Global hospitality trends point to further opportunities in Australia in 2015

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Thursday 12th February 2015 - Asian investment will continue to contribute strongly to the M&A picture in the Australian hospitality sector in 2015, EY said. 

Cross-border capital is increasingly dominating the M&A picture, accounting for 41.2% of global hotel investments between January 2014 and October 2014, compared to 34.7% in 2013. Asian investors – primarily dominated by China, Hong Kong, Japan and Singapore – represented 43.2% of these transactions, and the flow of money from Asia into North America, Europe and Australia is anticipated to keep rising. 

EY’s Global hospitality insights: Top thoughts for 2015 found that the global hospitality sector – riding a wave of growth, innovation and demand – is in a strong position to make further gains during 2015.

EY’s Oceania Hospitality and Leisure Leader David Shewring said cross-border capital accounted for 41.2% of global hotel investments between January 2014 and October 2014, compared to 34.7% in 2013.

“Asian investors represented 43.2% of these transactions, and the flow of money from Asia into North America, Europe and Australia is anticipated to keep rising,” Mr Shewring said.

“Future M&A activity will be driven by a desire for incremental growth among the businesses involved, the strategic merit of transactions and the availability of debt and equity on favourable terms. The higher volume of global capital chasing real estate opportunities will also be a net positive for deal-making.

“While the current market will continue to present favourable opportunities for growth through acquisitions, investors in this hypercompetitive environment should be aware of the additional risks and complexities. Investors will have to be increasingly diligent when vetting opportunities,” Mr Shewring said.

The report found that the impact of hospitality on our global economy is growing. Today’s travel and tourism industry represents 266 million jobs, and contributes 9.5% of GDP globally. With growth in the travel and tourism industry expected to increase by 3.9% in 2015, the sector will be increasingly recognised as a key driver of economic growth at the local, regional and global level.

Globally, both business and leisure travel have steadily improved in recent years, rebounding from the global slowdown immediately following the 2008-2009 financial collapse. The infusion of fresh cross-border capital and innovation in both properties and concepts will be the key drivers of growth in 2015.

Mr Shewring said there was a significant opportunity in Australia for tourism asset owners and operators to continue to tap into global growth across the leisure, corporate and group travel segments.

“To continue to capitalise on these opportunities the Australian industry must keep striving to ensure that their strategy has a clear differentiator.

“Despite some significant headwinds – such as geopolitical instability, new health concerns and inconsistent economic growth – the global industry is thriving and optimism prevails,” Mr Shewring said.

Globally a wave of new hotels will open in 2015 and new ownership of attractive existing properties will continue as well. Overall, the industry now has a robust pipeline of approximately 1.3 million new guestrooms in place. Australia has also seen significant hotel development spend and new construction either commenced or in planning, particularly in the major city commercial districts. 

While the global hospitality industry has largely been dominated by a few key cities or destinations considered most desirable for global travel (e.g., New York, Paris and London), global travellers have started to head to new destinations. This has led investors to identify numerous opportunities in secondary markets, reflecting a broader search for higher-yield investments.

New concepts, new demands

While travel is growing in most of the major markets around the globe, travel preferences and lodging demands from those who are staying in hotels are also evolving. In 2015, the millennial generation will continue to wield profound influence on how the industry looks and what services hoteliers are developing for guests.

“Today’s emerging traveller, millennials and millennial-minded guests, is not looking for their parents’ hotels and experiences. They are more cost-conscious and experience-focused than ever before, whether traveling for business or leisure,” Mr Shewring said.  

To meet changing demands, hoteliers are seeking innovative alternatives to traditional lodging products. Several of these products initially emerged in Europe and Asia but have found their way to the US and other markets.

For a copy of the report, visit www.ey.com/hospitality.

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