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.
Australian Head of Project and Development Services at Jones Lang LaSalle, Vince Mulholland said that given that most Australian CBD markets are currently in the upswing cycle, hoteliers would be wise to undertake extensive upgrade programs now.
JLL’s “Hotel Make-Overs: Maximising Asset Value” white 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).
It found 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,” Mulholland adds.
“On average, most refurbishments provide hotel owners with a return on investment of approximately 25 and 30%,” he said.
“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 $64,000 ($US47,000) per key on refurbishment programs over the past two years.”
Mulholland said that 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.
“In older hotels, up to 25% of expenditure is allocated to machinery and equipment.”
Senior Vice President of Jones Lang LaSalle Hotels and co-author of the paper Max Cooper said 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,” Cooper added.
Mulholland said 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, 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.”
By Kathryn O’Meara
