Article | Intelligent Investment
Here is why this successful hotel magnate is betting big on sustainability
Hotel sustainability is on the rise and Dr. Jerry Schwartz is one person who knows why when it comes to business ROI and social responsibility.
September 18, 2024
While many around the world reassess their spending habits during times of increased cost of living, the one industry that is seemingly going against the trend is travel and accommodation.
It’s a result forecasted by CBRE’s hotels report from earlier this year which found that surging inbound tourism is set to boost Australia’s hotel occupancy levels in the next two years. In the global gateway states of New South Wales and Victoria, domestic travel nights were up 5% and 13% respectively on the year prior.
One person who has reaped the full benefits of this market is Dr. Jerry Schwartz, one of Australia’s most successful, self-made hotel magnates.
Schwartz currently owns 15 hotels across the country, including the landmark Sofitel Sydney at Darling Harbour, a Hunter Valley brewery, an events centre, a charter and training airline called Blue Sky, and Sydney Seaplanes. He’s also finished construction on his second $10 million solar farm in the Hunter Valley.
The latter is one of his portfolio’s more interesting investments as it places a fresh spotlight on a rapidly expanding space in the commercial property sector – sustainability.
Sustainability in hotels has been on the rise in recent years. Beyond its regulatory push from the government, Schwartz personally sees real opportunities for ROI on the business front, as explored in CBRE’s recent Talking Property episode.
Here’s why one of the country's most successful private hoteliers has been directing his business interests towards sustainability.
“As investors got better clarity on the fundamentals, domestic visitor nights in 2023 were about 7% ahead of 2019 levels, which is quite remarkable,” says Phil Rowland, CBRE’s Pacific Advisory Services CEO.
International visitation to Australia has been rebounding, with New Zealand, the U.S. and the UK emerging as the top three source markets. This resurgence in tourism can be attributed to several factors. According to Sameer Chopra, CBRE’s Pacific Head of Research, population growth plays a significant role in this trend.
“It has a dramatic impact on hotels. For every one million new Australians that we have, we need 11,000 more hotel beds. That's about 20 new hotels that need to be built. The way we're seeing forward supply, there's only about 5,000 hotel beds at best in the supply pipeline, and it's very skewed towards luxury. Supply is half of demand very much at the premium end of town. Last year, we traded almost $2.5 billion of stock, which brought hotel investment activity back to its 2015 levels. Hotels look and feel a lot like residential.”
Wayne Bunz, CBRE’s National Director, Capital Markets, Hotels, agrees that the hotels industry has seen a strong bounce back in post-pandemic times.
“It shifted and refocused back into Australian leisure. While the CBD corporate hotels went quiet, the leisure destinations probably had the best 12 to 18-month trading period in the last decade. The hotels industry has seen so many year-on-year capital gains and if you look back through time, it's rare that you will see a hotel get into financial difficulty unless it's been over-geared or built in a rather remote location.”
Schwartz adds that it's not only today's high replacement cost of hotels, but also the challenging building process that’s aiding the performance of existing hotels.
“Part of building a hotel is the application to the council and the number of years that it would take for a new hotel to be built. It's the hassle factor which is being diminished by the fact that you can just buy a secondhand hotel and improve on it. This is really why hotel values have just kept shooting up.”
According to the latest NABERS report findings, 49 hotels were rated in 2023 compared to 32 from the previous year - a 53.1% increase. Part of this can be attributed to the Australian Government’s push towards getting more commercial buildings towards net zero.
If these proposed changes pass, it could mandate NABERS energy ratings and disclosure for large hotels by 2027 or 2028.
It’s a move that comes alongside the government’s use of its procurement power to further drive decarbonisation in the hotel sector. From July 2024, all travelling government officials must consider the environment when booking their accommodation. To drive a greater part of their business towards hotels taking meaningful action to decarbonise, NABERS Energy ratings for hotels will be included in the booking system used by officials.
For seasoned hoteliers like Schwartz, this trend needs little external motivation.
“Sustainability allows you to do two things: It allows you to do the right thing, and it allows you to save money.
“When I first started in the sustainability space, it was all about changing light bulbs and making them more efficient. It was cutting down on electricity and adding variable drives to pumps; adding energy management systems so that you wouldn't use energy when you didn't need to.
“I established my own full-time Sustainability Officer to implement sustainability measures and it's since grown. We've put solar panels on most of our hotels. I've built two 5 megawatt solar farms with plans for a third megawatt solar farm to make us totally sustainable. We'll be producing all the energy that we require for all 15 of my hotels.”
Schwartz’s investment in sustainability comes at an ideal time when the Government is similarly prioritising NABERS ratings.
“We were one of the first hotel chains to introduce NABERS ratings for both power and water. And not only did that manifest the fact that you were saving money, but it also manifested the fact that you're doing the right thing. A lot of government agencies look at that and I think it’s part and parcel in the world today that you need to do the right thing.”
On another front, investors are similarly factoring in sustainability when it comes to making hotel investment decisions.
“Two of the biggest challenges we have with inflation are energy and insurance costs. We don't have much control over the latter, but we certainly do in energy costs,” says Bunz.
“When you're buying a lot of older hotels, the cost of making those large hotels more energy efficient is a lot more challenging. But the more energy you can save, the better the bottom line, the sharper the yield, and the higher price per key.”
“Hotels are rated from 0 to 6 stars based on their energy intensity compared to industry benchmarks. A NABERS hotel rating combines 12 months of operational data of the hotel’s guest rooms, on-site amenities and back-of-house facilities to determine the star rating. NABERS ratings also adjust for differences between hotel quality, so it’s always a fair comparison,” says Alwis.
The process is similar to the rating process for offices, with different inputs required for the area and amenities of the hotel.
One of the most common challenges to date involves securing sufficient data to conduct the rating. This is often encountered when it’s the first time a hotel is sourcing this type of information. Subsequent ratings after the first report tends to get easier as the hotel aligns itself to the process and keeps track of the data.
NABERS ratings are an effective tool to benchmark performance against industry standards, and it is the first step to becoming carbon neutral.
Listen to the full podcast featuring Jerry Schwartz or see how CBRE can help your hotel reach its sustainability goals.
It’s a result forecasted by CBRE’s hotels report from earlier this year which found that surging inbound tourism is set to boost Australia’s hotel occupancy levels in the next two years. In the global gateway states of New South Wales and Victoria, domestic travel nights were up 5% and 13% respectively on the year prior.
One person who has reaped the full benefits of this market is Dr. Jerry Schwartz, one of Australia’s most successful, self-made hotel magnates.
Schwartz currently owns 15 hotels across the country, including the landmark Sofitel Sydney at Darling Harbour, a Hunter Valley brewery, an events centre, a charter and training airline called Blue Sky, and Sydney Seaplanes. He’s also finished construction on his second $10 million solar farm in the Hunter Valley.
The latter is one of his portfolio’s more interesting investments as it places a fresh spotlight on a rapidly expanding space in the commercial property sector – sustainability.
Sustainability in hotels has been on the rise in recent years. Beyond its regulatory push from the government, Schwartz personally sees real opportunities for ROI on the business front, as explored in CBRE’s recent Talking Property episode.
Here’s why one of the country's most successful private hoteliers has been directing his business interests towards sustainability.
Australia’s promising hotel industry
Despite the current cost of living pressures and high-interest rate environment, the local hotels sector continues to surprise many by displaying resilience amongst investors. According to CBRE’s senior experts, it was a market that recorded strong capital markets activity in Australia in 2023.“As investors got better clarity on the fundamentals, domestic visitor nights in 2023 were about 7% ahead of 2019 levels, which is quite remarkable,” says Phil Rowland, CBRE’s Pacific Advisory Services CEO.
International visitation to Australia has been rebounding, with New Zealand, the U.S. and the UK emerging as the top three source markets. This resurgence in tourism can be attributed to several factors. According to Sameer Chopra, CBRE’s Pacific Head of Research, population growth plays a significant role in this trend.
“It has a dramatic impact on hotels. For every one million new Australians that we have, we need 11,000 more hotel beds. That's about 20 new hotels that need to be built. The way we're seeing forward supply, there's only about 5,000 hotel beds at best in the supply pipeline, and it's very skewed towards luxury. Supply is half of demand very much at the premium end of town. Last year, we traded almost $2.5 billion of stock, which brought hotel investment activity back to its 2015 levels. Hotels look and feel a lot like residential.”
Wayne Bunz, CBRE’s National Director, Capital Markets, Hotels, agrees that the hotels industry has seen a strong bounce back in post-pandemic times.
“It shifted and refocused back into Australian leisure. While the CBD corporate hotels went quiet, the leisure destinations probably had the best 12 to 18-month trading period in the last decade. The hotels industry has seen so many year-on-year capital gains and if you look back through time, it's rare that you will see a hotel get into financial difficulty unless it's been over-geared or built in a rather remote location.”
Schwartz adds that it's not only today's high replacement cost of hotels, but also the challenging building process that’s aiding the performance of existing hotels.
“Part of building a hotel is the application to the council and the number of years that it would take for a new hotel to be built. It's the hassle factor which is being diminished by the fact that you can just buy a secondhand hotel and improve on it. This is really why hotel values have just kept shooting up.”
Rise of NABERS rated hotels
While NABERS ratings are common across many of today’s office buildings, its appeal amongst hotels has only begun seeing substantial growth in recent years.According to the latest NABERS report findings, 49 hotels were rated in 2023 compared to 32 from the previous year - a 53.1% increase. Part of this can be attributed to the Australian Government’s push towards getting more commercial buildings towards net zero.
Source: Australian Government CBD Program expansion consultation
One current initiative sees the Government considering changes to the Commercial Building Disclosure (CBD) Program. Successive reviews of the CBD Program suggest that its expansion to cover new building and ownership types will reduce energy consumption, reduce energy bills, and lower greenhouse gas emissions. Notably, hotels have been categorised as Group 2 buildings preceded by office buildings in Group 1.If these proposed changes pass, it could mandate NABERS energy ratings and disclosure for large hotels by 2027 or 2028.
It’s a move that comes alongside the government’s use of its procurement power to further drive decarbonisation in the hotel sector. From July 2024, all travelling government officials must consider the environment when booking their accommodation. To drive a greater part of their business towards hotels taking meaningful action to decarbonise, NABERS Energy ratings for hotels will be included in the booking system used by officials.
For seasoned hoteliers like Schwartz, this trend needs little external motivation.
“Sustainability allows you to do two things: It allows you to do the right thing, and it allows you to save money.
“When I first started in the sustainability space, it was all about changing light bulbs and making them more efficient. It was cutting down on electricity and adding variable drives to pumps; adding energy management systems so that you wouldn't use energy when you didn't need to.
“I established my own full-time Sustainability Officer to implement sustainability measures and it's since grown. We've put solar panels on most of our hotels. I've built two 5 megawatt solar farms with plans for a third megawatt solar farm to make us totally sustainable. We'll be producing all the energy that we require for all 15 of my hotels.”
Schwartz’s investment in sustainability comes at an ideal time when the Government is similarly prioritising NABERS ratings.
“We were one of the first hotel chains to introduce NABERS ratings for both power and water. And not only did that manifest the fact that you were saving money, but it also manifested the fact that you're doing the right thing. A lot of government agencies look at that and I think it’s part and parcel in the world today that you need to do the right thing.”
On another front, investors are similarly factoring in sustainability when it comes to making hotel investment decisions.
“Two of the biggest challenges we have with inflation are energy and insurance costs. We don't have much control over the latter, but we certainly do in energy costs,” says Bunz.
“When you're buying a lot of older hotels, the cost of making those large hotels more energy efficient is a lot more challenging. But the more energy you can save, the better the bottom line, the sharper the yield, and the higher price per key.”
Understanding NABERS for your hotel
Someone who has firsthand experience with NABERS for hotels is Sachith Alwis, CBRE’s Sustainability Engineer. He knows that environmental credentials can attract government and corporate bookings and investors, alongside operational cost savings over the years.“Hotels are rated from 0 to 6 stars based on their energy intensity compared to industry benchmarks. A NABERS hotel rating combines 12 months of operational data of the hotel’s guest rooms, on-site amenities and back-of-house facilities to determine the star rating. NABERS ratings also adjust for differences between hotel quality, so it’s always a fair comparison,” says Alwis.
The process is similar to the rating process for offices, with different inputs required for the area and amenities of the hotel.
One of the most common challenges to date involves securing sufficient data to conduct the rating. This is often encountered when it’s the first time a hotel is sourcing this type of information. Subsequent ratings after the first report tends to get easier as the hotel aligns itself to the process and keeps track of the data.
NABERS ratings are an effective tool to benchmark performance against industry standards, and it is the first step to becoming carbon neutral.
Listen to the full podcast featuring Jerry Schwartz or see how CBRE can help your hotel reach its sustainability goals.