Franchise agreements, room rates and lifestyle brands on the rise for 2024

Hotel asset management firm, Axsia HTL, has predicted franchise agreements, room rates and lifestyle brands will be on the up in 2024 as the Australian market continues to rebound post-COVID.

David Simpson, Managing Director of Axsia HTL, reveals that the company anticipates 2024 will be another bumper year in the Australian landscape, predicting RevPAR figures will continue to increase and exciting Gen Z-focused lifestyle brands will flow into the market.

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Here are Axsia HTL’s top four market forecasts for owners and developers to consider in 2024:

Traditional hotel management agreements will be old news

“Ask anyone at Axsia HTL if traditional hotel management agreements are fit for purpose in the current environment, and they’ll immediately answer ‘no’,” Simpson said.

While big brands remain powerful, Axsia HTL finds they are growing fast and are too stretched to provide the necessary support to ensure each hotel is performing to its potential. Under a hotel management agreement (HMA), this means inexperienced field teams are being left to build the bespoke management strategies that owners and developers need to truly succeed. The outcome, according to the company, is not a recipe for success.

Simpson reports that the majority of Axsia HTL’s clients are laser-focused on performance and, as such, are interested in alternatives to HMAs.

“We really believe in the power of franchise agreements, and our clients are increasingly in agreement with this,” says Simpson.

“They realise they need the brand and distribution strength but also the autonomy to create and execute their own strategy. Franchising can provide that, and it can ultimately lead to better financial yield.”

Franchise agreements are predominant in the US, and Axsia HTL expects this will become the case in Australia over 2024 and beyond as more owners realise their benefits.

“We recognise some owners might find a franchise agreement daunting. Thankfully there are options available, such as employing an experienced operating team or hotel asset management company to manage the property. Or, owners can explore a manchise agreement, which is a brand management contract that can be converted to a franchise agreement once stabilisation has been reached. It helps provide peace of mind upfront and flexibility down the line,” noted Simpson.

RevPAR figures and room rates will go from strength to strength

“STR’s 2024 outlook data suggests all of Australia’s capital cities are experiencing strong ADRs through the end of 2023 and that this is set to continue into the coming year, with occupancies following,” explained Simpson.

According to Axsia HTL, three major factors are contributing to this: the return of international business and corporate travellers, the resumption of traditional high and low seasons and a consumer willingness to pay more for an accommodation experience.

“Gen Z and millennial travellers are finding themselves priced out of the property market and instead are spending on travel and experiences.

“At the same time, the quality of the product available in the Australian landscape is growing by leaps and bounds, and consumers are enticed by this,” said Simpson.

Should owners and developers pay attention to the market, lean into the wants and needs of Gen Z and millennial travellers and provide an exceptional experience, Simpson expects they should be able to continue to charge higher rates and for customers to want to pay for it.

Interest rates, building costs and LVRs will continue to influence new stock and opportunities

“Hobart, Melbourne, Adelaide, and Perth have seen an influx of new stock over the past three years.  However, these markets, particularly Melbourne, still have a number of projects that were conceived during COVID in the pipeline and that we anticipate won’t come to fruition, thanks to higher interest rates, higher building costs and lower loan-to-value ratios,” said Simpson.

Looking at Melbourne in particular, Axsia HTL forecasts that while land banking might happen, developers may start to sell, meaning all eyes should be on the southern city for opportunities. In addition, Simpson notes that Sydney and Brisbane are undersupplied and, while entering these markets is dependent on finding the right land at the right price, there are opportunities for owners and developers if they can find this sweet spot.

Lifestyle brands will reign supreme thanks to Millennial and Gen Z consumers

“While the big brands have an enduring reputation, they are becoming saturated and aren’t delivering what modern travellers want, namely a connection to place and an authentic experience. Whereas new lifestyle brands like Treehouse, Ace, 1Hotel, Mondrian, Standard, 25 Hours and The Hoxton, to name a few, are, which is why we expect them to be popular throughout 2024 and beyond,” said Simpson.

For Axsia HTL, these brands offer owners and developers more than just something new, they offer flexibility to create their own footprint and a product that will truly connect to their location.

They also market themselves well to Gen Z and Millennial consumers, which in turn is driving a preference for these brands amongst entities looking to appeal to these demographics, like big corporates and owners and developers.

“It’s an ecosystem,” said Simpson. “Especially when it comes to Gen Z and forecasting how to appeal to this demographic that will be even more cashed up and ready to spend on travel in 10 years’ time. Owners and developers that are smart are playing into this and partnering with brands that will speak to these travellers in the future.”

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