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ACHECK-IN | ISSUE 4

ISSUE 4 | 2019

CBRE HOTELS | AUSTRALIA

1CHECK-IN | ISSUE 4

1 FOREWORD

2 IS AGE MORE THAN JUST A NUMBER TO HOTELS?

4 HOTELS WILL BE CHALLENGED BY THE GROWING SHIFT

TOWARDS PRIVATE RENTAL ACCOMMODATION

6 CBRE HOTELS: CUSTOMER SURVEY

8 WI-FI IS NOW A MUST, NOT AN OPTIONAL REQUIREMENT

9 BARS AND RESTAURANTS STILL IMPORTANT

10 PERCEPTION OF LUXURY FOR THE YOUNG TRAVELLER IS CHANGING

12 ARE TWO BRANDS BETTER THAN ONE?

15 CONCLUSION

18 CLOSING REMARKS

1CHECK-IN | ISSUE 4

FOREWORD

Welcome to the fourth edition of Check-IN, a

paper focused not on the detailed numbers but

interpreting and commenting on some of the topical

hotel trends.

One of the ways hotel operators expand their portfolio and

market presence is by continually launching and acquiring

hotel brands. Each brand within a portfolio is intended to

target a specific market segment and unique set of customer

preferences. Historically this was done largely by price.

More recently these preferences have been segmented

by age and lifecycle, e.g. Post-Millennials, Millennials,

Generation X, Baby Boomers1.

In particular, the focus of hotel owners and operators

has been on curating individualised and transformative

experiences, particularly for the younger traveller. The

recent development and innovation around lifestyle,

boutique and ‘new age’ luxury brands have demonstrated

this. However, are we right in assuming that all Millennials

value the same core set of hotel preferences? Do these

preferences vary by generation? Consequently, what

challenges and risks do hoteliers face when marketing their

brand to a certain age demographic?

Robert McIntoshExecutive Director, CBRE Hotels – Asia Pacific

Chinmay Chitale Research Manager, CBRE Research – Australia

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Millennials being a key market segment to hoteliers holds true in the Australian context. Figure 1

shows that Millennials in Australia spend on average more on accommodation2 than any other

generation ($234 per capita per year from 2014-18).

Although Generation X travellers are typically within their prime working age and premium salaried age period,

Millennials are prioritising their spending on items such as travel as they delay on their house purchases. This is

because for Millennials today, house prices have risen to now cost eight times the average household income,

compared to house prices six times the income faced by Gen X purchasers3. We should also note that a portion

of accommodation expenditure for Generation X and older Millennial travellers would be attributed to dependent

children and family members. This somewhat explains the lower accommodation spend per capita for Baby

Boomers ($165 per capita per year from 2014-18). However, this result is somewhat surprising as these

travellers generally have higher disposable incomes and greater wealth than their younger counterparts.

Post-Millennials are emerging as a key market, with accommodation expenditure increasing by 6.1% annually

over the past five years. This is partially reflected by an increased willingness for Post-Millennials to spend more

on authentic experiences4.

IS AGE MORE THAN JUST A NUMBER TO HOTELS?

MILLENNIALS SPEND THE MOST ON ACCOMMODATION

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1 Post-Millennials are currently aged between 0 to 24 years old, Millennials are aged between 25 to 39 years old, Generation X are aged between

40 to 54 years old, Baby Boomers are aged between 55 to 75 years old.2 Refers to all commercial and private accommodation.3 Sourced from Alpha Beta Economics How Millennials Manage Money (2018).4 TRA State of the Industry 2017-18 (April 2019).

Figure 1 - Average Spend on Accommodation by Generation in Australia – 2009 to 2018

$142$158

$233 $234$225 $231

$160 $165

2.0%

6.1%

1.5% 1.5%

-0.2%

2.8%

-0.6%

2.4%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

$0

$50

$100

$150

$200

$250

09-13 14-18 09-13 14-18 09-13 14-18 09-13 14-18

Post Millenials(Gen Z)

Millennials (Gen Y) Gen X Baby Boomers

Ave

rage

ann

ual s

pend

per

vis

itor

grow

th

(%)

Ave

rage

spe

nd p

er v

isito

r on

acc

omm

odai

ton

($)

Note: Chart represents weighted average spend of domestic and international travellers.

Source: TRA; CBRE Research

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HOTELS WILL BE CHALLENGED BY THE GROWING SHIFT TOWARDS PRIVATE RENTAL ACCOMMODATIONFigure 2 shows that in Australia, Post-millennials and Millennials make up a significantly higher share of total

nights spent in private rentals5 (56%) relative to total nights spent in hotel accommodation6 (38%).

This has largely been driven by the proliferation of home sharing platforms such as Airbnb, which is also

demonstrated by the strong year-on-year growth of private rental guest nights over the past five years. In

particular, strong private rental guest growth within the Generation X market (27.5% annually) continues to

present a threat to traditional hotel brands, with this generation currently accounting for the highest share of

hotel guest nights nationally (32%)7.

Airbnb offers a high degree of flexibility for both independent and group travellers and provides a range of options with full

or partial home rentals for short and longer stays. Airbnb also provides the ability for groups to reduce overall costs of travel

by sharing general living expenses such as food. Overall, it is the immersive, embedded aspect of private accommodation

coupled with Airbnb’s relatively lower price point which presents a key point of difference to typical hotel brands.

Hotels are well positioned to offer the benefits of convenience, security and brand awareness for its guests. However, hotels

will need to continue differentiating themselves from Airbnb by delivering authentic experiences tied to local customs, cuisines,

people and events.

5 Tourism Research Australia (TRA) defines private rentals such as Airbnb as “Other Private Accommodation (Not Friends or Relatives)”.6 Hotel accommodation consists of hotels, motels and serviced apartments.7 Figures sourced from TRA.

REGION1AVG. AIRBNB PRICING

PER NIGHT

AVG. HOTEL PRICING

PER NIGHT

AIRBNB TO HOTEL

DISCOUNT (%)

Sydney $100 $151 -34%

Melbourne $95 $129 -26%

Hobart $101 $126 -20%

1.CBD location

Note: figures refer to advertised pricing for Airbnb, and average daily rate (ADR) pricing for hotels

Source: Inside Airbnb; STR; CBRE Research

Average pricing for Airbnb and Hotel in national metropolitan markets.

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Figure 2 - Average visitor night breakdown by accommodation type by generation in Australia – 2014 to 2018

10%23%

28%

33%

32%

19%

30% 25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Visitor nights in hotel accommodation Visitor nights in private rentals

Ave

rage

sha

re o

f to

tal v

isito

r ni

ght

mar

ket

(%)

Post-Millennials (Gen Z) Millennials (Gen Y)

Gen X Baby Boomers

** Note: Includes both commercial and private accommodation for domestic and international visitors.

Source: TRA; CBRE Research

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CBRE HOTELS: CUSTOMER SURVEY

CBRE Hotels recently conducted a survey focusing on hotel preferences from a sample across generations. Questions around the travel habits and demographics of respondents were designed to identify trends in hotel preferences across generations.

This included characteristics such as:

u Purpose of travel;

u Value proposition (price

competitiveness, hotel brand, location

and accessibility);

u Key amenity preference (Wi-Fi, fitness

facilities, communal spaces etc.);

u Experiential preference (indulgence,

local authentic experience etc.); and

u Hotel product and style (luxury, full

service, select service etc.).

The results revealed some interesting trends in

amenity preferences, particularly within the younger

generations.

MOST VALUED AMENITY BY % OF RESPONDENTS

WI-FI28%

21%FITNESS FACILITIES

20%BAR & RESTAURANT

14%HOTEL DESIGN

11%OTHER

7%ROOM SERVICE

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Figure 3 – Hotel Amenity Preference by Generation Bar and restaurantPost-Millennials (Gen Z)Millennials (Gen Y)Gen X

11%21% 24%

25%19%

24%

11%17%

15%

36%26%

21%

17% 18% 18%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Post-Millennials (Gen Z) Millennials (Gen Y) Gen X

% o

f su

rvey

res

pons

es

Bar and restaurant Fitness facilities e.g. gym, pool and spa

Hotel design Wi-Fi or high-speed internet

Other

Note: 10 options in the survey were provided, ‘Other’ amenity consists of concierge, business facilities, communal spaces, room service,

organised transportation, and function and meeting spaces.

Source: CBRE Research

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WI-FI IS NOW A ‘MUST’, NOT AN OPTIONAL REQUIREMENT

Unsurprisingly, the survey results reveal that the importance of Wi-Fi decreases for

older guests (Figure 3); however, it still ranks as the highest valued amenity overall.

Wi-fi was once a paid amenity or luxury at certain hotels but is now becoming

standard as part of the service. A survey conducted by Tourism Accommodation

Australia (TAA) revealed that 96% of Australian hotels surveyed offered some level

of free Wi-Fi to guests8. In particular, it is crucial for a hotel to provide a fast and

reliable internet connection to guests throughout the day, including peak times.

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Bars and restaurants can create places where locals and travellers can authentically connect. The Royal Mail Hotel Dunkeld, located in the Southern Grampians, provides 90 accommodation rooms and the recently opened Wickens Restaurant. The restaurant’s architecture and design connect with the surrounding natural elements, as well as the kitchen garden and heritage of the Royal Mail Hotel. Ever since its opening in 2017, the local Statistical Area 2 (SA2) has more than doubled in day visitors from 84,000 to 171,000 over the past year, and further enhances the hotel’s marketing power to attract greater overnight visitation going forward.

BARS & RESTAURANTS STILL AN IMPORTANT CONSIDERATION WITHIN A HOTEL’S OFFERING

One in every five respondents consider a bar and restaurant a key attraction to staying

at a hotel. Many hotels now have an increased focus on this element as a clear

differentiator and profit centre.

The survey results demonstrate that the importance of an onsite bar and restaurant is

greatest for older guests (Figure 3). Generation X guests are generally more affluent

than their younger counterparts and can therefore afford the upscale and lavish dining

experiences that are characteristic of premier hotel restaurants. This is somewhat

consistent with the belief that bar and restaurants in the past have been perceived to be

old fashioned. As such, investment in a quality food offering is important for operators

who wish to continue attracting guests to their hotels.

Hotel operators are evolving the role of the ‘traditional’ onsite bar and restaurant by

creating more destinational and authentic food experiences that marry local design

and menu elements. QT has established award winning restaurants and bars such as

Gowing’s Bar and Grill (Sydney), Pascale (Melbourne) and Santini (Perth), which have

become their own dining destinations. Ovolo has created destinational eateries such

as its bar and vegan restaurant Alibi (Ovolo Woolloomooloo), and Mister Percy (1888

Darling Harbour), a heritage wool-store conversion that combines a modern bistro-style

menu with vintage décor.

8 The Innovation Revolution Transforming Australia’s Hotel Industry (2018).

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THE PERCEPTION OF ‘LUXURY’ FOR THE YOUNG TRAVELLER IS CHANGING

Millennials are willing to spend more on travel, and our survey results indicate that almost half of young travellers9 select

indulgence as their experiential preference for staying in a hotel (Figure 4) by operators who generally have better scale

and understanding of the changing guest requirements and systems. Those operators who keep ahead will have a distinct

advantage.

Source: CBRE Research

Most existing luxury brands have in the past found it challenging to embrace the needs of younger travellers. Hotel operators

have now recognised this by developing ‘new age’ luxury brands, in order to differentiate themselves from Airbnb and typical

upper upscale brands. Millennials desire not only a good product and service, but a shareable and transformative experience.

Although ‘new age’ luxury brands are slowly entering Australia, this segment is yet to achieve the level of scale currently

observed within overseas markets. As an example, globally recognised brands such as Moxy, which operates over 50 hotels

worldwide10, is only set to open its first hotel in Australia in South Yarra in 2021.

9 Consists of Post-Millennial and Millennial respondents from the CBRE survey.10 moxy-hotels.marriott.com/en/hotels/

LUXURY PREFERENCES

4%INTERACTING WITH

OTHER GUESTS

25%JUST A PLACE TO SLEEP

Figure 4 – Hotel Experiential Preferences

22%AUTHENTIC LOCAL EXPERIENCE

49%INDULGENCE


OVERALL . . . AGE DOES NOT DICTATE PREFERENCE FOR HOTEL PRODUCT

Recent hotel developments and literature are being geared towards

appeasing the Millennial market. This has been reflected by launching

new lifestyle brands into Australia such as Aloft, Tribe and QT specifically

designed to target this age segment.

We still, however, need to be cognisant of the varying consumer tastes

across travellers. Although one could argue that age and hotel brand

are corelated, our survey reveals there to be no observable trend in hotel

product and style within and across generations (Figure 6). Ultimately, a

customer’s decision is not determined by their age, but rather their value

proposition, purpose of travel or experiential preference.

Figure 5 – Hotel Product Preference

Boutique/LifestyleBudgetFull ServiceLuxurySelect ServiceServiced Apartment

Boutique/Lifestyle18%

Budget5%

Full Service28%

Luxury24%

Select Service15%

Serviced Apartment

10%



ARE TWO BRANDS BETTER THAN ONE? The concept of a dual-brand hotel is

one which is yet to take off in Australia,

with only a handful of dual-brand hotels

currently in operation. A dual-brand

hotel consists of two distinct hotel

brands in a single construction. From

a feasibility perspective, development

costs can be minimised for hoteliers,

with lower land and construction costs

associated with a smaller building

footprint and lower operational costs

associated with consolidated hotel

operations.

The dual-brand approach enables these

developments to target different market

segments. For example, Marriott’s dual-

brand AC Hotel (133 rooms) and Moxy

Hotel (155 rooms) in Atlanta creates an

intriguing value proposition which will

attract both business and younger leisure

travellers. Accor and IHG are expected

to open new dual-brand properties in

Melbourne by 2022.

Hoteliers, however, must achieve a

careful balance between targeting

niche segments and market saturation,

as it presents the risk of brand

cannibalisation. As an example,

targeting a Millennial through a lifestyle

branded hotel should not forego the

opportunity in securing a larger and

more lucrative corporate traveller base in

the adjacent serviced apartment facility.


CONCLUSIONAccommodation preferences have undoubtedly shifted, with the national share of

hotel guest nights of total accommodation nights declining from 32% to 27% over

the past ten years11. This has been primarily driven by the rise of home sharing

platforms such as Airbnb. Hoteliers will need to find ways to deliver a product

and experience offering that differentiates from these home sharing platforms.

Our survey shows that there are ‘non-negotiable’ amenity features that a hotel needs to

get right to continue attracting its core customer base. There is a large variety in preference

for experience and product across the respondents, regardless of age. This suggests that

experiences draw individual customers to a hotel. Broadly speaking, key fundamentals such as

a personalised service should not be compromised, as this creates an intangible connection to

the hotel. This value can be seen by an onsite restaurant sourcing local produce or having the

ability to choose the amenities in your own room.

Millennials are a high expenditure market and will continue to represent a key segment

for hoteliers. The other generations, however, should not be neglected. Growth in

accommodation spend over the past five years has been stronger for Generation X and

Baby Boomers than that of their younger counterparts12. These markets have the potential to

increase, with Australia’s ageing population narrative already well documented. Operators

will need to carefully manage their marketing approach and brand development in how best to

capture this segment, without comprising market share from the younger generations.

11Sourced from TRA. Hotel guest nights includes nights spent in Hotels, motels, serviced

apartments and resorts.12Sourced from TRA, refer to Figure 1.



OBSERVATIONS ON THEHOTEL MARKET

Australia continues to absorb the largest amount of new supply that we have ever seen. Brisbane is the first city to see the majority of new hotel openings, now boasting some of the countries newest hotels. Hotel occupancies have bottomed and business has now stabilised, benefiting from the substantial investment into Brisbane infrastructure which includes the Queens wharf redevelopment, the success of Howard Smith Wharves, along with the second runway nearing completion, all point to a substantial recovery of the Brisbane hotel market. Melbourne continues to be the city with the most amount of new supply to open, however as the events capital of Australia, we are confident that this new supply will be absorbed in the short to medium term, while Sydney awaits the opening of much needed five star hotel product.

The lower Australian dollar will continue to ensure that Australia is seen as a politically and economically safe environment for foreign investment. 2020, as in 2019, will continue to show limited opportunities with minimal quality assets coming to the market, ensuring that investors looking to capitalise on these unprecedented financial conditions will reap a substantial capital gain.

National DirectorCBRE Hotels – Hotel Brokerage

WAYNEBUNZ

The supply pipeline is starting to well and truly bite into most markets in Australia and New Zealand with softening RevPAR a common theme for the last 12 months. Having said that, investor demand for Sydney, Melbourne, Auckland and Queenstown remains strong and we believe this will continue regardless of new supply given the lack of buying opportunities throughout 2019 and the pent up capital seeking a home. What will be most interesting is the pricing today of prime hotel stock versus the premiums of more recent years. On one hand we in an environment with significantly lower cost of capital and limited offerings, but this is countered with a softening of performance off the back of continued new supply. A very interesting 12 months ahead with limited transactional activity, most of which will be off market.

National DirectorCBRE Hotels – Australia & New Zealand Hotel Brokerage

ROBCROSS


OBSERVATIONS ON THEHOTEL MARKET

The supply growth continues in some markets, which will be a challenge. The softening in the Sydney market’s performance has been disappointing and dark clouds appear to be massing in relation to the economy. Despite all this there continues to be an overweight of capital which is keeping prices reasonably stable and there are no signs of more than a moderate adjustment in room rates in Sydney and Melbourne whilst Brisbane looks to rebound with some great new product. Nationally there are exciting new brands due to open and this will attract new business.

Executive DirectorCBRE Hotels – Valuations & Advisory

ROBERT MCINTOSH

Hotel investor interest remains reasonably strong in most major markets and given the lack of transactional volume across all asset classes we are now starting to see new entrants to the market. There is a large amount of capital finding it challenging to reach their internal hurdles and investing in certain sectors of the hospitality sector allow groups to now hit their targeted returns.

The development cycle across the country has caused softer trading conditions and RevPAR to decline however, pricing of assets has remained stable largely due to the low cost debt environment we are in and the flow on effect this has had on yield compression.

Hotels yet to renovate or reposition will find trading conditions challenging throughout 2020 as new hotels gain greater market share by providing guests with innovative experiences.

Head of Capital Markets | WACBRE – Capital Markets, Institutional Investments & Hotels

AARONDESANGE

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In previous editions of Check-IN we have

commented on the need to focus on demand

segments. The above commentary clearly indicates

the increasing emphasis on this as customers

become more discerning and specialised in their

requirements of hotels.

Simply providing a hotel which is designed to address

a very broad market is no longer adequate. Brands are

trying to concentrate on very particular demand groups

and the physical product needs to reflect that fact.

The market for hotels is evolving and changing at a

faster rate than before. Owners and investors will need

to be nimble and efficient to take advantage of these

opportunities. Those that hold product without a clear

action plan for the future will be left with dated assets and

falling demand.

CLOSING REMARKS

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NOTES

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KEY CONTACTS

Chinmay Chitale Research Manager, Head of Hotels ResearchCBRE – Research+61 2 9333 [email protected]

Robert McIntoshExecutive DirectorCBRE Hotels – Valuations & Advisory+61 449 587 [email protected]

For more information on hotel research market updates, please contact:

To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/research-and-reports.

CBRE Disclaimer 2019CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.

www.cbrehotels.com

Wayne BunzNational DirectorCBRE Hotels – Hotel Brokerage+61 419 698 [email protected]

Rob CrossNational DirectorCBRE Hotels – Hotel Brokerage+61 408 418 [email protected]

For more information on how we can assist you in realising your hotel ownership ambitions, please contact:

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