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Traditional hotel management agreements old news in 2024

Your property assets should be as profitable as possible. Key to this is knowing what factors will influence an asset’s performance in the future and what strategy can be put in place to maximise this. Through our research and expertise, we’ve identified four key market trends owners and developers should consider in 2024:

1. Alternatives to traditional HMAs will be on the rise

Ask anyone if traditional hotel management agreements (HMAs) remain fit for purpose in the current environment, and they’ll immediately answer no.

While the big brands remain powerful, they’re growing fast and are too stretched to provide the support needed to ensure a hotel performs to its full potential under an HMA. Inexperienced field teams are left to build management strategies, and 99 per cent of the time, they’re not bespoke or strategic enough to succeed.

Owners and developers who are laser-focused on performance are looking for alternatives to HMAs. Franchise agreements, predominant in the US, offer a slew of benefits, coupling brand and distribution strength with the autonomy to create and execute a truly bespoke strategy leading to better financial yield. We really believe in the power of these, and the majority of our clients increasingly do too.

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However, for owners and developers who might find this autonomy daunting, there are options. They can employ an experienced operating team or a hotel asset management company to manage the property. Or they could explore a manchise agreement, a type of brand management contract that can be converted to a franchise agreement once financial stabilisation has been reached.

2. RevPAR figures and room rates will continue to grow

Looking at STR’s 2024 outlook data, each of Australia’s capital cities is set to experience strong ADRs until the end of 2023 and beyond into 2024, with occupancies following suit.

For us, there are three major factors contributing to this: the return of international business and corporate travellers, the resumption of traditional high and low seasons and a willingness amongst consumers, especially Gen Z and Millennials, to pay more for an exceptional accommodation experience.

To see the success STR predicts, it’s particularly important for owners and developers to pay attention to the latter factor.

The Gen Z and Millennial demographics are finding themselves priced out of the property market and instead are spending their hard-earned money on travel and experiences. At the same time, the quality of the product available in the Australian market is growing exponentially, and these demographics are on board with it.

Should owners and developers be aware of the competition, lean into the wants and needs of these Gen Z and Millennial travellers and provide a genuinely standout experience, they can expect to continue to charge higher rates and for customers to pay them.

3. New stock and opportunities will be guided by interest rates, building costs and LVRs

Over the past three years, Hobart, Melbourne, Adelaide and Perth have seen a massive influx of stock. But, as a result, these markets, especially Melbourne, have a number of pipeline projects – and we believe many won’t come to fruition thanks to the higher interest rates, higher building costs and lower loan-to-value rations we’re continuing to see in the local landscape.

While we might see instances of land banking, we also might see developers start to sell. This means investors should keep a keen eye on these cities for opportunities – particularly Brisbane and Sydney, which are undersupplied. Should investors be able to find the right spot for the right price and place a carefully considered asset there, they can expect to reap the returns.

4. Lifestyle brands will remain hot for Millennial and Gen Z travellers

The big brands that we know and love have an enduring reputation and place in the accommodation ecosystem – major cities will always need properties with room stock and meeting and event spaces.

However, they are becoming saturated and aren’t delivering what modern travellers want, particularly a connection to place and hyper-authentic experience. Lifestyle brands like Treehouse, Ace, 1Hotel, Mondrian, Standard, Moxy, 25 Hours and The Hoxton, to name a few, do deliver on these factors, and as such, we expect them to be extremely popular in the Australian market throughout 2024 and beyond.

We see these brands as offering something new, as well as the flexibility for owners and developers to create their own footprint and a product that will connect travellers to their location. We also see these brands as marketing themselves exceptionally well to Millennial and Gen Z travellers, who experience them overseas and want a similar experience back home, whether that’s travelling for business or leisure. This, in turn, is driving preference for these brands amongst entities like big corporates and owners and developers that want to appeal to Millennial and Gen Z travellers.

Forecasting how to appeal to these demographics, who will be even more cashed up and ready to spend on travel in 10 years, is a must. Owners and developers that are smart are partnering with lifestyle brands now, to speak to Millennials and Gen Z in the future.

Managing an asset in this ever-changing environment and economy can be challenging. By paying close attention to the market, providing an exceptional experience, playing into key demographic desires and working with a knowledgeable team (like a hotel asset management firm), owners and developers can come out on top in 2024 and beyond.

 

Tags: HMA, hotel management agreements, property management, RevPAR

Managing Director, Axsia HTL

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