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MARKET INSIGHTS AUSTRALIA’S HOTEL SECTOR WITH ROB LANGTON
the hotel sector is attractive because it’s a natural hedge against inflation. We’ve done some research both in United States and Australia that suggests that in high inflation times, the net operating income or profit growth of hotels actually outpaces the inflation rate by about 1.4 times. So, it’s not just a saying, it’s actually true and in most major capital city markets across Australia average daily rates have risen quite materially and revenue per available room, RevPAR, which is our key market performance metric. So the hotels in major capital cities, RevPar is up quite materially over the previous corresponding period in 2019 and it’s reasonably consistent across a number of markets around the world. So those inflationary pressures have also pushed the average daily rates of hotels up quite materially. And so, the income levels, even though demand hasn’t returned to the 2019 levels in many markets and specifically in Australia other than Perth and Brisbane, that demand hasn’t returned to 2019 levels. But the actual income that’s being generated from the properties is getting back to and in many cases above 2019 levels. Clearly there’s been a significant influx of capital into Australia from a range of global private equity players and a lot of the investment has been into various real estate asset classes, but I think it’d be fair to say not a lot of investment into the hotel sector. Do you expect that to change and what’s driving that interest in capital from overseas? MICHAEL SIMPSON: If you look at it on the very, very large end, Blackstone’s acquisition of Crown, certainly there was In this insightful discussion with Ready Media Group’s Rob Langton, Michael provides his thoughts on current market dynamics, the major themes driving demand and the key transactions occurring throughout Australia’s hotel industry.
MICHAEL SIMPSON Managing Director, Pacific - CBRE Hotels
In terms of overall sentiment, what’s your assessment of the prevailing market conditions? MICHAEL SIMPSON: So clearly a very negative geopolitical kind of experience for the whole world is the Russia, Ukraine War. Australia’s always been criticized as having the tyranny of distance for people to get to, in this case with issues like that. We’re not insulated from energy price rises or supply chain issues, but certainly we’re insulated to an extent because we’re quite a long way away from there. So we benefit from that. Economic uncertainty is definitely affecting some investors and I think the USA is a bit of a bellwether for that. We’ve seen a substantial decline in real estate transactions in the USA over the last six months and look, a lot of that’s coming from uncertain elements, but also probably the most talked about topic in real estate at the moment, which is interest rate rises, it, it’s a major topic for people, it’s causing a bit of that uncertainty. Nobody knows where it’s going to stop, but people are watching it very, very carefully because of the obvious impact it can have on investment returns. Reflecting on some of the conversations you’ve had with clients, particularly with hotel owners, what are they seeing across their portfolio’s at the moment? MICHAEL SIMPSON: What we’re seeing is, and it’s often talked about, it’s a bit of a cliche, but I think it’s a cliche for a reason that
14 –February / March 2023
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