MAXCAP AUSTRALIAN HOTEL MARKET UPDATE - APRIL 2021
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
MAXCAP AUSTRALIAN HOTEL
MARKET UPDATE
APRIL 2021AUSTRALIAN HOTEL MARKET UPDATE 2021 OVERVIEW • The Accommodation, Hotel and Tourism sectors experienced a significant decline in 2020, however, positive recovery signs led by increased domestic travel emerged in Q4 2020 and have continued into the new year. • The success of the vaccine roll out nationwide and internationally is expected to bolster consumer confidence and remains the key catalyst for the recovery of the sector. • Improved domestic travel is expected to drive the sector in the medium term, partially offsetting the absence of international travel, which is not expected to return to pre-pandemic levels for a number of years. • Major banks have continued to retreat from the hotel construction funding space, providing opportunity to selectively participate in strong risk-adjusted debt opportunities for transactions offering credit-enhancing operator income support, mixed-use income diversification or opportunistic out performance of investment returns due to credit under supply.
MARKET COMPOSITION
As of June 2020, there were approximately 283,701 TABLE 2: AUSTRALIAN ACCOMMODATION BREAKDOWN BY
accommodation rooms across Australia. This includes STATE AND TERRITORY
hotels, resorts, motels, serviced apartments and holiday
SERVICED
parks (Table 1). HOTELS/
STATES AND APARTMENTS TOTAL
RESORTS/
TERRITORIES AND HOLIDAY ACCOMMODATION
MOTELS
PARKS
Australian
Capital 4,803 2% 1,928 2% 6,731 2%
Territory
New South
67,761 34% 19,826 23% 87,587 31%
Wales
Northern
4,861 2% 2,318 3% 7,179 3%
Territory
283,701 Annual domestic
overnight spend
Annual domestic
visitor nights of Queensland 47,876 24 35,917 41% 83,793 30%
accommodation
valued at
rooms across 410m South
Australia $77.5bn (pre Covid-19) Australia
9,213 5% 4,097 5% 13,310 5%
(pre Covid-19) Tasmania 6,090 3% 1,421 2% 7,511 3%
Victoria 35,055 18% 15,436 18% 50,491 18%
Source: STR, Tourism Research Australia
Western
21,371 11% 5,728 7% 27,099 10%
Australia
In the 2019 financial year (prior to the pandemic), the TOTAL BY
combined value of total international and domestic STATE AND 197,030 86,671 283,701
TERRITORY
overnight visitor spend across Australia was approximately
$122.1bn¹. Notably, domestic overnight spend contributed 63% Source: STR
of this amount, equivalent to $77.5bn¹. This was particularly
evident in markets such as Brisbane and the Gold Coast,
which have traditionally been driven by domestic travel. New South Wales, being the largest economy and most
mature hotel market in Australia, has the highest number
TABLE 1: AUSTRALIAN ACCOMMODATION BREAKDOWN of accommodation rooms. The state is popular with both
international and domestic tourists, with Sydney identified as
ACCOMMODATION TYPE NO. %
the business centre of Australia. The Sydney and Melbourne
Hotels and resorts 135,078 48% flight route previously ranked the second busiest route in the
Motels/private hotels 61,952 22% world² (in 2018).
Serviced apartments 73,122 26% Queensland is widely considered the domestic holiday
destination of Australia due to the state’s warmer
Holiday parks 13,549 5%
weather and accordingly ranks second in the number
TOTAL BY ACCOMMODATION TYPE 283,701 of accommodation rooms. Unlike New South Wales and
CLASS NO. % Victoria, a large portion of rooms are located outside of
the capital city – 40% are located in the Gold Coast³ and
Luxury and upper upscale classes 55,664 20%
Tropical North Queensland, compared to 23% in Brisbane³.
Upscale and upper mid classes 119,747 42% Queensland is also home to the highest number of serviced
Midscale and economy classes 108,290 38% apartments, with the hotel market not yet as established
as NSW.
TOTAL BY CLASS 283,701
Victoria ranks third, however does contain the highest
Source: STR number of rooms under construction – 65% of existing
accommodation rooms are located in Melbourne³ with the
remainder located in regional areas.
1
MAXCAP | AUSTRALIAN HOTEL MARKET UPDATE 2021UNDERLYING DEMAND Following the World Health Organisation declaring COVID-19
a pandemic on 11 March 2020, Australia closed its borders
FACTORS AND IMPACT to all non-residents and non-citizens. This led to an effective
ban on inbound international travel in 2020.
OF COVID-19 As state border closures were implemented, domestic travel
was similarly impacted, resulting in a sharp fall in room
occupancies and RevPAR across the sector. In the second
Hotel performance following half of 2020 as inbound international flights recommenced
COVID-19 for Australian citizens, state governments introduced hotel
based quarantine facilities, which provided between 10
– 20 per cent of total occupancy per month (source: STR),
GRAPH 1: AUSTRALIAN MAJOR HOTEL MARKETS – AVERAGE
varying across markets. The Victorian media has recently
OCCUPANCY RATES IN 2020
reported that the Victorian Government is in final stages to
Occupancy rates (%) contract more hotels to the quarantine program, providing
90 participating hotels and accommodation providers with
80
additional income support.
70
60 Positively, as Covid-19 cases across Australia reduced and
50
state borders were progressively reopened, occupancy rates
40
30 improved to above 50% in most markets (Graph 2), driven by
10 increased domestic leisure and business travel. Victoria was
20 the exception to this improved occupancy, as the second
0
Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec wave resulted in extended lockdowns throughout 2020.
Sydney Melbourne Brisbane Canberra Perth
Domestic travel was further supported by state governments
Source: Colliers 2021, Capital Markets Investment Overview – Hotels
introducing subsidies and vouchers for both intrastate and
interstate travel in the second half of 2020. This stimulus
support has continued through early 2021, with governments
GRAPH 2: REVPAR ACROSS AUSTRALIAN MARKETS FOR
indicating further support for the tourism sector, in particular
NOVEMBER (2019 VS 2020)
regional domestic travel.
250 0% Although, occupancy data is not readily available for early
200 -20% 2021; anecdotally hotel markets have continued to improve in
150 -40% Q1 2021, including Melbourne, which is now largely operating
under ‘Covid-19 normal’ settings, at least with respect to
100 -62% -61% -60%
-68% -67% travel. All state borders are currently open, and domestic
50 -81% -80% travel is expected to continue with some momentum whilst
-86%
0 -100% international borders remain closed.
e y rn e n e a st rr a rt h
ydn ou sba Co be Pe
S
Me
lb Bri ld Ca
n
Go
Nov-19 Nov-20 RevPAR decline
International tourism
Source: STR, CBRE Research (Q4 2020)
Australia’s top five international visitor markets (China,
New Zealand, USA, UK and India jointly representing 50%
Prior to the pandemic, major hotel markets were performing of international visitors⁴), experienced substantial losses
strongly with occupancy rates across the country generally throughout 2020, with international tourism effectively
above 70% (Graph 2). Notably, Melbourne and Sydney halting in March 2020. Overall, for the year ending
outperformed other cities, achieving occupancy rates September 2020, international visitors fell 52% to 4.1 million⁴
well above 80%, driven by a combination of domestic as compared with the year ending September 2019 and
and international travel. This was particularly evident in International visitor spend reduced 51% to $22.4 billion⁴.
primary CBD hotel markets and popular regional holiday
destinations.
2
MAXCAP | AUSTRALIAN HOTEL MARKET UPDATE 2021New Zealand and Australia have led the world in their GRAPH 3: DOMESTIC VS INTERNATIONAL SHARE OF VISITOR
management of the pandemic outbreak, however, NIGHTS IN AUSTRALIAN ACCOMMODATION REPORTED AT
travel between the two neighbouring countries has been MARCH-2020
impacted by the border closures and sporadic outbreaks.
Sound management of the pandemic by Australia has led 100% 92%
80% 74% 79% 80%
to a one-way inbound ‘travel bubble’ with New Zealand, 58%
65% 67%
60%
which is expected to become more flexible later this year. 42%
40% 35% 33%
An expansive travel bubble with New Zealand is expected to 26% 21%
20% 20%
8%
provide the sector with a much needed boost in confidence 0%
ey rne rth ne ast ide rra
and activity, noting New Zealand travellers spent over 12 Syd
n ou Pe sba Co ela be
Me
lb Bri ld Ad Ca
n
million nights in Australia and subsequently contributed Go
International Domestic
$2.5bn to the economy, in 2019⁵.
Positive discussions recently covered by the Australian media Source: CBRE – Asia Pacific Real Estate Market Outlook 2021 – Australia – Hotels,
Tourism Research Australia March 2020
regarding a potential travel bubble with Singapore has also 100% 92%
commenced, providing further optimistic signs for the sector. 79% 80%
80% 74%
Should a travel bubble with New Zealand and Asian and/ Historically, when65%compared 67% withother Australian cities,
60% 58%
or nearby pacific regions eventuate; in combination with Sydney and Melbourne have predominantly experienced a
42%
increased domestic travel, occupancy rates across Australian higher
40% proportion 35% of international
33% travellers as these cities
26%
are expected to strongly improve from the unprecedented are
20% well recognised as being the gate-way 21% 20%international
8%
low base achieved in 2020. cities.
0% We do expect domestic travel to increase to these
y e h e t e rra
ne
cities, however rn ert greater
oudue to Pthe an reliance as onlainternational
id
be
Syd b r isb Co d e n
Nonetheless, the gradual roll out of the vaccine nationally e l B o l d A C a
travel, we Msee the hotel marketGrecovery in Sydney and
and globally remains the key catalyst for improvement of
Melbourne lagging behind other cities.
International Domestic
the sector. The Australian government has put in place a
priority vaccination rollout, which commenced in February Other Australian cities, especially those in Queensland,
2021. The roll out of the program is expected to immensely are largely driven by domestic travel. With the current
boost consumer confidence and consequently increase restrictions on international travel, the Brisbane and Gold
domestic travel and to a lesser extent, once some borders Coast markets are expected to receive an influx of domestic
reopen, international travel. Qantas is currently expecting travellers and perform strongly throughout 2021, with
international travel to resume more broadly by October evidence of this already being seen in Q4 2020 and early
2021, however they do not expect travel to the US and UK to 2021, as occupancies in Brisbane returned to above 50%.
recommence until 2023.
GRAPH 4: NUMBER OF NIGHTS BY STOPOVER REASON FOR
YEAR ENDING SEPTEMBER 2020
Domestic travel
('000)
Domestic Travel for the year ending September 2020, fared 120,000
better than international travel with overnight stays totalling 100,000
300 million and overnight spending contributing $51.9 billion 80,000
to the tourism / hotel sector⁶. Domestic travel represented 60,000
69% of total overnight stays, compared to 60% of overnights 40,000
stays in 2019. 20,000
Since the onset of the pandemic, domestic travel has solely 0
Holiday Visiting friends Business Other
driven the hotel sector recovery, resulting in hotel occupancy and relatives
rates rebounding to 50% in most major capital city markets
Source: Tourism Research Australia (Sep-20)
(Graph 2) – with Melbourne and Sydney being the exceptions.
With all state borders now open enabling freedom of travel,
domestic business travel and holiday travel is expected to Holidays (39%) remained the most common reason for
improve immensely from the lows of 2020. domestic travel throughout the year ending September
2020, followed by visiting friends or relatives (30%) and
business travel (24%) – Graph 4.
3
MAXCAP | AUSTRALIAN HOTEL MARKET UPDATE 2021We expect ‘visiting friends and relatives’ to pick up as borders
have now opened, with domestic holidays to also rebound
SECTOR OUTLOOK
well. Business travel is expected to improve, however, it is
anticipated that this will be dampened by the increasing
popularity of online conference calls, that have become
more commonplace following the pandemic.
Intrastate travel over the past year represented 65% of all
domestic travel, reflecting increasing regional travel by
Australians, subsidised by the state governments and lack Vaccine roll out Domestic travel New Zealand
of available international travel. These incentives have is a key catalyst to drive sector and Asia/Pacific
continued through early 2021, providing a boost to regional for the sector recovery in the travel bubble
medium term, to assist recovery,
tourism across Australia.
partially offsetting mostly eastern
Overall, interstate visitors travelled to NSW (30%) most foreign tourism seaboard
frequently, followed by Queensland (24%) and Victoria (18%)⁷.
Overall, on the back of the vaccine roll out in Australia,
state borders opening and the possibility of international
Hotel supply pipeline travel bubbles, the Hotel and Tourism sector is expected to
continue improving in 2021.
GRAPH 5: NEW SUPPLY PIPELINE (UNDER CONSTRUCTION) From an economic standpoint, growth was positive in
INCREASE RELATIVE TO EXISTING INVENTORY the second half of 2020, with GDP per capita in the third
quarter increasing by more than 3%⁸. Unemployment
% of existing supply
25% 4,913 rates were better than initially predicted by the Reserve
20%
Bank of Australia, decreasing to 6.6% in December 2020⁹.
699
1,133
Average household savings to income ratios increased
15%
across households to 18.7% in the September 2020 quarter,
10% 2,027
525
compared to 6.2% in the previous year¹⁰. Domestic travel is
5% 1,114 264 373
expected to be buoyed by these savings, leading to higher
0%
e rt e y e ast a rth
overall consumer consumption in 2021.
urn ba an ne laid Co err Pe
elb
o Ho Bri
sb Syd Ad
e
old Ca
nb
M G Whilst international travel is not expected to return to pre-
covid levels for a number of years, local domestic travel is
expected to increase, partially offsetting the reduction in
foreign tourism.
Source: CBRE Research (Q4 2020)
Domestic overnight trips in December 2020, were only down
19% compared to December 2019 Domestic overnight trips¹¹,
demonstrating an early recovery and continued resilience in
New supply in Melbourne and Hobart, based on a the domestic travel market.
percentage of existing available rooms, is the highest of Globally recognised capital cities, Sydney and Melbourne,
all states, with confidence in these markets prior to the which have a greater reliance on international travellers,
pandemic having been particularly strong. are expected to lag in the recovery, whereas regional areas,
Once the pandemic impacts have eased in the near term, and destinations such as Brisbane and the Gold Coast are
absorption rates and occupancy levels will be tested as forecast to perform better. These larger cities may seek
new hotels progressively start trading in the next 12 – 24 some relief from the ongoing quarantine hotel program for
months. The majority of new Melbourne hotels are centrally returning travellers for additional income support.
located with the majority earmarked to have a five star Serviced apartments and Airbnb offerings are expected
rating. This is likely to place pressure on average daily rates to under perform compared to well-managed and
and occupancies of existing older secondary stock, which operated hotels due to the lower level of hygiene
may be less desirable due to the quality or location of the and overall service standards, which are currently
accommodation. of higher priority than in pre-pandemic times.
4
MAXCAP | AUSTRALIAN HOTEL MARKET UPDATE 2021Accordingly, we expect new hotels to perform well across Selective participation in these transactions continues to be
Australia and especially in Queensland which has a strong carefully considered, with preference for those transactions
existing supply of serviced apartments and Airbnbs for benefiting from the following favourable risk-return
holiday rentals. characteristics:
Pent up demand from locals unable to travel overseas is
expected to drive both intrastate and interstate tourism. 1. Lease or income support
Accommodation in regional centres, especially those within Hotel assets where the hotel managers provide a minimum
driving distance of major capital cities, is expected to EBITDA guarantee to the asset owner, or alternatively a long
continue to outperform most CBD hotels. Federal and state term lease arrangement, are considered more favourable
travel grants are also expected to continue through 2021, than a standard arrangement, reducing the level of trading
providing further incentive for domestic travel. uncertainty in the current environment and providing
financiers with greater confidence in the performance of
As confidence in the handling of the pandemic continues completed assets.
to increase, domestic business travel is also expected to
improve. This improvement will however be moderated due
to the ability for video meetings via online platforms. 2. Mixed use income diversification
In line with pre-pandemic times, MaxCap views mixed
International travel is not expected to return in any
use hotel projects (that comprise other components such
meaningful way in 2021, except for the New Zealand and
as residential apartments or commercial tenancies) more
Asia/Pacific travel bubble which is expected to commence favourably than standalone hotels.
this year. Commencement of this travel bubble and the
likely expansion allowing for greater flexibility, will provide The variety of assets within the project provides natural
both nations with a new influx of accommodation demand, diversity, leading to reduced investment risk. Moreover,
the non-hotel components of the project provides the
boosting hotel and tourism performance, and overall
developer with the ability to obtain presale and/or pre-
consumer confidence. Traditionally, New Zealand and Asian
lease commitments, which further de-risks the project.
visitors have mostly travelled to the eastern seaboard of
Additionally, should the project be partially presold (if for
Australia (mainly capital cities); accordingly, we expect these
example there is a residential component), settlements from
markets to benefit the most from this bubble arrangement.
pre-sales would reduce the residual LVR, enhancing the exit
position of the overall project/asset.
CRE DEBT OPPORTUNITIES 3. Opportunistic return out-performance
Transactions where, as a result of dislocation of the banking
sector reducing the supply of credit, MaxCap is able to
generate significant out-performance in returns for a given
level of risk.
Consistent with this thematic, MaxCap is aware of several
earmarked hotel developments which are expected to
Construction periods Strong risk-adjusted MaxCap will commence construction in the next 12 months. These
of 18 – 24 months, opportunities for continue to conduct developments are predominantly underpinned by long term
expected to well-structured thorough due hotel management agreements with global hotel operators,
alleviate immediate debt diligence on who remain heavily invested in the Australian market and
occupancy risk potential hotel
deals who appear to be confident in Australia’s handling of the
pandemic to date.
As construction periods are typically 18 to 24 months for a
Despite the challenges of 2020, MaxCap remains major hotel project, the near term risks are also expected
cautiously optimistic regarding commercial real estate debt to be largely alleviated by the time construction completes
opportunities within the hotel sector. and domestic travel resumes and some international travel
In particular, MaxCap continues to observe the retreat of the bubbles open.
major banks from property construction lending generally Accordingly, MaxCap expects to see strong risk-adjusted
and for hotels specifically, and accordingly sees an increasing opportunities appear in the non-bank space, for well-
number of attractive risk-adjusted opportunities. structured debt investments.
5
MAXCAP | AUSTRALIAN HOTEL MARKET UPDATE 2021References
1. Tourism Research Australia: 5. Tourism Research Australia: 8. Australian Bureau of Statistics:
International and Domestic Visitor International Travel Estimates By Australian National Accounts:
Survey Results September 2019 Country of Residence Year Ending National Income, Expenditure and
September 2019 Product, December 2020
2. OAG.com: global routes by total
6. Tourism Research Australia: 9. Australian Bureau of Statistics:
number of flights (arriving and
Labour Force, Australia December
departing) Domestic Travel Estimates Year
2020
3. STR research: Australian Ending September 2020 – Visitors,
10. Australian Bureau of Statistics:
Accommodation Monitor for the Visitor nights and regional
Australian National Accounts:
year July 2019 – June 2020 expenditure by State/Territory Visited National Income, Expenditure and
4. Tourism Research Australia: 7. Tourism Research Australia: Domestic Product, September 2020
International Travel Estimates By Travel Estimates Year Ending 11. Tourism Research Australia:
Country of Residence Year Ending September 2020 – Overnight Visitor Domestic Travel Estimates Year
September 2020 Nights by State/Territory Visited. Ending September 2020
6
MAXCAP | AUSTRALIAN HOTEL MARKET UPDATE 2021PROJECT SUMMARY 7
HEAD OFFICE MANAGER
Level 33, 360 Collins Street MaxCap Investment
Melbourne VIC 3000 Management Pty Ltd
Australia ABN 68 169 902 005
Tel +613 9620 2220 AFSL 462086
MAXCAP LOCATIONS Level 33, 360 Collins Street
Melbourne VIC 3000
Melbourne Perth
Tel +613 9620 2220
Sydney Auckland
Fax +613 9620 2221
Brisbane
legal@maxcapgroup.com.au
LinkedIn | Twitter | YouTube
MAXCAPGROUP.COM.AU
DISCLAIMER: The information is not intended for general distribution or publication and must be retained in a confidential manner. Information contained
herein consists of confidential proprietary information constituting the sole property of MaxCap. All such information should be maintained in a strictly
confidential manner. Unauthorised use, copying, distribution, replication, posting, transmitting, publication, display, or reproduction in whole or in part of the
information contained in this communication is prohibited without obtaining prior written permission from MaxCap. This paper is for general informational
purposes only and is only intended to provide a summary of the subject matter covered. It does not purport to be comprehensive or to give advice. This is
not an offer document and does not constitute an offer or invitation of investment recommendation to distribute or purchase securities, shares, units or other
interests to enter into any legal or financial commitments. No person should rely on the content and/or act on the basis of any material contained in this paper.
MaxCap makes no warranties or representations as to the achievement of any returns noted in the paper, and disclaims any warranties implied by law or
otherwise, to the extent permitted by law. MaxCap disclaims all liability for any loss or damage of whatsoever kind which may arise from any person acting
on any information in this paper. The information contained in this paper is derived from data obtained from sources believed by MaxCap to be reliable and
is given in good faith, but no warranties or guarantees, representations are made by MaxCap with regard to the accuracy, completeness or suitability of the
information presented. It should not be relied upon, and shall not confer rights or remedies upon, each recipient of its employees, related entities, associates,
or any other person. Any opinions expressed reflect the current judgment of the authors of this paper and do not necessarily represent the opinion of MaxCap.
The opinions reflected herein may change without notice. MaxCap does not have an obligation to amend, modify or update this paper or to otherwise
notify a reader or recipient thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or
subsequently becomes inaccurate. MaxCap, its directors, employees, contractors and representatives do not have any responsibility or liability to any person
or recipient arising from any statement, opinion or information, expressed or implied, arising out of, contained in or derived from or omission from this paper.
Each recipient is to rely solely on its own knowledge, investigation, judgment and assessment of the matters which are the subject of this paper and any
information which is made available in connection with any further enquiries and to satisfy itself as to the accuracy and completeness of such matters. Whilst
every effort is made to ensure that statements of facts made in this paper are accurate, all estimates, projections, forecasts, prospects, expressions of opinion
and other subjective judgments contained in this paper are based on assumptions considered to be reasonable as of the date of the paper in which they are
contained and must not be construed as a representation that the matters referred to therein will occur. | MaxCap may provide hyperlinks to websites of
entities mentioned in this paper, however the inclusion of a link does not imply that MaxCap endorses, recommends or approves any material on the linked
page or accessible from it. Such linked websites are accessed entirely at each recipient’s own own risk. MaxCap does not accept responsibility whatsoever for
any such material, nor for consequences of its use. 2021You can also read
