NEWS

Investment in Australian hotels on the rise in 2018

Tourism sector has potential to become Australia’s fastest growing industry: Colliers International

Strong growth in the tourism sector is attracting more investors to Australia’s hotel sector, broadening the capital base and providing a strong foundation for increased activity.

According to new research from Colliers International, Australia remains a favoured hotel investment market due to its economic performance, stability, transparency and governance. 

Population growth, large infrastructure projects, increasing urbanisation and strong state economies are also driving valuation growth and supporting opportunities for new hotel development,” Gus Moors, Colliers International’s Head of Hotels, said.  

“With more than $1billion worth of hotel assets currently being marketed or in play, we expect transaction activity to increase in FYE2019.”

Colliers International’s new Capital Markets Hotel Investment Review found Australian hotel transaction activity slowed in FYE2018, with volumes easing to $1.34billion after a record three years.

Deal flow increased, however, with 35 transactions above $10million concluding throughout the year. This compares to 30 transactions in FYE2017. In New South Wales, $350million worth of hotel assets changed hands, followed by Queensland ($347million) and Victoria ($343million).

“Queensland was one of the more active hotel investment markets as investors made counter cyclical plays, ahead of improving fundamentals in Brisbane and as the key leisure markets continued to boom, aided by the Gold Coast playing host to the 2018 Commonwealth Games,” Mr Moors said. “Whilst the Sunshine state topped the number of deals with nine assets transacting over the year, volumes were higher in Victoria and New South Wales with the totals for both boosted by a few CBD sales.”

Fewer big-ticket sales also saw a shift in the capital base with locally domiciled funds stepping to the fore. Australian investors accounted for 63.7% of asset trades in FYE2018, considerably higher than the 16.5% recorded in FYE2017. 

Investors from Mainland China fell behind the rest of Asia as one of the more dominant sources of inbound capital, accounting for only 1% of transactions over the year, as capital restrictions continued to bite. 

“This trend is likely to continue, with South East Asian investors dominating the offshore investment landscape driven by renewed interest in diversification, both in terms of location and product,” Mr Moors said. “

For the first time for more than a decade, the number of rooms opening throughout the year surpassed the number traded with investors focussed on the development of new rooms. In FYE2018, almost 6,500 new rooms came on line in the ten major markets with an estimated value of more than $2billion.

“This has also resulted in more hotel development site sales with projects offered in Sydney, Melbourne, Canberra and the Gold Coast over the year,” Karen Wales, Colliers International Director of Hotels, said. 

“Offshore groups continue to take a lead role in the development of new accommodation rooms, accounting for 40% of rooms opening in FYE2018 and almost two thirds of rooms currently in the pipeline.” 

Colliers International estimates there is a weighted accommodation pipeline of around 27,000 rooms across Australia, with almost half of these new rooms currently under construction and 7,000 rooms proposed. These are thought likely to commence construction in the next six months or are government mandated projects.

“All markets, except for Darwin and the Gold Coast, are seeing an accelerated pipeline with openings expected to peak in 2019 and 2020,” Ms Wales said. “Development activity is greatest in Hobart, Melbourne, Adelaide and Perth with increases set to expand the existing supply base by more than one third.”

Mr Moors said tourism was becoming increasingly important as Australia transitions to a more diversified service-based economy, and had the potential to be Australia’s fastest growing industry.  

“Globally, travel continues to take a larger share of consumer spending and visitor expenditure in Australia is projected to continue to grow at a strong rate,” he said. “The influence of demographics presents new opportunities for the hotel sector, as developers and brands seek to remain ahead of the curve in catering to both established and emerging generations of corporate employees and leisure travellers.  

“Strong growth in inbound tourism, particularly from China, increased leisure travel by wealthy retiring baby boomers and catering to Millennials as the largest segment of the workforce are all factors which investors should consider over the coming year.”

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