Investment in Australian hotels on the rise in 2018

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

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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Karen Wales

Director |Transaction Services, Hotels Asia Pacific

Sydney CBD

Karen has over twenty years of experience in the hotel industry and holds a Masters of Business Administration (MBA) from the Australian Graduate School of Management. She brings with her a specialised knowledge of the Asia Pacific hotel investment market and an ability to drive fresh capital into Australia’s hotel markets. She has developed an exceptional network over the past two years across Asia and the Middle East and within government, in her capacity as Senior Investment Specialist Tourism Infrastructure at Austrade and her knowledge of new entrants into the growing Australian tourism sector is second to none.      

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Anneke Thompson

National Director

Melbourne CBD

Anneke began her property career in 2004, and in that time has gained experience across many facets of commercial property including leasing, consultancy, research, feasibility analysis, forecasting, and financing.

Anneke leads the Australian Research team for Colliers International, and as part of this role manages the production of all of Colliers’ Research and Forecast Reports (RFRs), as well as our Colliers EDGE data subscription product. She has a particular focus on office markets – both the Capital Markets and leasing sectors – and contributes annually to the Capital Markets’ teams Investment Review series.

Anneke is regularly called upon to present at property industry forums run by groups such as the Property Council of Australia (PCA), the Australian Property Institute (API) and Property Investment Research (PIR). She has also contributed to a number of panel discussions, and regularly presents to Colliers’ wide variety of client groups.

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Gus Moors

Head of Hotels | Australia

Sydney CBD

Having joined Colliers in early 2014, I have subsequently sold over $180 million of hotel assets across Victoria and NSW, including the largest hotel transaction in Victoria since 2008, being Bell City Preston for $143 million.

Prior to joining Colliers, I was Director of Asset Management for Tourism Asset Holdings Limited (TAHL), Australia's largest hotel owner and responsible for selling down this portfolio totalling over $1.5 billion.

Before TAHL, I was with Jones Lang LaSalle Hotels for 7 years, as Head of Asset Management and Chief Operating Officer for the Hotels group across Asia Pacific.

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