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News release

Australia

Hotel owners have moved to undertake various levels of refurbishment across their assets to ensure they are positioned to fully capiatlise on the current upswing in the trading cycle

New White Paper examines guiding principles that hotel owners and operators can follow to manage physical aspects of the hotel building to underpin revenue growth


AUSTRALIA, 22 MAY 2012 – With all of Australia’s major hotel markets currently in the upswing of the trading cycle, many hotel owners have moved to undertake various levels of refurbishment across their assets to ensure they are positioned to fully capitalise on future income and profit growth opportunities.
 
With the exception of Melbourne, over the past two years there have been minimal new supply additions in Australia’s major markets. This, combined with a strong recovery in corporate domestic travel, has seen most markets revert to a positive growth trajectory – a trend evident prior to the global financial crisis and one that is expected to continue over the medium term. In fact, RevPAR (Revenue Per Available Room) levels in most major markets are now around or above their respective previous peaks.
 
Mr Craig Collins, CEO Australasia, Jones Lang LaSalle Hotels said, “We have witnessed a significant increase in refurbishment activity across Sydney, Melbourne, Brisbane and Perth in particular, and it has been most prevalent in the five star segment with circa 40% of hotels in these major markets having recently undergone or planning improvement works.”
 
He added, “The extent of the work varies across properties with some closing for major refurbishment and others being completed on rolling programs, with a majority portion of rooms remaining in stock.”
 
According to Jones Lang LaSalle Hotel’s most recent Hotel Development Register, refreshment projects have taken place in a number of high profile hotels, including the Four Seasons Sydney, Sydney Harbour Marriott, Park Hyatt Sydney, Melbourne Marriott, Westin Melbourne, Sofitel Brisbane, Brisbane Marriott and Hyatt Perth.
 
A new White Paper by Jones Lang LaSalle’s Project and Development Services Division and Hotels Divison examines current impacts on hotel values and issues to consider when planning Capex budgets.
 
The Paper states that similar to other property assets, the hotel investment market is cyclical and specific strategies need to be implemented which are timed in accordance with the relative position of the market cycle.
 
‘Soft refurbishment’ projects are usually undertaken in a flat or weakening markets, while extensive upgrade programs are ideally undertaken in the ‘trough’ or early upturn phase of the cycle, which is currently where we are in Australia.
 
Typically operators and investors work on seven year cycles for room refurbishments and five year cycles for food, beverage and public areas.  The legacy of the GFC on the hotel investment market has been to lengthen the hotel market cycle, impacting business and exit strategies, as well as hotel refurbishment and capital plans.
 
Australian Head of Project and Development Services at Jones Lang LaSalle, Kevin Hastings said, “With tight capital expenditure budgets now par for the course for many hotel operators and owners, a strategic approach is needed to ensure investment is maximised to positively impact on both operational performance and capital value.”
 
Mr Hastings said in an era of tight capex budgets, hotel owners and operators need to maximise efficiency of their available capital to impact revenue performance and long-term hotel value.
 
“Hotel investors and owners need to apply 3D strategic thinking to an asset overlaying the hotel market cycle with the hotel asset cycle, as well as their underlying business strategies.
 
“There are a number of current issues that will impact on hotel values that they need to consider.  These include the age of the asset, legislative changes such as Access to Premises involving the Disability Discrimination Act and OH&S National Harmonisation, rising energy prices and energy efficiency and consumer preferences for hotels that have the latest technology.
 
“With increasingly discerning customers and frequent technological advancements, the acceptable time between refurbishments appears to be shortening,” Mr Hastings said.
 
“Hotel owners need to stay abreast of advancements in technology to ensure that guest and meeting rooms are furnished with the latest equipment and that the hotel has the necessary infrastructure to support new technology, i.e. cabling and wireless hotspots.
 
“Traditionally hotel owner and operator capex priorities have not always been in alignment and in many cases at odds.  A collaborative approach is required to plan for improved trading performance, adaption to technology advances, changes in consumer trends and compliance with legislation,” said Mr Hastings.
 
The White Paper says Capex could be initiated for different reasons such as commercial business opportunity, compliance with current legislation (WHS/BCA/DDA) or meeting consumer trends.
 
• Energy efficiency programs driving capex savings:  Progressive hotel owners and operators are already aggressively implementing sophisticated building monitoring and control systems to be able to capture energy use, and drive efficiencies and cost savings, positively impacting the bottom line;
• Changes to Building Code of Australia:  Due to the Building Code of Australia (BCA) being upgraded to include new Access to Premises Legislation, this carries significant implications for hotel owners and operators when considering a refurbishment.  Owners need to heed this.
• OH&S National Harmonisation:  In 2008, Workplace Relations Ministers from around Australia agreed to nationally harmonise work health and safety (WHS) laws.  Each state and territory officially commenced their laws on 1 January 2012.  There are significant differences between the existing state legislation and the Work Health and Safety Act 2011 which hotel owners and operators need to be aware of.  As an example, the issue of ‘reasonably practicable’ has seen a change of responsibility, with hotel owners and operators required to take a more proactive role in ensuring WHS compliance at all times.
 
Mr Hastings said, “The best way to plan for all the current market issues is to implement a Strategic Hotel Improvement Plan (HIP).
 
“The HIP streamlines and merges the hotel operational immediate/short term needs and owner’s long term property and product goals into one management tool.
 
“Examples of how a HIP can add value to your asset are by introducing an improved maintenance program to guest rooms with half yearly ‘fix it programs’ to maintain product quality, introducing upgrades of communication such as smart LCDs, multi media systems and improved broadband connectivity and enhancing ambience in guest rooms by improving acoustic quality of the room by installing window and door seals, which also enhances energy efficiency.
 
“A HIP should include an assessment of how your existing hotel measures against the relevant codes and legislative requirements, to ensure compliance with the new Access to Premises Legislation and OH&S National Harmonisation laws.
 
“A HIP can focus on quality improvements to business systems and product in order to maintain and/or to increase hotel revenue,” said Mr Hastings.