Australian hotel assets in favour

Australian hotel assets in favourAustralian hotel property assets continue to prove a lucrative investment for a range of buyers, but particularly offshore investors, according to Savills Research’s ‘Australian Hotels’ Insight report for Q4/2014.In the 12 months to December 2014, Savills recorded 58 sales of hotel assets throughout Australia, representing a total value of $2.55 billion, and the trend is continuing. The Sofitel Sydney Darling Harbour was sold last year at a (then) record price and reset expectations.According to Michael Simpson, Savills’ managing director – Australia and New Zealand Hotels, investors have shown an insatiable demand for hotel assets in Australia. While Sydney and Melbourne have traditionally been seen as jewels in the crown for off-shore investors, Simpson says other markets such as Brisbane are also rich sources of interest.”There is a well-publicised, very strong push by Chinese investors to acquire hotels in Australia, and we continue to see more ‘traditional’ capital from other parts of Asia also chasing Australian hotels. A key change to the investment dynamic is the re-emergence of interest from the UK, Europe and the US now that the Australian dollar has significantly weakened,” Simpson says.The profile of the current hotel property investor does not fit a homogeneous mould, with demand coming from a range of sources, including ultra-high-net-worth individuals, listed and unlisted real estate funds and investment trusts, private equity investors, and bulge bracket investment banks.”Total return indices for the last 5-6 years reveal hotels to be typically the best or second best performing real estate asset class. A wide range of institutional investors with no exposure to hotels are now seeking exposure to this investment-grade real estate asset class,” Simpson notes.Savills research shows that the average price per room in Australia in 2014 was $300,633, an increase of 31.7 per cent from the previous year.Demand for room occupancy in Sydney and Melbourne is at an all-time high, and comes despite the drag on inbound international tourism that accompanied parity of the Australian and US dollars for several years. As Simpson explains, the fall of the Australian dollar from hovering around US$1.10 to less than US$0.80 means Australians are less enthusiastic about travelling overseas right now, while international travellers are far more encouraged to visit Australia. Also, falling oil costs have contributed to cheaper long-haul international flights.”The cities of Sydney and Melbourne are globally recognised as gateway cities. There is currently a global synchronisation of real estate investment yields taking place across international gateway cities,” Simpson says. “Yields at which hotels in Sydney and Melbourne are currently trading are mostly still at least 100-200 basis points higher than hotels in many other international gateway cities. With relatively cheap and available debt, high barriers to entry, strong trading fundamentals and positive demand vs supply, we anticipate seeing growing interest and investment in Australian hotels from a wide range of international investors.”For more, click here.