2023 saw strong investment in hotel and retail assets, with hotel transactions reaching their highest point since 2015 while in retail, a new capital player has emerged as a dominant force.
Hotel investment volumes exceeding $5 million totaled $2.43 billion in 2023, marking a 26 per cent year-on-year growth and surpassing the 10-year average of $2.14 billion, according to JLL, while transaction activity remained strong, with 53 deals finalised throughout the year, approximately 5,500 rooms.
This surpasses the 51 sales (4,100 rooms) of the previous year and represents the highest number of transactions since the record-breaking year of 2015 (57 deals, 10,600 rooms).
In the retail sector, there was a decrease in traditionally dominant institutional capital, which typically represented 51 per cent of all transactions since 2020 but only accounted for 14 per cent of deals in 2023, according to Colliers. However, a significant increase in fund/syndicate (38 per cent) and private investment (37 per cent) contributed to the resilience of the sector.
Due to market fluctuations prompting institutional capital to proceed with caution, fund/syndicate and private investors pursued retail assets with a strong conviction strategy, leading to only a slight 4.3 per cent decline in transactions, according to Lachlan MacGillivray, Managing Director of Retail Capital Markets at Colliers.
“Robust deal flow of $6.28 billion last year and heightened interest from fund/syndicate and private investors is due to strong asset performance and major undersupply of retail space, complemented by quality leases and strong tenant demand,” Mr MacGillivray said.
“On-the-ground insights from major retail investors indicates a looming groundswell of activity which could lead to quality asset demand outstripping supply of assets in 2024. This includes in excess of $1 billion in assets currently under due diligence, as counter-cyclical opportunities to acquire high-performing centres maintain relative value attraction.
“Positive sector fundamentals such as rental growth and incredibly high occupancy rates indicate retail has adapted well to challenges posed by the pandemic, positioning itself early for continued stable performance.”
In December 2023, Cairns Central Queensland, a regional center, was sold to Fawkner Property for $390 million, marking the second-largest retail transaction of the year and Queensland’s largest in five years. Similarly, in Q3 of the previous year, Perth’s Midland Gate, another trophy regional center, was sold to Fawkner Property and PAG for $465 million, making it the largest deal of the year.
Private investors were responsible for the purchase of New South Wales’ Darling Square Retail Precinct, in December 2023, for $88 million.
“As we enter 2024 there is renewed confidence that the market will swiftly adapt once we reach macroeconomic stability, drawing more attention from investors who may have overlooked this sector in the past, alongside the implementation of Stage Three tax cuts on 1 July,” Mr MacGillivray said.
Deal volumes in the hotel space were predominantly focused on traditionally stalwart eastern seaboard states, comprising nearly three-quarters of total volumes.
New South Wales led the pack, representing 32 per cent of the total volumes at $779 million, mainly due to the forward-funding of the Waldorf Astoria Sydney development project.
Queensland (23 per cent – $564 m) and Victoria (19 per cent – $461 m) followed as the next most active markets with most city markets experienced year-on-year increases in investment volumes.
“Queensland was arguably the standout performer of any state over 2023, recording its largest annual transaction volume since 2015 ($742m). This was driven by both strong domestic and offshore interest, a market leading trading recovery over the past two years, and the significant investment going into the state’s South East in the lead up to the Olympic Games,” said Adam Bury, Executive Vice President, Investment Sales & Head of Hotel Debt Advisory, JLL Hotels & Hospitality Group.
“Further, buyer interest covered many of the capital cities including significant transactions in Sydney, Melbourne, Brisbane, Gold Coast and Adelaide, showing the depth and breadth of investor demand within the market.”
Domestic buyers and local capital dominated capital flows, making up 79 per cent of total investment volumes (around $1.93 billion). Direct offshore investment contributed 21 per cent (approximately $500 million), primarily from Singapore-based groups such as Invictus Developments, City Developments and Worldwide Hotels Group.
The first half of the year saw a significant portion of total transactional activity, largely due to a busy end to 2022 and increased investor activity before consecutive cash rate hikes, according to JLL. About $1.77 billion worth of deals were completed and exchanged during this period, making up 73 per cent of the annual volumes.
Significant transactions included the record-breaking sale of the Sheraton Grand Mirage on the Gold Coast ($192m), followed by Vali Byron Bay ($29.1m) and Angourie Resort ($25m) in New South Wales, Mercure Kawana Waters ($21.3m) in Queensland and Seasons of Perth ($22.5m). Other notable transactions featured Melbourne’s Adelphi Hotel ($25m) and Fraser Place ($32.4m), as well as portfolio sales such as Spicers Retreats ($130m) and Escarpment Group ($115m).
Just this week, fund manager MA Financial struck a $96 million deal for the 273-room Four Points By Sheraton Hoten in Melbourne’s Docklands from Singaporean group Hiap Hoe. The acquisition seeds its new MA Accommodation Hotel Fund, and the group has appointed TFE Hotels to operate the property under its Vibe Hotels brand with the property to be rebranded to Vibe Docklands.
“Anticipating the upcoming year, there is a prevailing cautious optimism that a more certain underwriting environment and favourable trading conditions will sustain investor interest throughout 2024,” Peter Harper, Managing Director & Head of Investment Sales Australasia, JLL Hotels & Hospitality Group said.
“The strongest interest will remain on aspirational assets, be that emotive or strategic, as well as properties that offer genuine upside through refurbishment and repositioning.
“Likewise, hotels that lend themselves to the bullish living sector through adaptive use or redevelopment will also remain in the spotlight. This sentiment is particularly evident in major city markets, which are expected to benefit from ever-evolving events calendars and a continued recovery in both international and corporate/MICE demand.”