014. a five year period, now at 33 million in 2014.
For more information about Colliers International

and working with us visit:
www.colliers.com.au
Research and
Forecast Report
Second Half 2015
AUSTRALIAN AVIATION TRENDS

Average load factors have strengthened and
the outlook for capacity growth is positive
By Denise Kirk which has experienced capacity declines of 7.1 per cent since
Analyst | Hotels 2010. Adelaide and Darwin have experienced record growth (81.7
denise.kirk@colliers.com per cent and 46.8 per cent respectively) over the past five years,
however starting from a lower base than the other cities. Sydney
Data from the Bureau of Infrastructure, Transport and Regional
remains the city receiving the highest number of passengers,
Economics (BITRE) shows over five years (between 2010 and
with 13.3 passenger movements in 2014, up from 11.4 million in
2014 most recent calendar year data available) the number
2010. Melbourne is next with eight million passenger movements;
of seats available on international routes to/from Australia have
Brisbane with close to five million; Perth with 4.1 million; Adelaide
increased from approximately 35.6 million in 2010 to 44 million
close to one million; Gold Coast 880,000; Cairns with 460,000;
in 2014. Forty per cent of the 44 million seats operated to/
and Darwin with 318,000 in 2014.
from Australia were either to/from or via South East Asia. New
Zealand had almost 20 per cent of the total followed by North PASSENGER MOVEMENTS INTERNATIONAL AIRLINES
14,000,000
East Asia with 15 per cent.

12,000,000
The uptake of these available seats has also been increasing over 10,000,000
the past five years with an extra six million passenger movements 8,000,000
on international airlines, increasing from 26.8 million movements 6,000,000
in 2010, up to almost 33.1 million in 2014. This represents 24 per 4,000,000
cent growth over the five year period. Seat utilisation (or load 2,000,000
factors) remains around 75 per cent overall. Seat utilisation has 0
been highest for Hong Kong with 85.1 per cent; followed by Chile
Sydney Melbourne Brisbane Perth Adelaide Gold Coast Cairns Darwin
2010 2011 2012 2013 2014
with 84.9 per cent; and United Arab Emirates with 82.7 per cent. Source: BITRE/Colliers Edge
INTERNATIONAL SCHEDULED TRAFFIC TO/FROM New airline capacity

AUSTRALIA AVAILABLE SEATS AND PASSENGERS
As highlighted, total international seat capacity to/from Australia
50,000,000
45,000,000 has been growing year on year. Specifically in relation to low cost
40,000,000
carriers, in 2014 AirAsia X, Cebu Pacific Air, Indonesia AirAsia,
35,000,000
30,000,000 Jetstar, Jetstar Asia, Scoot and Tigerair together accounted for
25,000,000
16.4 per cent of total international passenger traffic. This has been
20,000,000
15,000,000 growing over time and compares to the low cost carrier share
10,000,000
of 14.4 per cent in 2013. Further airline expansions have been
5,000,000
0 announced for flights originating in traditional markets and also

2010 2011 2012 2013 2014
Available Seats Passengers from emerging markets. A summary is provided overleaf by key
Source: BITRE/Colliers Edge source market.
The breakdown of passenger movements per Australian city Greater China

is shown in the graph below. All cities have shown increase in Earlier this year Chinese airlines reached the cap (as imposed by
passenger movements over the past five years, except for Cairns the Air Services Agreement between the Chinese and Australian

Metro Office
HOTELS
governments) of 18,029 weekly one-way seats at certain times of

the year. This meant no new services could be added by existing
Chinese carriers or new carriers. However, in January this year
the Federal Trade Minister announced the settlement of a new
air services agreement between Australia and China. The Federal
Trade Minister at the time of the announcement stated the new
air services agreement will allow Chinese airlines to almost triple
their services to Australia over the next two years. Under the
new arrangements, Australian and Chinese airlines will be able
to immediately operate up to 26,500 seats per week between
Australias major gateway cities and Beijing, Shanghai and
Guangzhou representing an increase of 4,000 weekly seats or
around 18 per cent on these routes. A further 7,000 weekly seats
to and from these destinations will be phased in over the next two
years, to a total of 33,500 weekly seats.
Unlike the restrictions applying to the major gateway cities

Chinese airlines can offer unlimited passenger services between
China and regional Australian ports, such as Cairns, Adelaide,
Darwin and the Gold Coast. We note the Chinese conglomerate
Dalian Wanda Group has helped fund new Wuhan (most populous
city in Central China) to Gold Coast flights, operated by Jetstar
twice a week. These flights will potentially commence later this
year. Cathay Pacific will also add a second daily Hong Kong to
Sydney in late 2015.
Japan
Following years of capacity declines between Japan and Australia,
Mercure Sydney International Airport
it is anticipated capacity between the two countries will grow
Asset Managed by Colliers International
between five and 10 per cent in 2015 and 15 to 20 per cent in
2016. In April this year Jetstar launched four weekly Tokyo to Sydney and the United States with new services from Sydney
Melbourne services and from December 2015, All Nippon Airways to Los Angeles with American Airlines and from Sydney to San
plans to re-enter Australia with daily Tokyo (Haneda) to Sydney Francisco with Qantas. It will increase the airlines Sydney-
services. US capacity by 33 per cent or an extra 301,000 seats a year.
Qantas currently operates up to 20 frequencies a week to the
Singapore US mainland and this new partnership with American Airlines
Low cost carrier Scoot has announced it will commence flights will see this increase to 29 a week. The airline will launch its
between Singapore and Melbourne in November 2015. five to six weekly Sydney-San Francisco services in December
South Korea 2015, subject to regulatory approval. Additionally, Air Canada has
announced it will commence three weekly Vancouver to Brisbane
Korean Air has announced plans to increase frequencies on the
flights next year.
Seoul to Brisbane route to daily in December and will utilise larger
aircraft hence increasing capacity on its Seoul to Sydney service. UAE (impacting UK and Europe)
New Zealand Etihad Airways have increased weekly capacity on the Sydney
to Abu Dhabi route by 1,320 making a total of 4,784 seats in
According to research compiled by Tourism Australia, for the
each direction.
year ending March 2015, direct capacity to Australia from New
Zealand increased by three per cent, with an additional 119,000 Conclusion
seats compared with the previous year. Air New Zealand has A consequence of the growth in airline capacity has been the
announced a 30 per cent increase in Auckland to Perth capacity significant increase in inbound and outbound travel to/from
between December 2015 and May 2016. Australia. Indeed over the past five years inbound passenger
Americas growth was slightly higher than outbound passenger growth;
with inbound passenger growth at 24 per cent, and outbound at
In June this year, the Qantas and American Airlines partnership
23 per cent. This is a positive trend and one that is desirable into
expanded. This is anticipated to increase capacity between
the future.

Research and
Forecast Report
Second Half 2015
HOTEL MANAGEMENT COMPANY

INVESTMENT STRATEGIES
Light, right or might
By Stephen Burt It has been a common event of late for the major branded hotel
Managing Director | Hotels | Asia Pacific companies to release cash by selling hotel real estate assets subject
stephen.burt@colliers.com to retention of long term management or franchise. There are
obvious benefits to this asset-light model and particularly in light of
As we examine market trends, the differing strategies being adopted the ability to secure 50-100 year management contracts for certain
in relation to hotel capital investment of the major listed hotel brand prime hotels. There are a number of recent examples of branded
companies (namely Accor, InterContinental, Marriott, Starwood, hotel companies implementing their asset light strategy.
Hyatt and Wyndham) and the strategies of emerging owner/
operators are becoming increasingly divergent.
International chains increasingly only own or lease the real estate

of a very limited number of the hotels. Their business model relies
on selling the goodwill of their brands for a fee as opposed to
investing in real estate assets or taking on the business risk of a
lease. In contrast, we are now witnessing the emergence of a new
breed of hotel companies that are more inclined to use significant
balance sheets to grow their portfolio. These companies are
primarily emanating from either well established existing regional
brands (Shanghai based Jin Jiang) or major hotel investors that
are now moving into self-management (Beijing headquartered
Dalian Wanda). Due to their lack of brand equity (relative to the
major international brands) some of these companies have adopted
a vertically integrated model in order to take greater control of
potential customers (Shanghai based hotel investor Fosun who
have acquired a minority stake in British travel firm Thomas
Cook Group).
More on these emerging hotel companies later but firstly, the

following table summarises the operating profile of some of the
major listed hotel management companies (numbers refer to
number of hotels).
ACCOR HYATT IHG MARRIOTT STARWOOD
Franchised 1,506 30% 253 42% 4,167 84% 2,940 72% 612 50%
Managed 2,211 44% 302 51% 767 16% 1,153 28% 589 48%
Owned and leased 1354* 26% 43 7% 8 - 9 - 33 2%
TOTAL 5,071 598 4,942 4,102 1,234
Source: Data obtained from latest version of Company Annual Report
*Includes hotels leased to Accor HotelServices

Metro Office
HOTELS
In November 2014 Starwood Hotels & Resorts Worldwide, Inc. us to grow our business whilst generating high returns on invested
announced it had sold Sheraton on the Park in Sydney to Sunshine capital. We franchise and/or manage hotels depending largely on
Insurance Group Corporation (SIG) for $463.0 million. Starwood market maturity, owner preference and, in certain cases, on the particular
continues to operate the hotel as a Sheraton under a long-term brand. For example, in the US, a mature market, we operate a largely
management contract. Including this sale and the recent sales of franchised business, working together with our owners to deliver
The St. Regis Rome, the Sheraton Ambassador Monterrey hotel, and preferred brands. By contrast, in Greater China, an emerging market, we
The St. Regis Bal Harbour, Starwood has completed over US$1.5 operate a predominantly managed business where we are responsible for
billion of hotel asset sales over the last three years. operating the hotel on behalf of our owners. We adapt this business model
by market as necessary; for example, we also have managed leases
Meanwhile in May this year, Hilton sold its Sydney Hilton Hotel
(properties structured for legal reasons as operating leases but with the
to Chinese investment house Bright Ruby, for $442 million, with
same characteristics as management contracts), partnerships and
Hilton continuing to manage the property, subject to a long term
joint ventures.
management agreement. Hilton expects to use the proceeds of the
sale, net of transaction costs, to further reduce long-term debt, the Some 84 per cent of IHGs portfolio is franchised, 16 per cent
company said, upon announcing its quarterly results. Internationally, is managed and less than one per cent is owned or leased. IHG
Hilton also recently completed the US$1.95 billion sale of its flagship further disclose that in 2014, over 90 per cent of their operating
hotel, the Waldorf Astoria New York, to Chinas Anbang Insurance profit was generated from management and franchise contracts.
Group and again subject to a long term management agreement. In addition, approximately 85 per cent of fee-based income was
derived from hotel revenues, and only 15 per cent was derived from
Similarly, InterContinental Hotels (IHG) discloses they predominantly
management fees linked to hotel profits. IHG promote the asset-light
franchise their brands to, and manage hotels on behalf of, third-
approach, and franchised and managed business model on the
party owners. Their website details, Our asset-light strategy enables
basis that:

It is highly cash-generative, with a high return on Wyndham Hotel Group, a subsidiary of Wyndham Worldwide,
capital employed announced in February this year that it had acquired Dolce Hotels
and Resorts, with a portfolio of 24 properties and over 5,500
IHG benefits from the reduced volatility of fee-based income
guestrooms across seven countries in Europe and North America,
streams and allows the company to focus on growing fee
for $57 million in cash. It was stated this acquisition is consistent
revenues and fee margins with limited requirements for
with Wyndham Worldwides core asset-light strategy, and allows
IHGs capital.
Wyndham Hotel Group to expand its managed portfolio by nearly
As highlighted above, international chains have built massive 40 per cent with a significantly larger presence in the group and
goodwill around their brands which they have been able to sell for a meetings segment.
fee. However, over the past few years the major brands have been
In the last few years, Marriott has acquired Spains AC Hotels and
confronted by two significant forces of competition in the form of
South Africas Protea Hotels. In an effort to continue their global
Airbnb and the emerging hotel companies that are substantially
expansion, Marriott officially announced the acquisition of Canadas
Asia based that have a greater inclination to utilise their balance
Delta Hotels and Resorts in January this year. The Delta brand
sheets to build portfolio scale. In response we are seeing the
comprises 38 hotels in more than 30 cities across Canada.
major international companies also open up their balance sheets
by buying into regional chains (for example Marriotts acquisition In May 2015 Hyatt Hotels Corporation President and CEO, Mark
of Delta Hotels in Spain, and Wyndham acquiring Dolce Hotels Hoplamazian noted that in the past Hyatt had acquired brands
and Resorts detailed further below) and buying into Airbnb type to convert the hotels to existing Hyatt brand, such as its buy of
companies. For example, Hyatts participation in a fund raising for AmeriSuites and conversion to Hyatt Place. The CEO has mentioned
Onefinestay which is a UK based company described as an up that Hyatt would now be willing to take this a step further and
market competitor to Airbnb. Also, Wyndham has invested in UK consider purchasing further brands to complement the existing suite
based Love Home Swap which is a subscription service allowing of Hyatt brands.
home owners to swap their homes.

Metro Office
HOTELS
In contrast to its peers, Accors strategy has recently proven to be Outlook

an exception. In late 2013 Accors CEO and Chairman, Sbastien
The emerging new Asia based hotel companies with large
Bazin, reorganised Accor into two divisions. The first, HotelInvest,
balance sheets will continue to acquire one off hotels in strategic
acts as a property investor. The second, HotelServices, runs hotels
locations but ideally they are looking for platforms in the form
and manages brands but leaves the property ownership to another
of hotel property portfolio that offer either vacant possession or
entity. Accor have coined the expression asset right to describe
management company platforms. Similarly, the established and well
their strategy. In February this year, Accor said that its restructure
recognised branded hotel companies are less inclined to acquire
had paid off in 2014, with net profits up 77 per cent year on year on
one off hotel properties but they too are willing to use their balance
the back of strong performance across its business.
sheets to acquire hotel management companies that may or may
In terms of the locally based hotel management companies, Mantra not have a real estate component.
Group is the second largest accommodation operator in Australia
Clearly, we can anticipate further consolidation amongst hotel
and states in their investor information they have a capital light
management companies as the existing larger players (established
business model with a diversified exposure to both business and
brands and emerging hotel companies) compete to take control of
leisure markets.
more and more hotels and in turn more and more customers with
Emerging owners and brands a view to strengthening the reach of their loyalty programs and also
deliver reduced distribution costs through enhanced portfolio scale.
In relation to the major emerging hotel companies, rumours have
We can particularly anticipate that regional brands (generally +5,000
been circulating regarding the merger of Jin Jiang (parent company
rooms and operating predominantly in one country or limited
of Jin Jiang Hotels and Interstate Hotels) with another Chinese
number of countries within a concentrated region) are now under
group (Plateno) to form China (and the worlds) largest hotel
considerable scrutiny from both emerging hotel companies as well
management company. Jin Jiang had also been mentioned in press
as the established international brands.
reports as a potential acquirer of Starwood. Jin Jiang also recently
announced the purchase of a majority interest in Vienna Hotels, On a global basis, we can easily predict an increase in transactional
which despite the name is actually a Chinese company with nearly activity for regional hotel companies. This will be on the back of
500 hotels. broadened buyer interest together with a realisation by the regional
players that scale is important in the context of distribution and
Additionally, in February this year it was announced that Chinas
customer expectations for technology and the like and maybe it is
richest man is not only buying and developing hotels in Australia,
better to join them rather than fight them.
he will also launch Wanda hotel brands at new ventures proposed
for Sydney and the Gold Coast. Wang Jianlin, chairman of the
listed Wanda Group, is likely to brand the hotel he is developing
at Sydneys Gold Fields House a Wanda Vista. It is also likely that
the $970 million hotel and apartment development planned for
Queenslands Gold Coast will also be a Wanda Vista property. This
decision is conducive to meet the needs of the mainland Chinese
tourists that are increasingly visiting Australia. Wanda currently
has 59 five-star hotels in China and expects to expand that to 100
properties this year.
In addition, LOTTE Hotels & Resorts are currently operating

18 properties across five countries globally and have 16 more
properties in the pipeline. LOTTE Hotels & Resorts have secured
their brand equity by way of their award-winning five star
properties. Their first luxury and overseas hotel in Russia has
been in the spotlight after being recently awarded with the Prix
Villegiature Awards Best Hotel in Europe. Lotte has been rated
as the best hotel in Korea by numerous prestigious magazines,
including Conde Nast Traveler, Global Traveler, Business Traveller
(Asia Pacific), and Trade Travel Gazette.
This is a sign of things to come for the Australian hotel market with
more of the emerging international hotel companies likely to enter
Hotel Development Site, Sydney
the market in the years to come. Sold by Colliers International

Research and
Forecast Report
Second Half 2015
SPOTLIGHT ON TASMANIA
By Guy Wells visitor expenditure has risen from $1.732 billion to $2.239 billion or
Manager, Transaction Services | Hotels 29 per cent in the same timeframe.
guy.wells@colliers.com
VISITATION TO TASMANIA
The most recent Tasmanian Tourist Snapshot (showing year end

1,200,000
March 2015), as released by Tourism Tasmania, shows tourism 1,000,000
within Tasmania has continued to witness increased visitation 800,000
600,000
over the past 12 months. A record 1.10 million visitors to Tasmania 400,000
were recorded, which is a 4.17 per cent increase in visitation 200,000
numbers compared to the previous 12 month period. Interestingly, -

2008
2009
2010
2011
2012
2013
2014
2015
a significant growth sector was international visitation increasing
Total Visitation Domestic Visitation International Visitation
by 28.23 per cent over the previous 12 months, albeit coming off
a lower base. The growth in visitation bodes well for the state,
Source: Colliers Edge / Tourism Tasmania
given the reliance on tourism as a contributor to Gross State
Product, and sets the state on track for its aim of 1.5 million Visitor nights (interstate and international) have also increased from
visitors by 2020. In this article, we look at the growth in tourism 7.72 million nights in 2012 to 9.55 million or 24 per cent. However,
and visitation and also what will continue to drive visitation to the average spend per night has only increased at nine per cent, while
Apple Isle both from domestic and offshore visitors. average length of stay has deviated between 8.6 and 9.1 nights in
the same period. With the increase in visitation and visitor nights,
Current trading status the most recent Tourism Info Monitor (TIM), a regular quarterly
In addition to the increase in interstate and international visitation survey, shows that 88 per cent of people who visited Tasmania in
witnessed to March 2015, there has also been a significant increase the past 12 months ranked the state as the most appealing holiday
of 17 per cent recorded in intrastate overnight trips, resulting in destination in Australia and New Zealand. The increase in visitation
some 1.3 million trips. Some 49 per cent of tourists (intrastate, from international visitation bodes well for the state in light of the
interstate and international) were visiting for holiday purposes. This decreasing Australian dollar.
figure compares to 46 per cent in 2013 and 47 per cent in 2014 and Hotel occupancy has witnessed some of the strongest conditions
since the early 2000s when records began. The months of
November, December and January saw occupancy rates well
above that in recent years with the quarter to January showing
rates at 80.6 per cent as compared to 77.1 per cent at the same
time in 2013-14. Promisingly, the June figures also witnessed an
increase to that of the previous relevant quarter, increasing from
63.19 per cent to 66.4 per cent across the state. With an increase in
occupancy, the state also benefitted from an increase in room rate
and RevPAR. The June figures released by the Tourism Hospitality
Association show an overall increase in occupancy of 5.5 per cent
over the previous month of June, whilst average annual occupancy
has witnessed a 2.3 per cent increase. The table below highlights
performance for the year to June 2015 for Tasmanias main
Tourism regions (Hobart is included in the South Region).
New Territory from Old Ground Macquarie Point Masterplan
Supplied by Macquarie Point Development Corporation

Metro Office
HOTELS
AVG OCC AVG OCC AVG ROOM AVG ROOM

REGION AVG YIELD 2014 AVG YIELD 2015
(JUL 13 - JUN 14) (JUL 14- JUN 15) RATE 2014 RATE 2015
South 78.42% 79.00% $174.21 $179.21 $137.82 $143.48
North 66.46% 69.10% $151.24 $141.40 $95.10 $100.41
North west 47.70% 53.20% $136.24 $139.02 $66.73 $73.98
Tasmania 69.29% 71.57% $160.73 $163.78 $112.66 $119.12
The graph below reflects the growth in annual occupancy rates accessibility, the proposed development of Hobart Airport
across the relevant regions in Tasmania since June 2012, with the along with the continued growth to Launceston Airport will be
overall occupancy increasing from 67.5 per cent to 71.6 per cent in critical infrastructure projects going forward. Both Hobart and
the corresponding period, in the same period, annual average room Launceston Airport have witnessed solid growth since 1995
rate has increased by $12.76 or 8.4 per cent over the four year according to data sourced from the Bureau of Infrastructure,
period. Of note the northern region has increased from 63.1 per Transport and Regional Economics (BITRE) as reflected in the
cent in 2012 to 69.1 per cent in June 2015. graph below:
AVERAGE ANNUAL OCCUPANCY AIRPORT PASSENGER MOVEMENTS

90%
4,000,000
80% 3,500,000
70% 3,000,000
60% 2,500,000
50% 2,000,000
40% 1,500,000
30% 1,000,000
20% 500,000
10% -
0% 2005
2007
2006
2008
2009
2011
2010
2012
2013
2014
Jun-12
Jun-13
Jun-14
Jun-15
Total Visitation Hobart Launceston

Tasmania South North North West
Source: Tourism Hospitality Association Source: BITRE
Upcoming development
The uplift in visitation to Tasmania has resulted in increased
interest from developers and hotel investors. Furthermore,
the visit, albeit for a short time, from the Chinese President, Xi
Jinping, appears to have highlighted the states potential to tap
the China inbound market. The aggressive push witnessed by
the Singapore based Fragrance Group, with the acquisition of
a number of sites for the development of a 296 room hotel in
Macquarie Street, Hobart, appears to be the beginning of a new
wave of development that will enhance Hobarts room inventory.
Other major proposed developments include a Crowne Plaza
atop the Myer development (circa 187 rooms), a 225 room
hotel/serviced apartment development on Macquarie Street, the
Macquarie Wharf (Mac 01) development to comprise a 113 room
4.5 star hotel, and the 115 room hotel on Argyle Street adjoining
the hospital are all approved or under development. The ability
to sustain this development and further drive room rate and
occupancy appears intrinsically tied to the 1.5 million visitor target
by 2020, and while the state witnesses periods of low occupancy,
peak periods run near capacity. The proposed development and
master plan of Hobart Airport will further drive visitation into
the future.
Airport overview
Approximately 90 per cent of visitors to Tasmania arrive via air,
with the Spirit of Tasmania also providing valuable accessibility.
Considering the importance of air travel to Tasmanias Peppers Cradle Mountain Lodge
Valued by Colliers International

The recently released Preliminary Draft 2015 Master Plan of
Hobart Airport outlines the short, medium and longer term plans
Tourism is at the forefront of the
for the airport site. Whilst still in the review stages and open for
public comment, it provides an interesting insight into the future Tasmanian economy and is a good news
travel expectations and traffic into Hobart Airport. Hobart airport story for the current Government. Whilst
has achieved annual average growth of 2.6 per cent over the
past five years, even with the withdrawal of Tiger services in the Premier continues to hold the Tourism
2012. Looking forward, the expectation of increased passenger portfolio, there will be a focus on tourism
movement is significant and based upon a number of varying
factors. It is projected that some 4.6 million passengers will travel
based activity and development which, in
through Hobart Airport by FY35, as compared to 2.08 million turn, can only lead to increasing visitors.
in FY14. The graphic below provides an outline of the
passenger forecast. Lyndon Jago
HOBART AIRPORT ANNUAL PASSENGERS Founder/owner
Stay Tasmania
Forecast
5,000,000
4,000,000
Key international source markets
3,000,000
2,000,000 Considering the increase in international visitation to Tasmania,

1,000,000 it is worth reviewing the source markets for these visitors and
-
growth in specific markets. Interestingly, 2015 witnessed a
FY20
FY35
FY10
FY11
FY12
FY13
FY14
FY15
significant increase in visitation from tourists of Asia origin. The

Annual Passengers
following graph shows Asia visitation increased 32 per cent over
Source: Hobart International Airport Master Plan the past 12 months, and has witnessed an average growth rate
Reflecting the projected growth in visitation to Tasmania, Qantas of 23 per cent since March 2012. The most recent data has been
has recently announced the addition of a further 78 flights into driven by visitation from Chinese tourists increasing by 49 per
Hobart over the Christmas period, which will offer an additional cent to be the dominant source market for international tourists.
14,000 seats over this period. This increase in flights, from Other key source markets include the United States and United
Melbourne, Sydney and Brisbane is anticipated to put upward Kingdom, contributing 12.2 per cent and 11.8 per cent respectively.
pressure on rates and occupancies on the already busy Hobart Tasmanias share of international visitors to Australia has always
hotels over the December-January period. been in the mid two per cent range but the period to March 2015
witnessed an increase of three per cent.
The future passenger growth is forecast to increase from both
ORIGIN OF DOMESTIC VISITORS TO TASMANIA
domestic mainland flights together with the commencement of
450000
international flights. At present there are no direct international 400000
commercial flights into Tasmania. The current runway length at 350000
300000
Hobart airport of 2,251 metres can cater to direct flights from
Number of visitors
250000
mainland destinations as far as Darwin, Cairns and Perth along 200000
with locations within New Zealand but it is not adequate for 150000
100000
larger aircraft such as Boeing 787 and 777 capable of flying from 50000
South Asia destinations. However, a runway extension at Hobart 0

VIC NSW QLD SA WA ACT NT
airport is to be undertaken which will increase the length of the YE March 2011 YE March 2012 YE March 2013 YE March 2014 YE March 2015
runway by 500 metres. A further proposal exists to redevelop the Source: Tasmanian Tourism Snapshot/Colliers Edge
passenger terminal. These works are scheduled for completion

Regional visitation
in 2017. The extended runway will allow access to south Asia
locations and airport forecasts have projected international flights Not only has the city of Hobart and major townships benefitted
to commence in 2019. The projections surrounding international from increased visitation, visitor numbers to all four tourism
aircrafts is stated as conservative with some 20 International regions increased over the past 12 months, with significant
Aircraft Movements projected by 2020 and 35 by 2025, this increases of 10 per cent to the Cradle Coast (north west) and
figure increases to 90 aircraft movements by 2035. a 16 per cent increase to the East Coast, reflecting the mobility
of tourists to Tasmania. The well recognised natural beauty of

Metro Office
HOTELS
Tasmania and wilderness areas create further opportunities to Tasmania or 300,900 people (excluding Tasmanian visitors)
into the future as overall visitation grows. Visitation to all four visiting the complex. The introduction of new events and festivals,
regions across Tasmania by interstate or international visitors has such as MONA FOMA and DARK MOFO, continues to appeal to a
increased by more than 50,000 people since 2012. This leads to wide spectrum of visitors and draws new tourism into Tasmania.
the requirement for further services and drives opportunities for According to the Tourism Tasmania MONA Visitor Profile, in the
operators to capitalise on new visitors and increased patronage. year ending June 2014, some 16 per cent of visitors to MONA
indicated they came to Tasmania because of MONA.
Development in natural and wilderness areas, always considered
a topical subject in Tasmania, has been highlighted by the A snapshot of the top ten visitor attractions is provided below. It
current state government as an opportunity to grow visitation is interesting to note that aside from the top two attractions, the
to Tasmania, generate employment and stimulate economic majority of the other most visited attractions are nature based,
development. A recent Expressions of Interest was undertaken underlying the appeal of Tasmanias natural environment.
by the state government requesting proposals for new sensitive
TOP TEN VISITOR ATTRACTIONS
and appropriate tourism experiences and infrastructure to realise Saturday Salamanca Market
the tourism potential in natural areas. Some 37 expressions of MONA - Museum of Old and New Art
Mount Wellington
interest were received with 25 participants invited to proceed
Port Arthur Historic Site
to Stage 2, covering various experiences and developments Cataract Gorge
across Tasmania from guided walks to eco-resort developments. Freycinet National Park
Cradle Mountain/Valley
The ability to capitalise on the true natural beauty of Tasmanias Royal Tasmanian Botanical Gardens
wilderness, whilst maintaining the pristine and untouched appeal Tasman Arch/Blowhole
is the balance that needs to be achieved, so that Tasmanias Bay of Fires
0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000

strengths can not only benefit from tourism, but be retained and Apr 2013 - Mar 2014 Apr 2014 - Mar 2015
protected for generations to come. Source: Tasmanian Visitor Survey (TVS Analyser)
Tourism drivers
The Museum of Old and New Art (MONA), located in Hobart has
become the second most visited attraction in Tasmania, behind the
Salamanca Markets also in Hobart. This is truly an outstanding
TFE Hotels is very optimistic about
result for a privately operated museum and attraction. The growth the Hobart market. We currently operate
in appeal of MONA is reflected in some 28 per cent of visitors
two Travelodge hotels in Hobart, one
in Macquarie Street and the second at
the airport. We expect over 5% RevPAR
growth this financial year, following on
from a 9% growth in the previous financial
year. The opening of the new Vodafone
offices in the city, with almost 10,000m
of space, is another significant event for
the city. This may be the catalyst for other
corporates to consider moving offices
to the capital. TFE hotels is currently
considering adding a Vibe Hotel in Hobart
into its portfolio.
Michael Herman
Executive Development Manager
TFE Hotels
Salamanca Place

Research and
Forecast Report
Second Half 2015
LIFESTYLE HOTEL BRANDS

Outlook for Australia
By Gus Moors Most major international chains now have at least one lifestyle
National Director | Hotels brand catering to a broad range of travel budgets from luxury
gus.moors@colliers.com to mid-scale sectors. Starwood arguably had the first lifestyle
brand in W, and has now added two further entrants being Aloft
Lifestyle hotels are the new black, but defining the concept is and Element. Hyatt has Andaz and Hyatt Place whilst Marriott
not straightforward. The US based Boutique & Lifestyle Lodging offers Autograph Collection, Edition, AC and Moxy. IHG has Indigo,
Association defines the concept as A property that combines Shangri-La has Hotel Jen and Hilton offers Canopy. The domestic
living elements and activities into functional design that gives guests brands have also identified this trend with Rydges offering QT and
the opportunity to explore the experience they desire. Elsewhere it Atura and TFE revitalising Vibe.
is described as Prescribed franchised products that are adapted to
In an increasingly crowded hotel operating environment, Lifestyle
reflect current trends. Wikipedia notes they operate off the idea that brands appear to have strong cut-through. A recent study in the
each individual is heavily influenced by distinctive characteristics of US found demand in the Lifestyle segment grew at an annual
the local precinct, based on their choices, experiences, and background average of 20 per cent between 2009 and 2014, compared to
(e.g. ethnicity, social class, subculture, nationality, etc). Lifestyle brands the overall US hotel demand growth of 4.2 per cent. On the
focus on evoking emotional connections between a consumer and that supply side, groups such as Marriott note that 50 per cent of their
consumers desire to affiliate him or herself with a group. In short it European room inventory fits into the lifestyle category, compared
is a form of self-expression, where customers believe their identity to 15 per cent worldwide, suggesting Europe is leading the way
will be reinforced if they publicly associate themselves with a lifestyle for many of these groups.
brand. The individual nature of Lifestyle hotels was recently well
described by an international operator as being hotels offering
a guest experience that cannot be interpreted in a brand
standards manual.
Perhaps the simplest way to describe lifestyle brands are that

they are chain operated but draw on many of the attributes of
boutique hotels being non-conventional, intimate and offering
a high level of design content. Overlaying all of these boutique
characteristics, are the chain benefits of loyalty programs,
powerful distribution and economies of scale. In terms of
product, the emphasis is less cookie-cutter consistency and
more on bespoke design often heavily influenced by distinctive
characteristics of the local precinct. Rooms are functional
and comfortable, whilst the public areas tend to focus on
communal spaces that bring travellers together funky bars,
public lounge areas and small meeting spaces. Guest service
standards are more relaxed than the traditional brands but also
more empowered and multi-disciplined, utilising technology to
personalise and customise guest experiences. Pier One, Sydney Harbour, Autograph Collection

Metro Office
HOTELS
Pier One, Sydney Harbour, Autograph Collection

Operating agreement negotiated by Colliers International
This impressive level of growth has been aided on the supply gain a foothold in key CBD locations particularly in Sydney and
side by new hotel construction which has substantially ramped Melbourne. Further to this, we view Australia as being a relatively
up in recent years after a long hiatus. On the demand side, these consolidated hotel market dominated by the chains, especially in
new brands have been aimed primarily at Millennial generation CBD locations. Noting that many of the mainstream brands are
(or Gen Y, born between 1981-1994), or at least those who already present in these markets, the growth for the chains is
consider themselves young-at-heart, and are targeting them therefore likely to come in the form of their Lifestyle brands.
at a time when this group is earning disposable income. As a
The challenges for these new brands will be developing sufficient
broad generalisation, this generation are better educated, more
critical mass to build brand awareness. Building and supporting
widely travelled and actively seeking unique experiences. While
brands is an expensive business and operators will need to be
previously hotels actively marketed the benefits of international
confident they can secure sufficient opportunities in order to
consistency to consumers, this new generation of traveller
allow the brand to grow and succeed. Developers seeking to
actively rejects uniformity and focus instead on experience and
engage with operators to sign up one of these new brands should
exploration. This shift is a direct consequence of the rise of
appreciate they will be playing a pioneering role in growing the
social media, and its importance to these Millennials. Collecting
brand across the Australian marketplace. Operators generally
experiences, rather than conspicuous consumption is the key for
acknowledge this pioneering role and are prepared to offer
this group who value authenticity and localised experiential travel.
attractive management agreement terms in return. In summary,
Given these international trends the question is whether we are likely to see more Lifestyle brands enter the Australian
these Lifestyle brands will gain traction in the Australian hotel market, as chains push these products to meet the changing
market? Whilst our markets are much thinner, many of the customer demographics. The speed at which these brands are
fundamentals are the same as in the US and Europe low rolled out will largely rely on how long the current development
cost of capital, increased developer appetite to invest into hotel cycle continues and the availability of suitable sites at prices
new builds/conversions and a plethora of brands desperate to viable for hotel development.

Research and
Forecast Report
Second Half 2015
HOTEL PERFORMANCE
INDICATORS
Are our traditional measures still appropriate?
By Gus Moors Again in simple terms, it determines room revenue on a per room
National Director | Hotels basis across total room inventory.
gus.moors@colliers.com RevPAR continues to be the most common assessment criteria
within the hotel industry and is widely used by hotels to compare
There are a series of tried and tested metrics for evaluating hotel
themselves to a basket of competitors (through tools such as
trading performance but changes in the operating climate suggest
STR) or the broader market in general through Australian Bureau
we should be looking at new indicators to gauge performance.
of Statistics (ABS) statistics. Whilst it enables a property to
This article examines current KPIs and suggests a series of benchmark rooms revenue performance, it ignores other revenue
new metrics. derived from the property and does not address the key area of
Current indicators profit performance.
Occupancy, Average Room Rate (ARR) and Revenue per Available On the topic of profit, the most common metric used is Gross
Room (RevPAR) are the most widely used revenue metrics in the Operating Profit (GOP) margin, expressed as a percentage of
total hotel revenue. Hotel management tend to focus on this
industry. As a quick summary, these are calculated as follows:
line in the hotel trading statement, despite the fact there are a
Occupancy percentage = Paid Rooms Occupied/Rooms range of other costs that fall below the GOP line. The rationale
Available for any given period day, week, month, year. is that these other expenses are outside managements control
because they are either contingent on pricing and imposition by
Average Room Rate = Rooms Revenue/Paid Rooms Occupied.
statutory authorities (land tax, rates) or they are of an ownership
Put simply, it is the average rate achieved for the total number of
basis (insurance management, allocation to FF&E reserve).
rooms sold, regardless of their size or position in the hotel.
Furthermore, due to the varying nature of hotel management
Revenue per Available Room = Total Rooms Revenue/Total fees the GOP figure measured should be before base and
Rooms Available and expressed as a dollar figure. A shortcut incentive fees.
method of the calculation is Occupancy percentage x ARR.
Alternate indicators and reports
Whilst these current metrics will always remain important
measures, outlined below are a range of alternative indicators that
are worthwhile measures for assessing hotel performance.
NRevPAR (Net RevPAR) = Net Rooms Revenue/Total

Number of Rooms Available
NRevPAR is a more recent measure similar to RevPAR except
it deducts the costs associated with generating the gross room
revenue, namely global distribution costs, operators reservation
charges and travel agency commissions.
With the huge increase in bookings from Online Travel Agents

(OLTA) and the consolidation occurring in this area leading to
Mercure Sydney, Potts Point increased travel agent commission rates, it is becoming vital to

Metro Office
HOTELS
understand the costs associated with each of these distribution investment than a four to five star property with higher average
channels. A focus on NRevPAR drives home the need to manage room rates, but less overall profit for the size of the building. A
hotel inventory to ensure the hotel is promoting the most cost more universally tracked profit per square metre metric will
effective distribution channels. also help the decision of whether to build hotel rooms or
serviced apartments.
Gross Operating Profit per Available Room (GOPPAR)
GOPPAR shows a hotels ability to produce income before the Profit retention and cost recovery
deduction of management fee charges and ownership costs. It A final metric that is very useful in gauging managements
measures managements ability to produce profits by generating performance to changing market circumstances is the Profit
sales and controlling the operating expenses over which they Retention or Cost Recovery ratio. These ratios measure actual
have control. performance relative to budget or last year and are calculated in
GOPPAR considers profit in relation to the number of available the following manner:
rooms, but also takes into account revenues from other sources Profit retention
such as food and beverage outlets, conference facilities,
If Actual revenue is greater than Budget, then the formula =
day spas etc.
(Actual GOP Budget GOP)/(Actual Revenue
GOPPAR is a number that can be benchmarked across Budget Revenue)
comparable properties (in terms of relative size and facility
Cost recovery
offering) and is also a number that can be tracked overtime
If Actual revenue is less than Budget, then the formula =
to identify positive or negative trends at a property.
1 (Actual GOP Budget GOP)/(Actual Revenue
Profit per square metre of hotel Budget Revenue)
In other property asset classes, the value and the income of
Whilst there are a range of nuances to gauging what is an
a building on a per square metre basis is a critical measure.
appropriate Retention or Recovery ratio, a broad rule of thumb is
Hoteliers on the other hand are rarely aware of the Gross Floor
50 per cent for both. In other words, if revenue goes up $100 on
Area (GFA) of their property. It is perhaps important for hotels
budget, you would expect GOP to go up by at least $50 on budget.
to fall into line with the other property classes by tracking their
On the flip side, if revenue fell $100 relative to budget, you would
profit per square metre of gross building area. This will help
only expect to see GOP drop $50 to budget. As a quick high level
portfolio owners benchmark returns across all the various asset
assessment, this metric indicates how well the hotel managed its
classes they own, as well as assisting developers in weighing up
costs relative to shifts in its revenue base and whether there is a
the highest and best use for a site. It will also be an important
need to dig further into certain sections of the profit and loss to
benchmark when comparing different hotels.
identify cost savings.
For example, a hotel achieving high profits per square metre with
smaller rooms and smaller floor plate may prove to be a better
Sydney Conference and Training Centre


Research and
Forecast Report
Second Half 2015
HOTEL REFURBISHMENT
Michael Thomson Other areas of the hotel for refurbishment
National Director, Valuations | Hotels
Food & beverage facilities
The upgrade of food and beverage facilities can assist in allowing
When contemplating a hotels refurbishment the main a hotel to charge more for room rates through helping it re-
considerations are timing, disruption to business, return on position itself. Attracting an external market has traditionally
investment and scale of the refurbishment. been a challenge for hotel restaurants as well as maintaining a
good capture rate for hotel guests. This is particularly the case
Types of refurbishment programs for properties located in central business districts, where there
are generally plenty of close-by competing restaurants. Hotel
Guest room soft refreshment is generally undertaken every five
restaurants generally attract a more fickle market and need to
to seven years and involves replacing soft furnishings such as
reinvent themselves on a regular basis they also operate on
curtains; carpets and reupholstering to ensure the hotel remains
much lower profit margins than the rooms department. One
competitive within its market. In extraordinary markets such as
option can be to lease out to a third-party specialised restaurant
what resulted in the Perth hotel market from the mining boom
operator, although there are risks with this scenario, particularly
in Western Australia, owners and operators have typically not
in relation to ensuring that the guests breakfast and in-room
wanted to close rooms to refurbish, and the life of the fit out is
dining requirements are adequately met.
generally extended. However, with the proposed pipeline of new
supply increasing in most Australian state capital cities, now is an
important time to be considering refurbishment to ensure a hotel
is not competitively disadvantaged by new inventory with superior
technology and modern furnishings.
A hard refurbishment generally involves taking a guest room back

to its shell condition, and can include installing new bathrooms.
This is a much more extensive process which may lead to
rebranding and repositioning of a hotel. Such a program could
involve the creation of new guest rooms from redundant space,
changing room layouts and sizes and introducing new guest
facilities, including IT and in-room entertainment.
Refurbishment of guest rooms

The rooms department for a hotel is its most profitable, and
logically upgrades to hotel rooms will generally provide the best
return on investment. In our experience this is followed by the
importance of the arrival experience and lastly food and beverage.
However, to ensure the guest experience is consistent and
especially if guest rooms have undergone a hard refurbishment,
then it generally makes sense to carry the refurbishment through Next Hotel, Brisbane
to other areas of the hotel. Valued by Colliers International

Metro Office
HOTELS
Haven Inn, Glebe

Refurbishment asset managed by Colliers International
Conference facilities overall competitor hotel market is in a particular cycle. Several of

Modern conference facilities are an important generator of Australias state capital markets will be experiencing significant
revenue and typically more profitable than a hotels restaurant. increases in supply over the next few years, and logically older
Capital expenditure requirements should be less onerous with stock should be looking to coordinate their refurbishment with the
an emphasis on repainting and replacing of soft furnishings as opening of new supply to maximise their competitiveness.
technology is typically leased from a specialist operator. The impact of refurbishment
Lobby and reception area It is difficult to make definitive statements on the impact
In many ways a hotels reception is its shop window, and as of refurbishment on a hotels performance as this will be
the first experience for a guest or potential guest, is vital in the impacted by the market the hotel competes in, the scale of the
positioning of a hotel. Any capital expenditure spent here is very refurbishment and the amount of new competitor supply entering
visible to the market, although not directly related to revenue the market. However, anecdotal evidence currently suggests in a
generation. strong market like Sydney, room rate growth of 10 per cent to 15
per cent is not unrealistic. In weaker markets it may be more a
Timing of the hotel refurbishment programme question of helping to maintain rate, rather than delivering growth.
The timing of a hotels refurbishment as well as reflecting the life
cycle of the individual hotel, also needs to consider where the

Our experience
IN THE LAST 18 MONTHS
sold
34 properties with a value in excess of $1 billion.
The Westin Sydney Bell City Hotel Mercure Sydney, Potts Point Savoy Tavern
Sydney, NSW Preston, VIC Sydney, NSW Melbourne CBD, VIC
$445.3 million $142.8 million $131 million $44.5 million
Prime 5 star hotel of 416 rooms 844 room hotel, 5,000sqm office 4 star hotel of 227 rooms acquired Operating tavern acquired as hotel
tower and DA for residential for residential conversion development site
development
Darwin FreeSpirit Resort, Hotel development site City Hotel Hotel Development Site
Darwin, QLD Sydney CBD, NSW Sydney, NSW Brisbane, QLD
$23.15 million $22 million $21 million $17.275 million
11.25 hectare resort comprising 1,585sqm hotel development site in 52 room hotel located in the heart of 1,628sqm hotel development site
121 cabins, 20 studio rooms, 265 proximity to Barangaroo Sydney CBD acquired for affordable luxury hotel
powered caravan/camping sites
Haven Inn Travelodge Asia Brand Rights Sydney Conference & Training Paradise Palms Golf Course
Glebe, NSW Asia Region Centre Cairns, QLD
$13.5 million Confidential Sydney, NSW Confidential
Purchasers representative in the sale Sale of brand rights to Asia region for Confidential 18-hole championship golf course,
of 59 room hotel iconic Travelodge hotel brand 3.5 hectare training facility with 56 plus management rights to 48
rooms featuring six conference rooms apartments and 25 hectares of
& nine breakout rooms development land

au.hotels@colliers.com
HOTELS
AUSTRALIA
valued
192 assets with a value in excess of $4.9 billion.
Hilton Hotel Novotel Sydney Manly Pacific Macquarie University Village Next Hotel Brisbane
Sydney, NSW Sydney, NSW Marsfield, NSW Brisbane, QLD
Full Service Hotel Full service hotel Student Accomodation Hotel
5 star hotel with 579 rooms located in Full service hotel with 213 rooms and 894 bed student accommodation 304 room hotel with 48 parking bays,
the heart of Sydney CBD 100 carparks plus big box retail
Novotel Northbeach Marriott Resort & Spa Quest Mackay Intercontinental Hotel & Sanctuary
Wollongong, NSW Gold Coast, QLD Mackay, QLD Cove Marina
Hotel Hotel Serviced Apartments Gold Coast, QLD
4.5 star hotel with 204 rooms 5 star high rise hotel with 329 rooms Mixed use high rise development with Resort/Marina
62 apartments and 115 keys 5 star resort providing 176 guest
rooms and suites
Sheraton Noosa Peppers Cradle Mountain Lodge University of Queensland Stamford Plaza
Sunshine Coast, QLD Cradle Mountain, Tas St Lucia, Qld Adelaide, SA
Resort Boutique Resort Student Accommodation Full Service Hotel
5 star resort providing 176 guest 86 room resort on 11.4 hectares 1,295 bed student accommodation 5 star hotel with 343 rooms
rooms and suites on campus including 21 suites
For more information about Colliers International

and working with us, visit;
www.colliers.com.au
UNRIVALLED EXPERIENCE
With a dedicated team of hotel sales professionals, valuers and advisors,
our strong regional representation enables us to provide local expertise
in a global context. We represent one of the largest and most experienced
teams of hotel specialists across Australia and New Zealand.
We offer a full range Across every

of hotel property hospitality property
solutions... and business type...
Agency sales across all hospitality types Full service hotels and motels
Purchaser due diligence and negotiation Limited service hotels
Sale of hotel management companies Serviced apartments
V
aluation of hospitality property and business utilising Pubs
Australias largest dedicated hotel valuation team Tourist parks
O
perator search, selection and negotiation for management Golf courses
agreements, leases and franchises Marina
Operational reviews Management companies
Debt and equity solutions for property owners and hotel Student accommodation
management companies
Asset management services Everywhere
Research and consultancy services
Development advisory and feasibility 22 offices across Australia
Wholesale funds investment 14 offices in New Zealand
Let us accelerate your success. Speak to one of our Hotel experts today.
e: au.hotels@colliers.com
ASIA PACIFIC
Stephen Burt
Managing Director
+61 418 975 113
DARWIN
Tony West
Director
+61 409 422 458
BRISBANE
Neil Scanlan Baden Mulcahy

National Director National Director
+61 437 700 007 +61 439 034 033
SYDNEY
Michael Thomson Gus Moors Chris Milou Raymond Tran Denise Kirk
National Director National Director Director Manager Analyst
+61 412 053 598 +61 404 005 066 +61 413 615 398 +61 416 180 494 +61 414 708 112
Dean Humphries Jack Charters Nick Thompson

National Director Director Associate Director
+64 21 408 156 +64 21 534 250 +64 27 600 4712
AUCKLAND
Caity Pask
Jacinta Donnelly Vincent Feng Property Analyst/
Valuer Property Analyst Administrator
+64 9 356 8802 +64 21 074 5196 +64 21 112 1988
MELBOURNE
Guy Wells Pat Connolly Will Connolly

Manager Associate Director Manager
+61 405 612 416 +61 459 800 565 +61 432 116 287
We offer a full range of Across every
property solutions... property type...
Agency Sales & Leasing Office
Landlord Representation Industrial
Tenant Representation Retail
Capital Markets Residential
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Project Management
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Property Management
Research
Technology Solutions Everywhere
Transaction Management
Valuation 376 offices worldwide throughout 67 countries
Workplace Strategy 36 offices throughout Australia and New Zealand

www.colliers.com.au
Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend
to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by
various sources and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information,
figures and projections. Colliers International will not be liable for any loss or damage resulting from any statement, figure, calculation
or any other information that you rely upon that is contained in the material. Colliers International 2015.

Hotels RFR Second Half 2015

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Research and

Want better insights, faster? Talk to a Colliers Edge expert today.

Improve your perspective. We have.

Research and Research and Research and Research and

INDUSTRIAL RETAIL HEALTHCARE AND RETIREMENT LIVING CBD OFFICE

Size does matter New breed of tenants

Building scale Changing

Accelerating success. Accelerating success. Accelerating success. Accelerating success.

Hotels | Research & Forecast Report | Second Half 2015 3

4 A Colliers International publication

Hotel property capital

Hotels | Research & Forecast Report | Second Half 2015 5

for the year-to-June 2015 average occupancy across the major

100 Source: STR Global/Colliers Edge

Source: STR Global/Colliers Edge

Average daily rates

6 A Colliers International publication

growth at 20.8 per cent to reach 933,500 closely followed by

SHORT-TERM VISITOR ARRIVALS BY COUNTRY

Hilton Sydney, Sydney CBD Malaysia +6.3%

Hotels | Research & Forecast Report | Second Half 2015 7

DOMESTIC VISITOR NIGHTS

weakened slightly to 33.1 million during the year to June 2015.

involve longer stays and visits to more locations. The strongest

8 A Colliers International publication

INVESTMENT MARKET OVERVIEW

over $100 million. The Australian market continues to attract $1,800

$2,750 Source: Colliers Edge

Source: Colliers Edge

The average value of major hotel transactions so far in 2015

Hotels | Research & Forecast Report | Second Half 2015 9

Annualised Rolling Return %

Databank (IPD), there was a strong improvement in returns -5

The Westin, Sydney NSW

10 A Colliers International publication

AROUND THE NATION

Novotel Brighton Beach 296 4.0 Jan-15 $84.75* $286,318

Market drivers Capital market participants

11 A Colliers International publication

Bell City Preston 828 3.0 Dec-14 $117.00* $141,304

12 A Colliers International publication

Next Hotel, Brisbane 304 4.5 Jan 2015 $103.00* $338,816

Hotels | Research & Forecast Report | Second Half 2015 13

Future supply Leisure destinations have typically seen an improvement in

14 A Colliers International publication

Ibis Budget, Perth 73 2.5 Jan-15 $15.50 $212,329

Hotels | Research & Forecast Report | Second Half 2015 15

Stamford Plaza, Adelaide

16 A Colliers International publication

Australian Capital Territory

Brassey Hotel, Barton 75 3.0 Jun-15 $7.40 $98,667

Hotels | Research & Forecast Report | Second Half 2015 17

HOTEL MARKET INDICATORS - YTD JUNE 2015 LARGEST HOTELS TRANSACTION

SYDNEY CITY MELBOURNE CITY BRISBANE

OCC: 87.1% ( 1.3%) OCC: 85% ( 0.1%) OCC: 72.8% ( 3.3%)

ADELAIDE CAIRNS GOLD COAST

OCC: 76.5% ( 4.2%) OCC: 73.4% ( 8.2%) OCC: 69.9% ( 3.9%)

ADR: $150.99 ( 0.4%) ADR: $122.12 ( 1.9%) ADR: $169.85 ( 4%)

PERTH DARWIN CANBERRA SOLD

TOP 3 INTERNATIONAL VISITOR TRENDS

$33.4 billion of international

How else can we help you?

TOP 5 MARKETS CONTRIBUTING TO AUSTRALIAN TOURISM CHINA TAKES THE LEAD AS

ION 33.2% 27.8%