Business trips, luxury getaways, weddings, conferences, long stays, short stays and even an office for a day. Hotels are many things to many people. But how are they reinventing with travel restricted, events limited and the COVID-19 world upending the sector?
I’m Rebecca Kent, your host, and that’s up for discussion in this episode of JLL’s Perspectives Podcast.
Rebecca Kent (host)
Hello Ross Beardsell and Peter Harper from JLL's hotels team, and Matthew Rubie from Frasers Hospitality. Great to be talking to you today about the state of play in the hotel sector. Currently it's a tough old time. But the challenges have produced some interesting new thinking, haven't they? Ross? Tell us where hotels at right now.
Ross Beardsell
Thanks, Rebecca. There's no doubt it has been challenging times. However, now we're starting to see a road to recovery.
It will be a domestic-led recovery. Initially, it'll be your drive market and then we'll look at the market rediscovering Australia. So there will be an opportunity for people to rediscover Australia. And with the corporate market coming back as well, we see evidence this week that the corporate market's returning to Sydney, for example. While the numbers are small, it's positive to see that companies are starting to travel from Melbourne to Sydney.
And then more importantly, if we look at the leisure market, we have the opportunity there with retirees that will be staying at home, that will want to rediscover their back garden.
Rebecca Kent
Ross, what are the key challenges that hotel operators face at the moment?
Ross Beardsell
Repositioning and re-engineering business as they come out of this COVID situation. So say for example, a large conference hotel. There’ll be situations there where a hotel will need to redesign conference space. If you have a grand ballroom that used to divide up into three spaces, you're now looking at dividing up into six spaces.
But we're also looking at times to re-engineer businesses at the moment. So say for example, creating new products like restaurant-to-a-room, micro wedding packages. So, where a wedding used to be an occasion of up to 100 people, there’s now micro packages. There's an office zone package being released. And then of course, with Frasers Hospitality, there’s also the residencies and how that works going forward as well.
Rebecca Kent
Matt, Frasers in Australia has made some interesting adaptations
Matthew Rubie
The concept that you're talking about has extended upon, what I would say, is probably the value concept of serviced apartments. Al the ones I’ve ever run in the past have always been underpinned with a really solid bit of long-stay business.
This concept that we've come up with is, in essence, an extension on that. How do we find ourselves some form of stability or base business to underpin our properties in such a difficult time. There's not travel going on, there's not the same level of demand that we're used to. So essentially what we've done is look to offer our rooms. We have fully-furnished apartments sitting up there. And we have looked to see whether we can tap into a different type of market - that being a furnished flexible lease up to 12 months.
Rebecca Kent
So tell me where are you applying the long stay service? And what sort of success are you seeing?
Matthew Rubie
We have the benefit of having my sister company, Frasers Property Australia, having a property management arm, and so they're licensed real estate agents. And so essentially this, this extension was a matter of working with them, collaborating with them, and saying well, you know, how about we test the market and see where there's demand.
We get a lot of people that come to us in a regular market and they'll stay with us one, two, three months, they'll have a look around the city and see where they're going to stay for an extended period of time. Why not offer that for the guests that are actually coming in and stay in Sydney for an extended period and see if there’s a market for a lovely furnished apartment in Sydney for 12 months.
Rebecca Kent
And give us an idea about costs as well.
Matthew Rubie
It’s quite different. It's roughly about a third of what we might normally get in each of the properties.
We're around the $300 mark in Melbourne for studio apartments there, but in Sydney, we're selling one-bedroom apartments. We learned on the run there. In Sydney, we've got studio apartments but we don't have a washer and dryer within them. We do in Melbourne. The demand was not there for those studio rooms. So we're hitting the market only the one-bedroom and two-bedroom level.
Rebecca Kent
Obviously safety and wellbeing is paramount for people staying in hotels. What are some of the measures you're putting in place to comply with social distancing rules?
Matthew Rubie
We've got the markings down there at the front desk and whatnot. And obviously, the biggest change for all customers, and all of us really, is the level of hygiene and cleanliness that we're going to ... I can't tell you how much hand sanitiser we've got here in the building at the moment, but it's a lot. It's all over the place within lifts and so on. We’ve got good signage, good reminders for everybody. And really, you’ve got to apply a level of diligence and presentation that shows that you really are focused on this.
But on top of that, room service has evolved to essentially take-away business, so it's no more white glove and cloche to deliver to the room, but rather everything you take away and so on. The other thing that we've evolved in our properties, and I've seen some of the guys do quite well is really have good internal communications amongst ourselves as to what customers are telling us on a daily basis.
Everyone's different. We’ve had a lot of isolation guests, and prior to the border closing, there were people coming to us and wanting to isolate. It is a difficult time for the industry because people say well, ‘how do we handle those situations?’ We took quite a few in, we looked after them, and then responded to what they were looking for. We would go shopping to Woolies and get what they need for them, and bring it back and so on. And I think the way the teams within the properties have responded has been outstanding actually.
Ross Beardsell
Interesting you say that, Matt. It would be good to get your view on how the industry has actually come together to learn from experiences such as accommodating quarantined guests.
Matthew Rubie
Yeah, I think that was difficult at the start for a lot of properties to get to know how to actually ... it was pretty quick when it happened. The borders shut and everybody was suddenly presented with these rooms: three meals a day, won't be able to access the customer, how you actually communicate? That was really tough in the first instance. We took some of that business here in Frasers Sydney, and we had the benefit of learning from the difficulties other colleagues had experienced. It's a difficult thing for customers and it was certainly difficult for hoteliers to adapt so quickly, almost overnight.
We've had people isolate here on Ramadan. And we're providing three meals a day. Really tricky, actually. But, a great experience when we have to sit back and say, well, ‘how are we going to do this? How are we going to get this done for those people?’ Communicate with them. ‘What do you need?’ What we were going to do for them was not going to suffice. How can we look after you? Those core concepts still remain.
Rebecca Kent
I read somewhere that budget hotels might have an advantage with minimalistic design. And that probably aids keeping up hygiene standards. But at the same time, luxury hotels with wellness at their core may become ... there might be more appetite for those sort of hotels. Any thoughts around that?
Matthew Rubie
I think there's a great opportunity across the board for everyone to look at their offerings. And go back there and test the market. A lot of these things that we're talking about at the moment are not going to fill the property, but they are going to provide a diversity of option and allow hoteliers to get out there and test and see where people are at and what they're after.
Rebecca Kent
Peter, it's high time we brought you into this conversation. What is at the forefront of investors’ minds at the moment?
Peter Harper
Very good question. It's an interesting one. And I'll probably start by saying, I don't think our national team has had more inquiry - from offshore investors in particular - asking what's out there, what's going to come up and sort of expressing their keenness to acquire in Australia.
Historically, and you look back at all the major events that we've had, whether it be the GFC, September 11, all the way back to, the Eighties, really … at an international level, Australia's hotel market has been viewed as a flight-to-quality destination. And I think the way our state and federal governments have handled the past seven or eight weeks probably enhances that reputation. So we've got a lot of inquiry looking at the Australian hotel market.
I think another thing that's been missed in all of this is, given the going concern nature of the hotel industry … we are the 'canary in the coal mine' for the property sector. And we are the first to fall in any instance like this, but we are also the first to bounce.
The reality of the situation is, any building in the city at the moment is vacant, it doesn't matter whether it's retail or commercial - with the exception of residential, obviously - a lot of those sectors are going to start to experience their pain now with tenants not being able to pay rent and we're even seeing with retail this suggestion there's going to be some fairly structural changes to the way rent is secured in those asset classes. So most are viewing it, as Ross said, as we are at the beginning of the recovery now. It's just how quick that recovery is going to be. And what needs to be factored in from a change in operation, and consequently profitability as we work through the initial repercussions of COVID-19.
Rebecca Kent
Ross, what are the key milestones between now and the end of the year that hotel operators will be looking at?
Ross Beardsell
First of all you’ve got a JobKeeper piece that sits there. Currently the way that the labour market is positioned in hotels, the federal government put an initiative in place with JobKeeper, which has assisted the industry greatly. And that will conclude at the end of September. So that means that employees will come back to the hotels payroll as of October.
There's an opportunity to undertake disruptive works from a refurbishment point of view. So from a capex perspective. And within that, our JLL's hotel project management team is working on some projects in the moment.
We're all at the bottom of the well looking up at the moment. But there also needs to be a team that while we're working on this currently, is a futuristic team looking at how you take business forward.
Rebecca Kent
And, Matt, presumably you're looking at government announcements about when borders may be reopened again?
Matthew Rubie
The intra, and then interstate travel, and how that how that actually opens up state to state is really important. We actually saw quite a buoyant April for our property in Perth would you believe because there was a lot of movement quickly to establish position there for some of the mining groups.
July is the timeframe that we're looking at and thinking that's when we're going to see where things are at. I think the school holidays are important to us. We want to really closely look at what happens in the school holidays.
There's a lot of talk in the market about how Australians love to travel and so on, and it'll be fascinating where they go.
From a corporate perspective, I anticipate that there will be an initial letting everybody off the chain somewhat, of ‘let's get away from Zoom and see whether we can meet people again - socially distant, of course. But, I do think that most corporate travel will be will be muted.
Rebecca Kent
Pete, I know hotel operators and investors work hand in hand, to what degree will they be looking at some of these as well?
Peter Harper
Building owners have obviously wanted to protect the net position and ensure that net profit is as high as it can possibly be, or the losses are reduced as much as possible.
But on the flipside, you've got operators that also need to try and protect their own brand standards and service procedures and so on. So there was a little bit of conflict I think it's fair to say in the beginning as everyone adjusted to that.
But what we are seeing now on the whole is everyone recognising that the only way out of this is to find that common ground.
Rebecca Kent
One final question: disruption like this is always a really great opportunity to learn something about your product and your service. What's one thing that you feel like should change in the hotel sector as a result?
Ross Beardsell
Well COVID-19 has presented some challenges to hotels and to the industry. Out of this negative situation it will allow hotels to reset and to revisit technology to enhance customer experiences as hotels re-emerge from COVID-19 into the new normal.
Peter Harper
One of the big things to come out of what we've experienced over the last couple of months now is the value of leases. A lot of investors came into hotels because they like the fundamentals, but due to their structure or appetite or whatever weren’t willing to consider HMAs (hotel management agreements) and would only look at leases for that security of income.
But what we've seen over the last little while with legislation put in place is that security of income disappear pretty quickly. So are people, or our investors, going to continue to chase leases or insist on leases? Are they going to vacate the industry altogether? Or are we able to find some happy medium? On the flipside, you might find that those operators who have historically offered leases won't do so moving forward.
Rebecca Kent
Matt, over to you.
Matt Rubie
I think the resilience and diversity of your product is something that everyone's going to be looking very closely at.
And if I could hang my hat on one thing that I think will happen, or perhaps two things: I think the breakfast buffet might be a bit of a challenge, because we're certainly not going to be offering it any time soon.
And the minibar thing I think has always been a little bit of a challenge, too, depending on the take up. And the way that has worked in the past has been a challenge, so that might evolve or be at risk somewhat into the future. Let's see.
Rebecca Kent
Ross, Matt, and Pete, thank you very much for your time. I really appreciate it. All the best. Thanks.
Rebecca Kent
That was JLL’s Perspective podcast about the way hotels are shaping up in a COVID-19 world.
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