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Fourth highest year on record for Australian hotel investment
Hotel transaction activity in Australia reached $1.3 billion during 2010, up 62.3% on 2009, representing the fourth biggest year on record for transaction volumes. This strong result demonstrates the ongoing positive investor sentiment for Australian hotels.
In 2010 the market witnessed 28 major (value above $5 million) transactions, the largest of which includes Ayers Rock Resort, the TAHL Portfolio and Sofitel Wentworth Sydney. Together the top ten transactions accounted for 80% of the total volume.
Buyers emanating from Asia continued to dominate in 2010, accounting for over 52% of total hotel transaction activity. Craig Collins, Managing Director - Australasia, Jones Lang LaSalle Hotels said, “Asian investment totalled $685.1 million representing the largest inflow of foreign capital into Australian hotels since 1994.” He added, “Sellers on the other hand were primarily domestic, accounting for 87% ($1,128 million) of the total transaction volume.”
For the second year in a row, the majority of sales occurred in New South Wales. Most states witnessed some acquisition activity however sales remain concentrated in New South Wales ($349.8 million), Northern Territory ($300.0 million), Queensland ($238.7 million) and Victoria ($176.2 million). Approximately 17 out of the 28 major hotel transactions were negotiated with vacant possession.
On average investors paid approximately A$200K per room for hotels across Australia. This is in line with 2009 and only 13% lower than the circa $230K per room paid at the market peak in 2007. Mark Durran, Executive Vice President – Investment Sales, Jones Lang LaSalle Hotels said, “Competition for deals throughout the year ensured a number of hotel sales exceeded vendors’ expectations.” He added, “In turn, yields tightened as purchasers’ factor in strong growth potential.”
Troy Craig, Managing Director – Strategic Advisory said, “As the recovery gains pace through 2011 we expect potential for further contractionary pressure on yields relative to the average 2010 level as trading expectations improve and the favourable supply / demand balance which existed prior to the global financial crisis comes into focus once more.”
Australian transaction volume is projected to moderate through 2011 to around $750 million as market conditions stabilise. While representing a significant reduction, it is in line with the long-term average and indicates a return to normalcy. Two sellers accounted for $600 million in transactions in 2010 and this is unlikely to be repeated.
Total transaction volume in Asia Pacific in 2010 increased by 15.6% when compared to 2009 to reach US$3.8 billion. This compares to a five-fold increase in the Americas and doubling of volumes in EMEA to $11.1 billion and $9.3 billion respectively. Characterised by well-capitalised, long-term holders, availability of product continues to be the major impediment to higher levels of activity across Asia Pacific.
Australia (US$1.2 billion), Japan (US$600 million), China ($474 million) and Hong Kong ($397 million) dominated activity in 2010, but multiple sales were also recorded in India, Singapore, New Zealand, Taiwan, Thailand and the Philippines. Single transactions also occurred in Vietnam, Seychelles and the Maldives.
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