AUSTRALIAN HOTEL MARKET UPDATE 2015 IN REVIEW. Trading, Development and Investment

Transcription

1 AUSTRALIAN HOTEL MARKET UPDATE 2015 IN REVIEW Trading, Development and Investment February 2016

2 TABLE OF CONTENTS 1. Australian Hotel Markets Snapshot 1 2. Snapshot per Key Australian Market 2 3. Australian Hotel Development Pipeline New Zealand Update Australian Hotel Sales Australian Hotel Yields A Year of Consolidation Are We Talking About the Same ADR? Australian Outlook for CBRE Hotels Services 20 2

3 AUSTRALIAN HOTEL MARKETS SNAPSHOT OCC & ADR CHANGE VS LAST YEAR (Year Ending Dec 2015 vs 2014) Note: in transition means one indicator (OCC or ADR) is positive and the other negative 18% 14% 10% 6% 2% -2% -6% -10% Darwin Gold Coast Adelaide Canberra/ ACT Perth Sydney Hobart Cairns Melbourne -14% Brisbane DECLINE -18% -18% -14% -10% -6% -2% 2% 6% 10% 14% 18% % OCC vs Last Year REVPAR Year Ending Dec 2015 vs 2014 % Change Adelaide -2.3% Brisbane -10.9% Cairns +9.3% Canberra / ACT +5.8% Darwin -15.2% Gold Coast +7.2% Hobart +9.6% Melbourne +3.6% Perth -2.7% Sydney +8.4% Australia +3.2% While there are growing fears that the Australian economy is in for a rough ride in 2016 due to domestic pressures and external factors, such as Chinese growth declining, the tourism industry is not one that is likely to be suffering. With record breaking visitor levels for 2015 came rising occupancy and ADR levels resulting in increases in RevPAR nationally of 3.2%. These gains were not seen across the board however, as Perth and Darwin continue to suffer owing to the mining sector slowdown, and the recent supply increases in Brisbane have put downward pressure on results. Air Asia s decision to stop flying into Adelaide, coupled with the Adelaide Convention Centre having a limited calendar in 2015, have resulted in falling occupancy levels, and thus RevPAR, for the South Australian capital. The Sydney and Melbourne markets show no sign of slowing down, but it is the more regional markets of Cairns, Hobart and Gold Coast that are the standout performers, benefitting from more locals having to holiday at home due to a weakened Australian dollar, and the high levels of overseas visitors. The nation s capital continues to perform surprisingly well, and with the recent announcement by Singapore Airlines to fly there directly, this trend is set to continue for Page 3 1

4 ADELAIDE PERFORMANCE (Year Ending Dec 2015) ADR AU$ OCC 76.8% OCC & ADR CHANGE VS LAST YEAR 7% 5% 3% 1% -1% -3% -5% Q Q Q Q REVPAR AU$ DEMAND for Hotels, Motels and Serviced Apartments (YE Sep 2015) Visitor Arrivals Visitor Nights VS % 13% Length of Stay 25% 2.7 days Note: OCC tracks horizontally and ADR vertically -7% DECLINE -7% -5% -3% -1% 1% 3% 5% 7% % OCC vs Last Year Note: in transition means one indicator (OCC or ADR) is positive and the other negative 87% Domestic Dominant Source Markets 1 1. Victoria 2. New South Wales 3. Queensland 1 Based on visitor nights Source: TRA, CBRE Hotels SUPPLY (YE Dec 2015) International 75% Existing Hotels, Motels and Serviced Apartments: 109 (8,191 rooms) Selected Recent Openings (in Last 12 Months) Visitors ( 000): 1,178 Visitor Nights ( 000): 3,208 VFR: Visiting friends and relatives Peppers Adelaide Hotel keys Sep-2015 Selected Projects Likely to Proceed Purpose of Visit 1 14% 10% 34% 42% Holiday Inn Express Adelaide keys Apr-2017 Aloft Adelaide (New Mayfield) keys Jan-2018 Holiday Business VFR Other The decision by Air Asia to stop flights into Adelaide at the end of 2014 and reduced conference activity at the Adelaide Convention Centre contributed to decreased room demand during The completion of the Adelaide Oval and new footbridge linking the CBD with that facility were significant in terms of attendances to this venue and will increase substantially during The new Adelaide Hospital and adjacent SA University developments will be completed later in 2016 whilst the new 3,500 seat Plenary Theatre and additional function space at the Adelaide Convention Centre will be completed in No new room supply is expected in 2016; this will provide the market an opportunity to consolidate. The relativity of the Australian dollar should see increased domestic travel and low oil prices should contribute to air fare discounting; both are considered beneficial attributes to the Adelaide market. CBRE Hotels anticipates that 2016 will see growth in both ADR and occupancy reflecting a RevPAR increase of 2.5% to 3.0%. Lester Hotel keys 2018 Selected Mooted Projects Sheraton Adelaide keys May-2019 Sofitel Adelaide keys Jun-2019 Adelaide Airport Hotel keys Dec Rebrand / Refurbishment Page 4 2

5 BRISBANE PERFORMANCE (Year Ending Dec 2015) ADR AU$ OCC 74.4% OCC & ADR CHANGE VS LAST YEAR 20% 16% 12% 8% 4% 0% -4% -8% -12% Q Q Q REVPAR AU$ DEMAND for Hotels, Motels and Serviced Apartments (YE Sep 2015) Visitor Arrivals Visitor Nights VS % Length of Stay 19% 29% 2.6 days Note: OCC tracks horizontally and ADR vertically -16% Q % DECLINE -13%-11%-9% -7% -5% -3% -1% 1% 3% 5% 7% 9% 11%13% % OCC vs Last Year Note: in transition means one indicator (OCC or ADR) is positive and the other negative 81% Domestic Dominant Source Markets 2 1. Queensland 2. New South Wales 3. Victoria 2 Based on visitor nights Source: TRA, CBRE Hotels SUPPLY (YE Dec 2015) International 71% Selected Recent Openings (in Last 12 Months) VFR: Visiting friends and relatives Existing Hotels, Motels and Serviced Apartments: 210 (15,835 rooms) Capri by Fraser keys Mar-2015 Selected Properties Under Construction Visitors ( 000): 2,337 Visitor Nights ( 000): 6,042 Purpose of Visit 1 10% 11% 38% 41% Rydges RNA Hotel keys Feb-2016 Holiday Inn Express keys Jun-2016 Business Holiday VFR Other An increase in room supply over and above demand has seen the Brisbane market occupancy levels fall and room rates decline as hotels compete for market share. STR Global results for the 12 months to December 2015 indicate rooms available increased by 6.7% over the same period in 2014, whilst rooms sold increased by 2.4%, resulting in a decline of 4.0% in occupancy. Over the same period, room rates declined by 7.2% with RevPAR reflecting a fall of 10.9%. The was magnified somewhat as results were measured off 2014 results which was boosted by the G20 held in November With a number of new developments under way and significant supply mooted, it is anticipated that ongoing supply will exceed demand for the medium term, resulting in lower occupancy levels and further declines in RevPAR. Over the longer term, however, Brisbane s outlook is considered positive with increased demand being generated by infrastructure development, new supply and world class facilities. Ibis Styles Brisbane keys 2016 Emporium Southpoint keys Dec-2017 W Brisbane keys Jan-2018 Selected Projects Likely to Proceed Westin Brisbane keys Jan James Street keys Sep-2018 Page 5 3

6 CAIRNS PERFORMANCE (Year Ending Dec 2015) ADR AU$ OCC 80.6% OCC & ADR CHANGE VS LAST YEAR 11% 9% 7% 5% 3% 1% -1% -3% -5% -7% -9% REVPAR AU$ DEMAND for Hotels, Motels and Serviced Apartments (YE Sep 2015) VS Visitor Arrivals Visitor Nights +9.3% Length of Stay 45% 55% 44% 56% 3.5 days Visitors ( 000): 1,008 Visitor Nights ( 000): 3,482 Purpose of Visit 1 Note: OCC tracks horizontally and ADR vertically Q Q Q Q % DECLINE -11% -9% -7% -5% -3% -1% 1% 3% 5% 7% 9% 11% % OCC vs Last Year Note: in transition means one indicator (OCC or ADR) is positive and the other negative Domestic Dominant Source Markets 1 1. Queensland 2. New South Wales 3. China 1 Based on visitor nights Source: TRA, CBRE Hotels SUPPLY (YE Dec 2015) Existing Hotels, Motels and Serviced Apartments: 92 (7,352 rooms) Selected Mooted Projects International VFR: Visiting friends and relatives Aquis Great Barrier Reef Resort (8 luxury resorts) 5 7,500 keys % 6% 12% 76% Holiday Business VFR Other Cairns continues to be one of the best performers in the market, exceeding market expectations and recording a strong recovery from a low base. Based on STR Global results for the 12 months to December 2015, RevPAR increased by 9.3% with market occupancy of 80.6%; however, ADR and RevPAR remain well below other destinations. Cairns is currently witnessing a strong rebound in international and domestic tourist arrival numbers as a result of increased air capacity into the region, especially from Asia. There are a lack of developments in the pipeline but recent transactions including the Pullman Cairns International and Pacific Hotel Cairns reflect renewed interest in existing properties and an increase in value levels. Page 6 4

7 CANBERRA / ACT PERFORMANCE (Year Ending Dec 2015) ADR AU$ OCC 73.6% OCC & ADR CHANGE VS LAST YEAR 11% 9% 7% 5% 3% 1% -1% -3% -5% -7% -9% Q REVPAR AU$ DEMAND for Hotels, Motels and Serviced Apartments (YE Sep 2015) VS Visitor Arrivals 6% Visitor Nights 10% Length of Stay 2.3 days Note: OCC tracks horizontally and ADR vertically Q Q Q % DECLINE -11% -9% -7% -5% -3% -1% 1% 3% 5% 7% 9% 11% % OCC vs Last Year Note: in transition means one indicator (OCC or ADR) is positive and the other negative 94% Domestic Dominant Source Markets 2 1. New South Wales 2. Victoria 3. Queensland 2 Based on visitor nights Source: TRA, CBRE Hotels SUPPLY (YE Dec 2015) 90% International Existing Hotels, Motels and Serviced Apartments: 73 (7,032 rooms) Selected Recent Openings (in Last 12 Months) VFR: Visiting friends and relatives Little National Hotel keys Sep-2015 Adobe Narrabundah 4 86 keys Sep-2015 Vibe Hotel Canberra Airport keys Nov-2015 Selected Properties Under Construction Visitors ( 000): 1,090 Visitor Nights ( 000): 2,533 Purpose of Visit 1 14% 33% 7% 46% Business Holiday VFR Other The nation s capital posted increases across the major measures of hotel performance, including occupancy rates at 76.6%, and RevPAR up 5.8% on the same period last year. These increases are driven mainly by domestic visitors, however with the announcement of Singapore Airlines flying direct to Canberra from both Singapore and Wellington, expect to see increases in the number of international visitors in New stock is continuing to come into the market, with three new hotels coming online in the last few months which coincides nicely with the opening of the new Singapore Airline route, so there should be no supply issues for any potential increases in international visitors. Mantra Canberra Hotel keys Feb-2017 Selected Mooted Projects Canberra Bowling Club Hotel TBA 80 keys TBA Campbell 5 TBA 150 keys TBA Malmo Bruce Hotel TBA 60 keys TBA Page 7 5

8 DARWIN PERFORMANCE (Year Ending Dec 2015) ADR AU$ OCC 67.4% OCC & ADR CHANGE VS LAST YEAR 15% 13% 11% 9% 7% 5% 3% 1% -1% -3% -5% -7% -9% -11% Q Q Q Q REVPAR AU$ DEMAND for Hotels, Motels and Serviced Apartments (YE Sep 2015) Visitor Arrivals Visitor Nights VS % 13% Length of Stay 25% 5.0 days Note: OCC tracks horizontally and ADR vertically -13% -15% DECLINE -15%-12% -9% -6% -3% 0% 3% 6% 9% 12% 15% % OCC vs Last Year Note: in transition means one indicator (OCC or ADR) is positive and the other negative 87% Domestic Dominant Source Markets 2 1. Victoria 2. New South Wales 3. Queensland 2 Based on visitor nights Source: TRA, CBRE Hotels SUPPLY (YE Dec 2015) International 75% Existing Hotels, Motels and Serviced Apartments: 44 (5,120 rooms) Selected Recent Openings (in Last 12 Months) VFR: Visiting friends and relatives Argus Apartments Darwin keys Jun-2015 Top End 105 Mitchell Street keys Aug-2015 Oaks Elan Darwin keys Sep-2015 Rydges Palmerston keys Sep-2015 Selected Properties Under Construction Visitors ( 000): 362 Visitor Nights ( 000): 1,799 Purpose of Visit 1 12% 13% 37% 38% Holiday Business Employment Other The Darwin market continues its struggles, with both occupancy rates and ADR falling 7.8% and 7.9% respectively. This in turn has resulted in a further fall of 15.2% in RevPAR compared to The contraction in the mining industry has played a big part in this decline, but so has the increased levels of new supply entering the market. This decline may well be the market normalizing after better than average results during the off-peak seasons in recent years and could be a sign of things to come. Club Tropical Resort Darwin TBA Selected Projects Likely to Proceed 85 Mitchell Street TBA 200 keys Jan-2017 Casuarina Shell Site TBA 175 keys 2018 Gateway Shopping Centre TBA 195 keys Rebrand / Refurbishment 2 Extension Page 8 6

9 GOLD COAST PERFORMANCE (Year Ending Dec 2015) ADR AU$ OCC 72.5% OCC & ADR CHANGE VS LAST YEAR 7% 5% 3% 1% -1% REVPAR AU$ Q Q DEMAND for Hotels, Motels and Serviced Apartments (YE Sep 2015) Visitor Arrivals Visitor Nights VS % Length of Stay 24% 26% 3.5 days Note: OCC tracks horizontally and ADR vertically Q Q % Domestic Dominant Source Markets 2 1. New South Wales 2. Queensland 3. Victoria 2 Based on visitor nights Source: TRA, CBRE Hotels SUPPLY (YE Dec 2015) International 74% Visitors ( 000): 2,079 Visitor Nights ( 000): 7,263 Purpose of Visit 1 13% 6% 2% 79% Holiday Business VFR Other VFR: Visiting friends and relatives -3% -5% -7% DECLINE -7% -5% -3% -1% 1% 3% 5% 7% % OCC vs Last Year Note: in transition means one indicator (OCC or ADR) is positive and the other negative With increased international visitor numbers, the Gold Coast market has recorded an increase in both occupancy and ADR. STR Global results for the year ending December 2015 reflected an increase in RevPAR of 7.2%. This recovery has buoyed investor confidence, with a number of recent transactions reflecting strong growth in value levels. The upcoming 2018 Commonwealth Games will see an expansion of infrastructure including major upgrades to the airport and will spotlight the destination. The Gold Coast hotel market has enjoyed relatively stable supply over the last five years and going forward, the supply outlook looks relatively benign. Increased demand from both domestic and international visitors is expected to result in continual growth in both occupancy and ADR over the short and medium term. Existing Hotels, Motels and Serviced Apartments: 170 (17,004 rooms) Selected Properties Under Construction Jupiter's Casino Hotel Nov-2017 Jewel Luxury Resort Dec-2018 Selected Mooted Projects Orchid Avenue Short Term Accommodation Building TBA Extension Page 9 7

10 HOBART PERFORMANCE (Year Ending Dec 2015) ADR AU$ OCC 81.7% OCC & ADR CHANGE VS LAST YEAR 11% 9% 7% 5% 3% 1% -1% -3% -5% -7% -9% REVPAR AU$ The Hobart market enjoyed a bumper 2015 with average occupancy just below 82% and ADR growing by 3.8% to $164. The average occupancy level is suggestive of a market which operates regularly to capacity. It is these peak trading periods which will provide the platform for demand growth to cater for the new room supply during 2017, 2018 and 2019 which will swell supply by over 36%. The accolade from Lonely Planet which nominated Tasmania as one of the world s must-see regions in its Best in Travel 2015 and the visit in November 2014 by China s President are two important foundations for inbound growth. Increased domestic airline capacity and the introduction of direct international flights into Hobart are considered essential to this market, both are demand sensitive which means that management of Tasmania s tourism becomes the most important ingredient to medium term outcomes. CBRE Hotels pragmatic view is that occupancy levels will decline variously by 5% to 8% over the three year supply period mentioned; the resultant impact on average market RevPAR forecast to fall by 2% to 4% per annum. DEMAND for Hotels, Motels and Serviced Apartments (YE Sep 2015) Visitor Arrivals Visitor Nights VS % 13% Length of Stay 17% 3.1 days Note: OCC tracks horizontally and ADR vertically Q Q Q Q % DECLINE -11% -9% -7% -5% -3% -1% 1% 3% 5% 7% 9% 11% % OCC vs Last Year Note: in transition means one indicator (OCC or ADR) is positive and the other negative Page % Domestic Dominant Source Markets 1 1. Victoria 2. New South Wales 3. Tasmania 1 Based on visitor nights Source: TRA, CBRE Hotels SUPPLY (YE Dec 2015) Existing Hotels, Motels and Serviced Apartments: 53 (2,806 rooms) Selected Properties Under Construction VFR: Visiting friends and relatives Macquarie Wharf Shed Hotel keys Dec-2016 Crowne Plaza Hobart keys Oct-2017 Selected Mooted Projects International HOMO at MONA 4 90 keys May-2017 Former Roberts Building 4 80 keys Aug % Selected Projects Likely to Proceed Visitors ( 000): 690 Visitor Nights ( 000): 2,123 Purpose of Visit 1 1% 10% 16% 73% Argyle Street keys May-2018 Holiday Business VFR Other

11 MELBOURNE PERFORMANCE (Year Ending Dec 2015) ADR AU$ OCC 82.8% OCC & ADR CHANGE VS LAST YEAR 9% 7% 5% 3% 1% -1% -3% -5% -7% REVPAR AU$ DEMAND for Hotels, Motels and Serviced Apartments (YE Sep 2015) Visitor Arrivals Visitor Nights VS % Length of Stay 21% 33% 2.9 days Note: OCC tracks horizontally and ADR vertically Q Q Q Q % DECLINE -9% -7% -5% -3% -1% 1% 3% 5% 7% 9% % OCC vs Last Year Note: in transition means one indicator (OCC or ADR) is positive and the other negative 79% Domestic Dominant Source Markets 1 1. New South Wales 2. Queensland 3. Victoria 1 Based on visitor nights Source: TRA, CBRE Hotels SUPPLY (YE Dec 2015) International 67% Selected Recent Openings (in Last 12 Months) VFR: Visiting friends and relatives Existing Hotels, Motels and Serviced Apartments: 365 (32,032 rooms) BreakFree on Collins keys Jun-2015 Selected Properties Under Construction Visitors ( 000): 5,230 Visitor Nights ( 000): 15,055 Purpose of Visit 1 7% 10% 34% 49% QT Hotel Melbourne keys May-2016 Peppers Docklands keys Dec-2016 Holiday Business VFR Other Demand growth is currently constrained by lack of room supply. All facets of room demand sources are considered strong, with a particular emphasis on inbound tourism. There remains some price sensitivity in the market however with ADR growth in 2015 reflecting an increase over 2014 of only 1.3%. During the period 2017 to 2019 it is likely that an additional 3,500 new rooms will be added to supply; this will test market resilience but provide operators with their first real opportunity to promote Melbourne as a destination with the confidence of sufficient supply to cater for the demand. Nevertheless, we expect occupancy levels to fall from the current (2015) level of 83% to the upper mid 70% levels, given the quantity of new room supply. ADR should register annual growth in the 2% to 3% range. Melbourne s calendar remains the envy of other Australian capital cities with a broad base of international and domestic sporting, cultural and convention based events which has and will continue to drive high yielding opportunities and provide fertile ground for room demand growth. Punt Hill Apartments keys Aug-2017 Selected Projects Likely to Proceed Parkroyal Docklands keys Jul-2017 Four Points Docklands keys Jan-2017 Aloft Melbourne keys Aug Collins Street keys Sep-2018 Crown Resorts Hotel keys Jun Rebrand / Refurbishment Page 11 9

12 PERTH PERFORMANCE (Year Ending Dec 2015) ADR AU$ OCC 81.6% OCC & ADR CHANGE VS LAST YEAR 6% 4% 2% 0% Q DEMAND for Hotels, Motels and Serviced Apartments (YE Sep 2015) REVPAR VS Visitor Arrivals Visitor Nights AU$ % Length of Stay 20% 3.2 days 36% Note: OCC tracks horizontally and ADR vertically 80% 64% Visitors ( 000): 1,401 Visitor Nights ( 000): 4,554 Domestic International Purpose of Visit 1 Dominant Source Markets 1 1. Western Australia 2. Queensland 3. New South Wales 1 Based on visitor nights Source: TRA, CBRE Hotels 12% 9% 37% 42% Business Holiday VFR Other VFR: Visiting friends and relatives -2% -4% Q Q Q % DECLINE -6% -4% -2% 0% 2% 4% 6% % OCC vs Last Year Note: in transition means one indicator (OCC or ADR) is positive and the other negative SUPPLY (YE Dec 2015) Existing Hotels, Motels and Serviced Apartments: 102 (10,345 rooms) Selected Recent Openings (in Last 12 Months) Alex Hotel 4 74 keys May-2015 Hougoumont Hotel 4 92 keys Jun-2015 Como The Treasury 5 48 keys Sep-2015 Selected Properties Under Construction STR Global data indicates that the Perth market continues its slow downward correction process (post GFC) albeit that the $161 RevPAR achieved in 2015 is second only to Sydney. The Perth market commands strong demand from the corporate, domestic leisure and inbound segments. However, it is likely that some 3,000 new rooms will enter the Perth market over the next five years. CBRE Hotels analysis identifies 2017 as a crunch year with approximately 1,000 rooms to be completed. In CBRE Hotels view, the market s capacity to absorb such supply will be constrained by airline passenger capacities in the short term; occupancy levels will decrease to the mid 70% range over the medium term as a consequence of the new supply, however ADR is anticipated to increase at or around CPI largely because of the pricing of these new venues and a strengthening inbound market in particular. Quest West Perth 4 72 keys Jan-2016 Quest East Perth keys May-2016 Westin Hotel keys 2017 Selected Projects Likely to Proceed DoubleTree Perth Waterfront keys Jun-2016 Ritz Carlton Perth keys Jan-2018 Page 12 10

13 SYDNEY PERFORMANCE (Year Ending Dec 2015) ADR AU$ OCC 85.3% REVPAR AU$180.8 OCC & ADR CHANGE VS LAST YEAR Note: OCC tracks horizontally and ADR vertically 10% Q % Q % 4% 2% 0% Q Q DEMAND for Hotels, Motels and Serviced Apartments (YE Sep 2015) Visitor Arrivals Visitor Nights VS % Length of Stay 27% 3.0 days 42% 58% 73% Visitors ( 000): 5,928 Visitor Nights ( 000): 17,511 Domestic Dominant Source Markets 2 1. New South Wales 2. Queensland 3. Victoria 2 Based on visitor nights Source: TRA, CBRE Hotels International Purpose of Visit 1 10% 7% 37% 46% Holiday Business VFR Other VFR: Visiting friends and relatives -2% -4% -6% -8% -10% DECLINE -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% % OCC vs Last Year Note: in transition means one indicator (OCC or ADR) is positive and the other negative SUPPLY (YE Dec 2015) Existing Hotels, Motels and Serviced Apartments: 358 (39,096 rooms) Selected Recent Openings (in Last 12 Months) The Tank Stream St Giles keys Sep-2015 Greenland Primus Hotel keys Sep-2015 Selected Properties Under Construction Four Points by Sheraton keys 2016 Another strong year for the Sydney market sees ADR at record levels and occupancy rates continuing their climb. With limited new supply coming into the market, these levels are expected to remain above long term averages. The low Australian dollar relative to major currencies across the globe, will see increased numbers of international visitors to Sydney which will further push up daily rates and occupancy levels. CBRE Hotels understands that a number of existing hotels are planning refurbishment programs over the next few years, which will have a direct impact on the market during constrained periods. The refurbished products will re-enter the market with expectations of achieving high ADR levels, which should also flow through the market. Sofitel Sydney ICC keys 2017 Selected Projects Likely to Proceed Crown Sydney Barangaroo keys 2019 Selected Properties Exiting Market The Menzies Hotel keys 2016 Mercure Potts Point keys Extension Page 13 11

14 Number of Rooms Number of Rooms AUSTRALIAN HOTEL DEVELOPMENT PIPELINE Key Australian Markets 3,500 3,000 2,500 2, % % 1 City Markets +26.1% % 1 3,500 3,000 2,500 Greater City Regions Markets (including City and Surrounds) 1,500 2,000 1, ,000 Brisbane City Melbourne City Perth City Sydney City 1,500 1, % % % 1 Adelaide Cairns Canberra / ACT +12.9% 1 Darwin +1.4% 1 Gold Coast +19.1% 1 Hobart Under Construction Likely to Proceed To Be Removed Under Construction Likely to Proceed To Be Removed 1 Net percentage increase on existing supply in respective markets Note: 'Likely to Proceed' are based on CBRE's estimates of developments more than 50% likely of occurring (not including rebrands) and opening before Jan City was selected for Brisbane, Melbourne, Perth and Sydney due to their size. Whilst there is little change in the net supply for Sydney, the other major cities will experience significant increases in the next few years. This will test the market s ability to absorb new supply whilst still maintaining the high levels of occupancy and ADR. Australia s smaller cities will face a similar issue, in particular Adelaide and Darwin who are already struggling with increased supply and falling demand. Hobart s tourism fundamentals are strong and should remain so; however a net supply increase of 19% will be tough for the market to cope with, and will likely result in falling occupancy rates and thus, RevPAR levels. Page 14 12

15 NEW ZEALAND UPDATE Double-digit in most key New Zealand markets, however Christchurch is experiencing negative growth. OCC & ADR CHANGE VS LAST YEAR (Year Ending Dec 2015 vs 2014) Note: in transition means one indicator (OCC or ADR) is positive and the other negative 13% 11% 9% 7% Auckland Wellington Queenstown REVPAR Year Ending Dec 2015 vs 2014 % Change Auckland +12.9% Christchurch -3.3% Queenstown +17.5% Wellington +15.3% New Zealand +13.4% 5% 3% 1% -1% -3% -5% -7% -9% -11% Christchurch DECLINE -13% -13%-11%-9% -7% -5% -3% -1% 1% 3% 5% 7% 9% 11% 13% % OCC vs Last Year Visitor levels hitting fresh new highs, and a strong economy have helped key performance indicators for the New Zealand hotel market reach record highs in National occupancy levels maintain their momentum to close 2015 at a record 77.8%, which beats the previous best of 76% achieved in the 12 months to October Strong gains for Wellington and Queenstown of 5.4% and 6.7% respectively are the star performers, whilst Auckland and Christchurch post small increases. ADR levels are also continuing their upward trend, reaching NZ$ which is an increase of 9% on 2014, and the highest levels ever achieved. The strong performances of Auckland, Queenstown and Wellington more than offset the 4% reduction in ADR posted by Christchurch. New Zealand s high level of occupancy and ADR growth have resulted in yet another record broken with RevPAR increasing 13.4%. At NZ$121.33, this is the highest level achieved, and is further evidence that the New Zealand hotel market is booming. Page 15 13

16 Total Hotel Sales (AU$ million) Number of Hotel Sales AUSTRALIAN HOTEL SALES 3,000 Total Hotel Sales vs Number of Hotels Sold 60 2, , , , Source: CBRE Hotels Total Hotel Sales Total Number of Hotels Sold Total sales expenditure for hotels in Australia in 2015 reached over AU$2.6 billion, the highest level ever recorded. The overall number of transactions may be down on 2014, primarily due to a lack of available assets rather than a lack of buyers, but the quality of the hotels transacted has resulted in a record breaking year. The sales of The Westin Sydney and the Hilton Sydney were the biggest deals of the year, combining for a 30% piece of total transaction expenditure. The lack of available stock will lead to further decline in the overall number of transactions in 2016, but in turn could see investors having to pay even more of a premium to secure their piece of the Australian hotel market. The Ascendas Hospitality Trust and M&L Hospitality portfolios are currently on the market, and are rumoured to be receiving interest from a number of different parties. Given the size of the holdings in Australia, if they do sell, they will go a long way to helping beat 2015 s sales record. Page 16 14

17 AUSTRALIAN HOTEL YIELDS Initial Yield to Stabilised Yield Gap 10.00% 9.00% 8.00% 7.00% 6.00% 5.00% 4.00% Source: CBRE Hotels Initial Yield Stabilised Yield There has been significant tightening of yields in 2015 as a result of some major assets transacting below levels traditionally associated with well performing assets, most notably The Westin Sydney which traded at less than 4.5%. Over the last four years there has been a considerable increase in the number of hotels being bought by overseas investors, mainly from Asia, as Australia is seen as a safe haven, and hotels a sound investment. The widening gap between initial and stabilised yields indicates that investors believe there to be further growth in the market in the medium to long term. In previous years yield compression has mostly occurred in the major markets of Sydney and Melbourne, but it is worth noting that regional markets are starting to see compression and this trend is set to continue as more investors look to regional markets for deals. Page 17 15

18 AUSTRALIAN HOTEL YIELDS Initial Yields 2015 (Notable Sales) The Westin Sydney Yield: 4.2% Pullman Sydney Airport Yield: 5.6% Surfers Paradise Marriott Resort & Spa Yield: ~6.0% Hilton Sydney Yield: 6.3% Westend Hotel Sydney Yield: 6.8% 4% 5% 6% 7% 8% 9% Crowne Plaza Surfers Paradise Yield: 5.5% Source: CBRE Hotels Intercontinental Rialto Yield: 5.8% Hilton Surfers Paradise Hotel Yield: ~6.0% Crowne Plaza Melbourne Yield: 6.6%% Quest Dubbo Yield: 8.7% The yield profile highlights investors willingness to pay a premium for quality assets located in major destinations that have strong market fundamentals. This is not only true for the more corporate locations of Sydney and Melbourne, but also for the leisure destinations in Queensland as investors look to more regional locations for investment. The record levels of visitor arrivals coupled with the low supply in Cairns and the Gold Coast should see this trend continue throughout Page 18 16

19 A YEAR OF CONSOLIDATION The hospitality industry is awash with talk of whether home-sharing businesses such as Airbnb, Stayz and HomeAway, to name but a few, are cannibalising the hotel business. Whilst the scale of the problem of home-sharing sites is constantly debated, there is no doubt that they have a disruptive influence on the industry. Many believe that home-sharing is only impacting cheaper brands targeting leisure travellers, and not corporate travel. This may well be the case but given that many of the larger brands have low-cost budget hotels, they are still facing increasing competition has been a year of consolidation for the industry. Mergers and acquisitions (M&A) were sparked in late 2014 when Shanghai Jin Jiang International Hotels Group announced that it would acquire Louvre Hotels Group and IHG agreed to acquire Kimpton Hotels & Restaurants. The largest deal announced is that of Marriott International acquiring Starwood Hotels & Resorts Worldwide together, it makes them the biggest hotel company worldwide, with more than one million rooms. This type of consolidation seems to be a growing trend with more M&As set to be announced in 2016 therefore; is consolidation the way to combat online travel agencies and homesharing sites? The hotel industry has long been fragmented, and the merging of brands is a way to consolidate and increase the scale of operations without having to buy land and build. Picking up an existing, well-established brand allows a company to circumvent traditional barriers to entry, and enter new markets where they previously have not had a presence, with minimal fuss. This not only increases the size of their existing pipeline in one fell swoop, but is a way to improve economies of scale. And by consolidating their management and removing inefficiencies, brands are not only able to make cost savings across the board, they are able to redeploy their efforts in combating the ever increasing problem of OTAs and home-sharing sites. Size matters, particularly in the hotel market. The bigger the brand, the more power it has to fight the rising tide of OTAs and home-sharers. Page 19 17

20 AUD ARE WE TALKING ABOUT THE SAME ADR? The Agency Model is when a booking agent is paid a commission by the hotel. The agent sends the client to a hotel and the client pays in full directly to the hotel. The agent then invoices the hotel commissions after the clients departure, and this commission is expensed as a room cost. The Merchant Model is where the agent receives full payment from its clients and proceeds with a booking order for the hotel at an after commission (net) amount. Average Daily Rate (ADR) is a key indicator used to benchmark a hotel s top line performance against its competitive set. However, with constantly evolving hotel distribution channels, and the way each channel transacts its bookings, will the classic ADR formula still work? Using the ADR formula of gross revenue divided by the total room nights sold, it is evident that the Merchant Model bookings have a lower ADR compared to the ones that operate under the Agency Model, assuming every channel charges the same compensation. The different models have created a grey zone in recording true ADR value for hotels as theoretically there should not be any discrepancies between the two. Third party online travel agencies (OTAs) are pertinent to the hotel business, indeed some small hotels fully rely on attracting business through OTAs. In Australia especially, there are various OTAs that bring different sources of business to hotels and within them, the operating models vary from each other. We have seen markets starting to benchmark their ADR performance through the net ADR analysis, which excludes the commissions from these channels. This analysis takes into consideration channel costs and thus presents a hotel s true performance and value that flows to its bottom line. $120 $100 $80 $60 $40 $20 $0 $100 Room Price Merchant vs Agency $25 Channel Commission $75 $75 Net hotel revenue ADR Merchant Model $100 ADR Agency Model Page 20 18

21 AUSTRALIAN OUTLOOK FOR 2016 The Australian hotel market has maintained its strong performance in the second half of 2015 thanks in part to record international visitors. The falling Australian dollar, coupled with historically low oil prices making air travel cheaper, has resulted in Australia being one of the places to visit in 2015 with this trend set to continue into The weakened Australian dollar means domestic visitors are being forced to cut back on international travel, and holiday locally which in turn has further boosted occupancy rates across the market. Recent volatility in global equity markets, particularly in China, and the onset of low-yielding bond markets serve to increase the appeal of property as an investment class. Australia s close trade links to Asia s developing economies enable it to benefit from Asian growth, whilst at the same time providing investors with transparent property markets and familiar tax / legal systems similar to other developed economies. These features have made Australia somewhat a safe haven for capital allocation to APAC markets a trend that will continue in 2016 and beyond has been a record year for Australian hotels on many levels as investors remain optimistic about the potential for further growth The high number of assets traded in the last four years means that there is limited stock available for purchase, and investors will have to pay above the odds in order to secure high quality assets in well located areas. The Westin Sydney and The Hilton Sydney both went for above AU$440 million to overseas investors, and accounted for over 30% of total sales revenue. Over 75% of all hotel sales were located in CBDs, whilst just 25% were located in regional areas. The is no shortage of investment capital available so we should continue to see overseas investors looking at further investment, but investors may well have to start looking outside the traditional New South Wales and Victoria CBD markets, which accounted for 65% of sales last year, and into the more regional areas of Cairns and the Gold Coast. Page 21 19

22 CBRE HOTELS SERVICES For more information, please contact: CBRE HOTELS AUSTRALIA WESLEY MILSOM National Director, Pacific O: M: E: wesley.milsom@cbre.com.au CBRE HOTELS AUSTRALIA JAEL FISCHER Senior Analyst O: M: E: jael.fischer@cbre.com.au CBRE RESEARCH AUSTRALIA BENJAMIN MARTIN-HENRY Research Manager O: M: E: ben.martin-henry@cbre.com.au Please click on any of the above icons for more information on CBRE Hotels services. THROUGHOUT THIS PUBLICATION SOURCE: STR GLOBAL, LTD. REPUBLICATION OR OTHER RE-USE OF THIS DATA WITHOUT THE EXPRESS WRITTEN PERMISSION OF STR GLOBAL IS STRICTLY PROHIBITED. Page 22 20