This article is from the Australian Property Journal archive
A limited supply of local hotel assets will push Australian investors offshore in search of new opportunities, according to Jones Lang LaSalle?s Hotel Investment Outlook 2007.
JLL Hotels’ Asia Pacific chief executive David Gibson said transaction volume reached $1.2 billion in Australia during 2006, with $230 million traded in the first half of 2006.
JLL Hotels’ executive vice president Mike Batchelor said active players during the year included investment funds Eureka, Abacus and Mirvac, taking advantage of their knowledge of the sector and acting quickly within the competitive hotel investment market.
“In the current rate tightening cycle, it is now the norm for hotel investment yields to trade in the 7% range,” he added.
Gibon said there are prospects for greater volume, but he expects it will be restricted by the limited number of hotel assets for sale in Australia and the threat of further interest rate rises.
“With a buoyant global hotel market, we expect to start to see some Australian offshore hotel investment,” he added.
According to JLL Hotels report, new players have already invested in New Zealand hotels and the development of the Asian and European REIT markets may encourage Australian investors to go further afield.
Meanwhile, Gibson said the weight of available capital in the marketplace continues to impact the hotel investment sector and whilst dominated by domestic players over the last couple of years, the market has started to see the return of investor interest from Asia – both individuals and investment funds
“During 2007, we may see Japanese investors return to the Australian marketplace, particularly if legislation allowing REITs to invest overseas is passed,”
Gibson said there is strong investor interest in the Australia because most major markets in Australia are continuing to record solid increases in RevPAR (Revenue per Available Room).
“Demand growth remains strong and occupancies high as the expensive cost of land and construction, combined with generally low room rates, continues to constrain new development.
“Hoteliers also continue to benefit from strong demand from business travellers on the back of the strong economy,” he added.
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Major Single Asset Hotel Transactions, Australia – 2006
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Property
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Rooms
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Price (A$)
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Carlton Hotel Group Portfolio Australia
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1,265
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328,250,000
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Four Seasons Hotel Sydney
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531
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225,000,000
|
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Sofitel Wentworth Sydney
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431
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158,000,000
|
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Sebel Citigate Sydney
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270
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59,250,000
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Peppers Fairmont Resort Blue Mountains
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210
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45,120,000
|
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Ramada Melbourne
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182
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34,000,000
|
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Cairns Colonial Club
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346
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18,000,000
|
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The Commodore Hotel Perth
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120
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17,500,000
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|
|
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Hotel assets were not the only hot items in 2006. According to JLL Hotels, there were also high levels of corporate activity with approximately $968 million in large-scale acquisitions of Management Rights businesses.
Batchelor said MFS Limited was particularly active with four major acquisitions, taking its rooms under management in Australia to 12,422 during 2006.
Accor also bought Becton’s 50.0% share in the Accor Premiere Vacation Club to assume 100.0% ownership as the timeshare industry gains pace in the Asia Pacific region.
In neighbouring New Zealand, investors continue to seek out as a hotel investment location. Following a record number of hotel transactions in 2005, activity during 2006 saw six major transactions occurring to a value of $NZ339 million.
In New Zealand, investors can still purchase hotels at a discounted cost when compared to the cost of replacement. Whilst yields have compressed, the outlook for income growth continues to drive interest.
“We expect a similar level of transaction activity in 2007.
“Room rates are low by international standards and many owners recognise this as an opportunity for upside in value,” Batchelor said.
In Asia, JLL Hotels found Singapore, Hong Kong and Japan were the most favoured investment destinations during 2006. High levels of transaction volume were also recorded in China, Thailand and Taiwan.
According to JLL Hotels, many markets in Asia still present as good value with opportunity for capital growth.
“We expect to see another increase in transaction activity throughout Asia during 2007 as investor interest spreads into new markets especially China, Vietnam and India, although Singapore, Hong Kong and Tokyo are likely to remain investor hot spots.” Gibson said.
Tourism in the Pacific Islands is growing, albeit from a very small base.
Over recent years, some markets have experienced significant increases in new supply. During 2006, one major hotel transaction was recorded following foreclosure on a bank loan on a property in Vanuatu. As problems in the region persist, we expect hotel investment activity to remain constrained in the short term.
“However, ideal destinations such as Tahiti and Cook Islands continue to perform well amid more stable political environments and developments to key infrastructure projects,” Batchelor concluded.
Australian Property Journal
