Hotel refurbishments can increase hotels market share by up to 15% on average, and could possibly be even more effective in Melbourne, Perth and Adelaide due to favourable market conditions, according to Jones Lang LaSalle's "Hotel Make-Overs: Maximising Asset Value" white paper.

According to Mr Vince Mulholland, Australian Head of Project and Development Services at Jones Lang LaSalle, given that most Australian CBD markets are currently in the upswing cycle, hoteliers would be wise to undertake extensive upgrade programs now.

Jones Lang LaSalle's paper shows that the market is conducive for extensive hotel refurbishment in Melbourne, Perth and Adelaide (early to mid upswing) and Sydney and the Gold Coast (late upswing). Only Brisbane has passed through the peak and would be better suited to a soft refurbishment.


"In order to stay competitive in a growing international tourism market, most major branded hotels throughout the Asia Pacific have shortened their refurbishment cycle. Today the majority are prepared to refurbish rooms every seven years and F&B outlets every five," says Mr Mulholland.

"On average, most refurbishments provide hotel owners with a return on investment of approximately 25 and 30%," he says.  "In order to continue to remain competitive and attract new business, internationally branded four and five star Asia Pacific hotels have had an average spend of A$64,000 (US$47,000) per key on refurbishment programs over the past two years."

"Two thirds of the total refurbishment costs are usually allocated to guest rooms, with public areas, mechanical engineering and food and beverage areas each accounting for around 8% of total refurbishment budgets," says Mr Mulholland. "In older hotels, up to 25% of expenditure is allocated to machinery and equipment."

Mr Cooper, Senior Vice President of Jones Lang LaSalle Hotels and co-author of the paper says Australia tourism growth is being driven by increasing travel by tourists from China and the proliferation of low cost airlines.

"China's development is proving a boon to it neighbours with outbound tourism being one of the worlds major sources of tourism growth. Over the last ten years, outbound border crossings from China have increased on average by 20.0% per annum. This is providing impetus for many of Australia's hotels, especially those focusing on the leisure segment, to consider refurbishment programs," he says.

"Refurbishments should occur with minimal disruption of cash flow. Immediate increases in revenue can be generated by revitalising room product and providing other market-responsive facilities such as spa and lifestyle facilities and improving again F&B facilities. Expenditure that puts back lost revenue by recovering room rates include improvement of the room product and branding, and improvements of public areas that improve the perception of quality. Better technology and energy efficient building controls systems and waste management systems can also ensure cost savings in outgoings," says Mr Cooper.

Mr Mulholland says the most common causes for budgets to miss target tend to be a lack of appropriate allowance for the removal of hazardous materials, additional costs of building code compliance to local authority regulations, the cost of restrictive hours for work and access, as well as the project running overtime.

Of all methods of contracting between the service provider and the hotels, Mr Mulholland believes that construction management and management contracting are the most appropriate style of delivery for major hotel refurbishments, when the hotel intends to remain operating during the process.

"For example, a hypothetical room undertaking a refurbishment can result in average leveraged IPR of 15.6% compared to 13.0% if the property is only maintained," he says.

About Jones Lang LaSalle

Jones Lang LaSalle has more than 100 offices worldwide and operates in more than 430 cities in 50 countries.  With 2005 revenue of approximately US$1.4 billion, the company provides comprehensive integrated real estate and investment management expertise on a local, regional and global level to owner, occupier and investor clients. Jones Lang LaSalle is an industry leader in property and corporate facility management services, with a portfolio of 927 million square feet worldwide. In 2005, the firm completed capital markets sales and acquisitions, debt financings, and equity placements on assets and portfolios valued at US$43 billion. LaSalle Investment Management, the company's investment management business, is one of the world's largest and most diverse real estate money management firms, with approximately US$34 billion of assets under management. For further information, please visit www.joneslanglasalle.com