Good times for hotel property sector

Good times for hotel property sectorThe hotel property sector is currently outperforming all other property classes in the Australian market, with Sydney and Melbourne the standout performers, finds Savills Australia’s hotel market report.With international and domestic visitors growing by 11.5 per cent and five per cent respectively over the 2016 calendar year, the hotel sector has not enjoyed such growth since the Sydney 2000 Olympics.Australia welcomed 7.4 million international visitors over the year to 30 September 2016, and these visitors stayed for 251 million nights.”Chinese visitor growth of 22 per cent is the dominant contributor to this stellar performance,” says Michael Simpson, Savills managing director of hotels.Tourism Research Australia’s 10-year forecast provides a positive outlook. International visitor nights are expected to grow by 5.6 per cent a year, while domestic nights will increase by a healthy 3.1 per cent.Hotel capital markets continue to be dominated by eastern seaboard transactions, Savills finds. “The scarcity of hotel product for sale, particularly in the CBD markets, matched against a wall of foreign and local capital searching for opportunities, continues to drive yields firmer within a highly competitive transaction environment,” Simpson says.”Should inflation and interest rates remain low, capitalisation rates will continue on their downward trend for at least the next 12 months.”Sydney’s buoyant economy is fueling a “tsunami” of economic activity and room night demand in Sydney, Simpson says. The city’s luxury segment achieved an occupancy rate of 85.9 per cent in 2016.”For the next 10 years, Sydney occupancy will remain in the 80th percentile.”Melbourne is the second highest performing market, with an increase in occupancy for the fourth consecutive year. “Melbourne’s construction boom of residential apartments, commercial space and continuing development of Docklands, has also encompassed new hotel development.”But Savills says Melbourne’s market will be “under pressure to match Sydney’s performance in coming years”.