Australia’s tourism market, and in particular the backpacker and hostel industry, has been one of the hardest hit sectors during the COVID-19 pandemic. This resulted in a drastic 99% reduction in the number of incoming backpackers as borders closed in early 2020 and the future of the travel and tourism industry faced great uncertainty.
THE IMPACT OF COVID IN NUMBERS
Traditionally, 250,000 jobs are filled by holiday arrivals and generate around $3.2 billion a year for the Australian economy.
With international borders closed, many backpacker owners and operators have seen their typical guest segments of working visa holidaymakers and international students dwindle, leaving many businesses to rely on domestic backpackers and internationals who remained in Australia during this period.
Continued state border closures in 2021 have put even greater occupancy pressure on many of these operators.
Traditionally, Australia allows citizens of 44 countries to apply for Working Holiday Visas (WHMs), typically with over 300,000 WHM visa holders entering the country each year. In March 2021, only 160 arrivals landed in Australia on these visas, which, combined with the halving of new international students, has meant that the pool of guests for backpacker operators across the country has shrunk significantly.
THE RISE OF FLASHPACKERS
This has prompted many owners and operators of hostels, student residences and shared accommodation to seek innovative solutions to ensure that their properties remain economically viable. This was evidenced by Youth Hostel Association (YHA) Australia’s recent reinvestment in their brand, partnering with Atlassian to restore their heritage-listed backpacker hostel at Sydney Central Station. The development will see a revolution in the backpacker space, focusing on the digital nomad who will be attracted to the local vibrant tech hub.
This redevelopment reflects the shift from backpackers to flashpackers. These flashpackers or digital nomads are backpackers with a better budget, looking for a strong internet connection and common areas with F&B facilities. Flashpackers effectively bridge the gap between budget travel accommodation and 5 star hotels.
The recent boom in working from home has allowed people to work from anywhere, and many have moved employers to take advantage of this freedom and flexibility as digital nomads. With this, we expect this trend to become more popular in the future and become a mainstream hosting offer.
HOW DO OWNERS AND OCCUPANTS REACT?
Over the past couple of years we’ve seen many owners and operators adapt and modify their offerings with a focus on the traditional backpacker segment. A good example of this is the new Bounce Noosa, a hybrid resort that offers both backpacker-style and upscale accommodations in a modern style and setting, tapping into the non-traditional backpacker home market.
Some hostels have pivoted during this period, with accommodation being used for alternative purposes, including housing farmworkers, as well as government-supported crisis accommodation and residential use, given the tight rental market.
Not all large groups were able to get through these harsh conditions unscathed, with the Tourism Adventure Group (TAG), one of the largest hostel groups in Australia and New Zealand, placed into voluntary administration in July 2021 The group, which was highly profitable in the pre-pandemic era reporting sales of $150 million in 2019, were forced to go through administration, which saw a restructuring of their portfolio. of 25 sites and several renowned assets outside the group.
THE BEGINNING OF THE RECOVERY AND FUTURE PROSPECTS
Market sentiment for the Australian backpacker industry began to change at the end of 2021, following the federal government’s announcement of the imminent reopening of the international border. February 21, 2022 marked the removal of the last major barrier for vaccinated international visitors to the country and called for backpackers to once again return to Australian shores.
Since the government eased border restrictions from the end of 2021, 80,000 international students have arrived in the country and 13,500 people have arrived in the last week alone. With this in mind, 1,000 working holiday and backpacker visa holders landed last week and more than 35,000 WHM visas have been approved since November.
RESPONDING TO RETAINED DEMAND FROM BACKPACKERS
In order to alleviate labor shortages and reduce supply chain disruptions, the federal government is actively encouraging backpackers and international students to return to the country through financial incentives. These incentives include waiving working holiday visa fees for 12 weeks and international student visa fees for eight weeks starting January 19, 2022.
In a recent marketing email from YHA, in which the group typically only sees a 1% to 2% click-through rate, sent to over 100,000 backpacker recipients with the tagline “Have you dreamed of Australia”, more than 30,000 people (30%) had opened the email within hours, demonstrating the significant pent-up demand from backpackers wanting to enter Australia.
Despite the challenges facing the sector, demand for high-quality hotel assets has remained strong. Since the end of 2020, six YHA assets have been sold for a total of over $40,000,000. These sales highlight that investors can see through difficult market conditions and are taking a medium to long term view recognizing the counter-cyclical potential of the backpacker and hostel industry and will see significant gains as borders reopen. and that backpackers will begin to return to the country, filling the beds. and rooms.
CBRE Hotels has just launched Backpackers by the Bay in the popular tourist destination of Airlie Beach, which is expected to generate strong interest. Expressions of interest close March 24, 2022.
The past year has also seen several large groups enter the market.
- Drifter Hospitality Group, backed by investment bank Barrenjoeyhas partnered with Intrepid Travel, the world’s largest small-group adventure travel company, as part of global expansion plans to offer hostel accommodation across Australia and New Zealand in the goal of reaching a portfolio value of $500 million over time.
- Event Hospitality, known for its hotel brands Rydges, QT and Atura also entered the hostel accommodation business after completing its takeover of the New Zealand group Jucy Snooze. The group is recognized for its unique capsule-style sleeping pods. The brand, under its new ownership structure, is planning rapid expansion into the Australian hostel accommodation market.
- Another major entrant is the international hostel giant Selinawhich entered the Australian market in 2021 with the Selina Melbourne, a 181-bed hostel featuring a library, cinema room, dining and kitchen area, basement bar and co-working space. The new asset highlights the evolution of these groups in hostel accommodation offers and how operators have adapted their assets in recent times. Selina also extends into Queensland, in the former Base Uptown Brisbane, which was part of the Restructuring of the TAG group.
It will certainly be an interesting year for the tourism sector in 2022.
This opinion piece was written by Hayley Manvell, Associate Director of CBRE Hotels.