Australian Hotels Sector Heading For Standout Year - Colliers International
July 19, 2012
19 July 2012, Perth –
The Australian hotels sector has shaken off a slow start to 2012 and hit the ground running in the second quarter of the year, with the latest research from Colliers International showing offshore investors driving a fresh surge of activity and pushing sales volumes towards record levels.
Colliers International Research & Forecast Report – Australian Hotel Investment Q2 2012 revealed a number of large sales were completed in the three months to June 30, with several more close to being finalised.
The jump in sales activity saw a strong finish to the 2011/12 financial year, with deals totalling just over $1.4 billion put to bed – representing an almost 23 per cent jump on the previous financial year’s figure of $1.15 billion.
The report showed the biggest driver of activity in the sector was a string of major hotel consolidations to offshore investors – and
Colliers International National Director Hotels and Leisure Michael Thomson said of those offshore investors, it was Asian buyers which had emerged as those with the biggest appetite for Australian hotel assets.
“If we look at the first half of 2012, over 90 per cent of the sales so far this year have been to buyers from Asia, and Singaporean and Malaysian investors in particular are dominating the list,” said Mr Thomson.
“Importantly, these investors are looking to get into the hotel market boots and all by securing both property assets and management rights, which is a reflection of the strong performance and outlook for the Australian industry.
“In contrast, domestic owners have emerged as net sellers of hotel property.”
The Sydney CBD has seen a spate of 5-star hotel transactions, with the Bermuda-based Orient-Express Hotels recently announcing the sale of the 96-room Observatory Hotel in The Rocks to Langham Hotels for a reported $40 million. The sale to the Singapore-based investor is expected to settle in August 2012.
Also in The Rocks, Hong Kong-based Shangri-La Asia has purchased the leasehold of the Shangri-La Hotel for a reported $330 million. The company has been managing the 563-room hotel on behalf of the vendor, the Government Investment Corporation of Singapore.
In Brisbane, Shangri-La has picked up the 191-room Holiday Inn for a reported $48 million and will rebrand it as Australia’s first Traders Hotel, while the sale of Lennons Plaza in Brisbane’s Queen Street mall is also close being finalised.
The reported buyer is the Reddy Group, a Fijian-based hotel and construction company, for around $56.75 million. The complex is being purchased from the Abacus Property Group.
While there had been an increase in the number of sales, Mr Thomson said hotel transactions were on average taking longer to settle.
Investment activity was highest in the Sydney, Perth and Brisbane markets, where sales volumes were well above long-term average levels – and with a number of major deals expected to be finalised in the coming months, Mr Thomson said 2012 was looking like a standout year for the sector.
“We are seeing a hotel sector that’s returned to growth in terms of the level of demand, and a real upswing in RevPAR (revenue per average room), and investors – particularly Asian buyers looking to set up listed investment vehicles – are looking to capitalise on that,” he said.
“The strength of both the fundamentals and outlook will continue to draw offshore capital, and we are expecting to see hotel sales volumes for 2012 achieve levels not seen in Australia in several years.”
The year to December 2011 saw all cities with the exception of Adelaide and the Gold Coast record increases in RevPAR, with Perth leading the pack with a 13.1 per cent jump.
Perth led the way again with regard to room rates, racking up 10.1 per cent growth over the year to an average of $182.23. Sydney (6.8 per cent), Canberra (5.7 per cent) and Brisbane (5.4 per cent) all recorded healthy growth, while Cairns was the only market to see a drop, falling 2 per cent.
Average occupancy across all Australian regions for the year to December 2011 was a solid 73.1 per cent, with Perth topping the individual markets at 84.1 per cent (up almost 3 per cent over the 12 month period).
Cairns recorded the lowest rate of 57.4 per cent.
Colliers International Director Research Nora Farren said Australia’s tourism market faced a number of challenges, including the high Australian dollar, the introduction of the carbon tax, and increasing fuel levies because of the rising cost of aviation fuel, which were expected to be passed on through more expensive airfares.
However, visitor number so far in 2012 had continued to grow, with increased tourism from Asia offsetting falls in visitors from the UK and Germany – and Australia’s ongoing economic strength added further appeal to investors.
“Our economy is seen as relatively stable and robust, and this coupled with access to lower capital costs for foreign buyers is making our market an attractive option to potential investors,” said Ms Farren.
Investment activity would continue to be focused on assets in major cities, particularly those areas reaping the benefits from the mining boom and associated increases in demand for hotel accommodation.
“Low levels of new supply and strong demand for rooms will continue to see revenue and room rate growth, particularly for CBD hotels, in these markets,” said Ms Farren.
“We’re expecting to see that imbalance between supply and demand in key markets continue in the medium term, with only a handful of new projects planned or under construction across Australia.”
With capacity likely to be constrained for the forseeable future, Mr Thomson said investors would be eyeing expected continued growth in occupancy and room rates.
“With those fundamentals looking at further growth, particularly in the CBD markets, we can expect to see those offshore buyers running the ruler over a number of assets over the coming months,” he said.
“It is looking like 2012 is shaping up as a standout year for the Australian hotel sector.”
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