Australia will continue to attract the attention of global hotel investors throughout 2014 according to the latest research and forecast report from Colliers International “Between the Flags.”
“We may not see the same level of transactions this year as in 2013 due to reluctance of incumbent owners to sell but the extent of investor interest has certainly increased,” said Stephen Burt, Managing Director, Hotels, Asia Pacific at Colliers International. The focus on Australia is a consequence of certain regional property markets in Asia showing fragility which is encouraging local investors to look further afield. Australia is an obvious target with good market fundamentals, “safe haven” status and attractive yields relative to comparable yields in the major Asian hotel markets. The Four Seasons Sydney Hotel, sold late last year on a passing yield of 6.3% and this is a return simply not available for five star product in competing major property markets.”
“The weight of capital looking to be placed in the market together with tightly held ownership is likely to deliver further yield contraction over the year,”
In terms of specific markets Colliers predict Sydney to be the best performing hotel market in Asia Pacific over the next five years. “This is on the back of improved tourism infrastructure, strong market performance with city occupancy in the high eighty percent and very favourable supply fundamentals. There is a prospect that CBD Sydney and inner city could lose over 1,000 hotel rooms over the next three years to redevelopment and residential conversion.
Despite ongoing interest from domestic investors, the composition of hotel purchasers in Australian has been shifting, with capital recently coming from Korea and the Middle East. Offshore investment activity was led by a large investment out of the United Arab Emirates, which accounted for 38% of sales by value during 2013. Investors from Singapore continue to be active in Australia, buying stakes in 11 assets for a total of $404.4 million. While not currently making up a large volume of acquisitions, the number of Chinese investors in the market is also increasing. During 2013, Chinese investors bought two assets for a total of $38.9 million.
The report also considers the changing face of the Perth hotel market. A standout performer in the hotel sector, during the peak of the mining boom, occupancy rates in Perth averaged beyond 90%. In 2013 as investment in the resource sector declined, this average monthly occupancy was a more moderate 81.8%. Average RevPAR declined 4.1% to $173 between 2012 and 2013, but this result remains more than 23% above the RevPAR achieved in 2010.
However, the Perth market is a strong example of limited supply hampering the industry. With very new development over recent years, the market is set to embrace this week’s announcement from Ritz Carlton for a new 204 room development in the riverside Elizabeth Quay development on Perth’s waterfront.