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Is Hotel Development Getting Harder, or Easier?
By Andrew Taylor
Monday, 11th September 2023
 

Once again, it seems that we are witnessing the perpetual up and down cycle of real estate in Australia in action and this time its moving away from the perceived safety of commercial offices and residential projects, to hotels as a distinct asset class.

High construction costs have pushed many developers to the edge and commercial office rents (and values) are finally taking a significant hit in a world where WFH is here to stay. And finally, soaring inflation continues to hamstring the capacity for the punter to purchase property.

All in all, it’s a shift that has put the spotlight back on the Hotel sector.

Record levels of hotel assets are being spruiked across Australia & NZ - from backpackers /economy-led assets, to boutique-style assets (namely Ovolo 1888, 202 Elizabeth and Little Albion), through to NZ and Australian based ski resorts, urban assets in regional centres (QT Newcastle), to the very top end of the market with the Ritz Carlton Melbourne & Perth assets. There is something for every appetite and investors are licking their lips!

From a development perspective, hotel development remains a challenging proposition! Land prices dictate 'highest and best use', but with room rates in several markets growing by 30% or more (vs. 2019 rates) and new neighbourhoods & markets now on the hit list for developers, suddenly the pendulum has swung!

Developers rushing in, need to be cautious.

In some respects, we should consider the idea of 'development' as a concept and understand some of the factors at play. Hotel development is essentially a creative endeavour… a process that relies on innovation, partnership and collaboration in order to create something new and of lasting value to the market.

In delivering a hotel one must consider the many moving parts. What is the right hotel for this location and market? What sort of experience will resonate with both the locals and the travel market? To what extent will the hotel rely on corporate vs. leisure customers? What is the right price point and how do we go about monetising every square metre of space inside the asset? Who is the right designer for this project? How am I going to fund a project that has no pre-sales and relies on a stabilised income that's several years away?

Then there is the hotel Operator landscape, which can be fraught with danger! Remember, for Operators, this is their domain. They are 'full time' in the space and hold a lot of IP that developers are hungry to get their hands on. By contrast developers are 'dipping in' and they can easily misconstrue an operator's brand pitch as bankable? development advice!

Achieving success in the hotel development arena is about having the right team at your back, acknowledging the shortfalls in your own development capability and bringing on the right advisors and partners to level up the playing field!

By Andrew Taylor - Follow

Hotel Development & Entrepreneur

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