AS COVID lockdown concerns amongst travellers ease, the hotel sector is well on the way to recovery, outstripping projections.

According to Napier & Blakeley’s director Ian Gardner, who was speaking at an ESG panel discussion at the HICAP ANZ conference, the past couple of years has forced the sector to innovate and act quickly, diversifying offerings and income streams associated with hotel properties.

Although the conference noted that occupancy across Asia Pacific varies due to slow changes to government setting in some countries, elsewhere occupancy continues on its path back to 2019 levels with all major markets above 83% of 2019 levels, including North America, Central America, South America, Australia, Europe, Africa and Middle East.

At the same time, more than 50% of global markets were at peak Revenue per available room (RevPAR) compared to a 2019 baseline, and the higher average daily rate (ADR) is offsetting the reduced occupancy.

Gardner said industry indications are that hotel investment is also strong but margins are currently compressed.

Recent data from MSCI Real Assets Australian Capital Trends reveal hotel transactions are up by 84%.

“The fastest RBA tightening cycle is anticipated to control inflation with a 2–3-year cycle and then we’ll see an easing of rates,”

Meanwhile Gardner said the hotel recovery to 2019 levels is projected to occur in mid to late 2023.

“Winter demand in Australia is 90% of 2019-pre Covid rates. Covid concerns have dropped to 4th on the list of travel barriers, with inflationary costs are taking over as the leading concern.

“Brisbane leads the Australian recovery, Queenstown is leading New Zealand,” he added.

Despite the positive recovery, there was consensus that when it comes to ESG, the hotel sector is lagging behind other markets such as office, retail and industrial.

The panel’s views are supported by a recent CBRE report into the hotel sector’s ESG initiatives.

According to the report, the sector is in the early stages of achieving meaningful changes to environmental practices but rising energy costs, which have increased electricity costs by 10% since May 2021, are likely to accelerate the industry’s focus on sustainability, particularly given the shift in traveller preferences toward more sustainable tourism and green accommodations and the growing demand for disclosure around climate risk.

According to the Sustainable Hospitality Alliance (SHA), to keep pace with the targets outlined in the Paris Agreement, the global hotel industry needs to reduce carbon emissions per room per year by 66% by 2030 and 90% by 2050.

Gardner said whilst the sector is a little behind, there are also plenty of leaders in the hotel sector but accelerated take-up of the ESG challenge is needed more broadly.

Companies like Accor, Hilton, Hyatt, IHG and Host Hotels have set climate-based targets. In many cases, they have adopted near-term targets on the path to achieving net zero. For example, Hilton pledged to reduce scope 1 and 2 emissions by 61% by 2030. Marriott is committed to setting SBTi targets under the 1.5-degree scenario and targets a 30% reduction in carbon intensity by 2030.

Meanwhile CBRE found it is guests and travellers who are leading the way, choosing to patronise socially responsible hotel businesses.

The search for environmentally friendly accommodations is most common among luxury hotels guests who often seek vacations at resorts in environmentally sensitive areas like beaches and mountains. According to Virtuoso, a network of luxury travel agencies, in April 2021, 82% of travellers said the pandemic has made them want to travel more responsibly in the future. Half said it was important to choose a company that had a strong sustainability policy. While there is some evidence that guests are willing to pay a premium for environmentally sustainable accommodations, because of inflation and uncertainty in the market, the premium they are willing to pay remains unclear.

Written by Nelson Nap
Australian Property Journal
28 September 2022