Wishing on five stars

Think of Australian prestige hotels and most travellers will come up with the Palazzo Versace on the Queensland Gold Coast, which is replete with gilt medusa-head branding, Italianate furnishings and designer pet beds for Very Important Pooches.

Zambian-born entrepreneur Geoffrey Kent, founder of one of the world's most upmarket travel adventure companies, Abercrombie & Kent, reckons this is a tragedy - not because there is anything wrong with the Palazzo's glitz but because so few other prestige brands have established themselves in Australia.

QT Sydney is a visually arresting environment.

"It's a great opportunity - maybe Abercrombie & Kent better go and take a look," Kent tells WISH at a travel talkfest on emerging trends for the $US2 trillion global travel industry. The high-end tourism veteran is not alone in his bemusement at Australia's paucity of premium hotels and resorts. At the annual World Travel & Tourism Council conference in Seoul, South Korea, in September, the globe's tourism kingpins were united in asking: where are Australia's Peninsula hotels, its St Regis hotels and its Jumeirahs?

After five years of scouring Perth and Sydney, The Travel Corporation president Brett Tollman has just pulled the plug on his long-held plan to invest in Australia's hotel industry. The global company wanted to establish its Red Carnation Hotel brand here, after QT Sydney is a visually arresting environment, thanks to the help of art and design consultants successfully developing six luxury properties in London, three in South Africa, and others in Palm Beach, Florida, and Geneva. Blaming the expense and difficulty of doing business in Australia, in May the Tollman family forked out 20 million to buy Ireland's epic Ashford Castle in County Mayo to add to its luxury Red Carnation hotel portfolio.

Meanwhile, Canadian private equity giant Brookfield has plans to close Sydney's dowager Menzies Hotel atop Wynyard station and transform it into a billion-dollar office block. It would be a sound investment given that commercial office space is a far better earner than any luxe hotel.

But it's not all doom and gloom for our $94 billion tourism industry. There are signs that some top international hoteliers are waking up to the country's charms. There's talk that the American owner of RitzCarlton hotels will debut its luxury brand on the Perth waterfront in the next few years. Meanwhile, South African billionaire Sol Kerzner is committed to spending $50m to upgrade Queensland's Hayman Island into a six-star One&Only resort - Australia's first - opening next April.

QT Falls Creek sits at the base of the main ski runs.

The popular Singapore-based Banyan Tree is exploring opportunities to develop a high-end resort in Margaret River, Western Australia's scenic wine and food tourism region, as well as other opportunities in Sydney and Melbourne. But Banyan Tree's Singaporean chief executive, Abid Butt, is mindful of the problems ahead.

"It has to do with the cost of financing in the hotel industry," says Butt. "In the US, growth occurred in the hotel sector when investors could write off losses.

Australia has relied on residential development to finance resorts and, as long as there are tax incentives to build, investors will come."

Sydney-based businessman Tony Stuart, chief executive of the NRMA, agrees. Despite the $300m worth of tourism assets on NRMA's balance sheet, Stuart says the economics of hotel ownership in Australia simply do not stack up. Labour costs are too high, and let's not even talk about the exorbitant cost of buying a prime site in the heart of Sydney, Melbourne or Brisbane to develop a hotel.

"It's very hard for a conventional investor to get a five- to six-star hotel up," says Stuart. "Hotels in Australia have high operating costs, high costs of construction, and we are not able to command on a regular basis very high room rates. However, Australia does need more quality five-star products."

Enter David Seargeant, chief executive of the ASX-listed Amalgamated Holdings, owner of Rydges Hotels & Resorts, the Thredbo Alpine Resort and Event Cinemas. For the past two years, the low-profile Seargeant, who cut his teeth managing the mid-range Rydges Hotels chain, has been quietly buying up cinema complexes and city shops to convert into QT Hotels and Resorts. So far he has amassed a $550m portfolio of 18 QT and Rydges hotels and more are on the way.

Seargeant agrees with his international counterparts that there's a need for more high-end hotels in Australia given the tourism industry is set to double in the next 20 years in response to demand from Asia's expanding middle classes, according to forecasts from consulting group Deloitte.

Of course, as a longstanding hotel investor and owner, he could have taken the easy path and brought in an international hotel operator such as Hyatt's upmarket Andaz brand - known for its sophisticated style, local cuisine and vibrant social areas - but that's not his way.

"All they do is take fees," says Seargeant, dismissing international hotel operators. "They have no skin in the game. We have our own money and we want to drive it to get the return out of the property."

As such, Seargeant has built up a luxury lifestyle brand from scratch, opening the QT resort on the Gold Coast two years ago: "We believed the Gold Coast needed a hotel of this style."

He's been busily rolling out QTs ever since. They are modelled on some of his best-loved American and British properties: think the Firmdale hotels in London and New York. Seargeant describes QT Hotels as highly personality driven and strong on food and beverage. "We have bars that have a real happening crowd and restaurants that are quite hip and fashionable."

With local designers, public area stylist Nic Graham, and specialist art curator Amanda Love, Seargeant worked up the QT Hotels brand using emerging artists to decorate the hotel's lobbies, restaurants and various reception areas. Amalgamated opened Port Douglas as a QT in May last year and opened the QT flagship in the former Gowings building in Sydney in September last year. This was followed by the glitzy Victorian ski resort of Falls Creek in June.

Seargeant has made the level of detail in the QT brand a priority, the layering and the depth of design, such as the luggage wall installation, which is the centrepiece of QT Sydney's reception area.

QT Port Douglas has a large pool.

"Hotels have a lot of single travellers, people on their own; they spend a reasonable amount of time within the hotel waiting for a [business] appointment. To have them wander around a hotel, and have them experience a lot visually that is interesting to them, is really important."

Seargeant is speaking from experience gained on his regular travels to New York and Europe. "I am obviously looking at new trends in hotels, restaurants and bars."

Among the new QTs in the pipeline, the Rydges Lakeside Hotel in Canberra will soon be converted into a QT. Amalgamated Holdings is also planning to build new hotels of about 200 rooms apiece in Perth and Melbourne plus a smaller property in the NSW ski resort of Thredbo. There are also plans for a QT Hotel and specially branded residential apartments in Sydney's Bondi Beach.

"We would obviously like to get something in Brisbane, and something in Adelaide, maybe on a smaller scale but perhaps on a management basis rather than letting it," the acquisitive Seargeant adds.

Offshore, Amalgamated plans a 40-room hotel in the lake and alpine resort district of Queenstown, New Zealand, converting a property near Lake Wanaka.

"It's important that we have a brand that is unique and that we can take internationally" "Upmarket hotels are a high-growth segment in many major cities around the world, particularly cities like New York, London, Barcelona and Berlin. It is a segment that is growing stronger in terms of demand," he says.

But has the advent of the QT brand sparked a desire in international investors to expand it into other markets?

"Not at this stage, but we would hope the concept has enough in it that is unique that would attract hotel investors who would want to put the brand into certain international markets. We have had a few discussions, but I think really you need to establish the brand firmly first."

Echoing his international counterparts, Seargeant believes it's important for Australia to have more homegrown brands.

"It is important we have a brand that is unique and we can take internationally. There has been very little new hotel development in Australia since 1988. There were new hotels developed in Sydney prior to the Olympics, but in essence our last development wave was 1988 and it's finished."

Taking heart from Deloitte forecasts, Seargeant is optimistic about the future of hotels and tourism. "We just need our hotel rates to firm up. Demand is strong and is growing, so it's only that room rates have not got quite to the level where hotels are working in terms of acknowledged acceptable longer-term returns. They are not far off that.

"So when we hit that point, when we get consumer confidence again, rates will improve and the returns will be acceptable for developing hotels. It's very close - it just needs those rates to firm a bit more."

Inbound growth from big-spending US and European tourists will help, he says. "Maybe that is two to three years away but it will come. We are at the very early stages of a long-term growth cycle for hotels. I will probably get in trouble for saying that, but I firmly believe it."

The Australian, 8 November 2013