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News release

Sydney

One of the strongest years on record for Australian hotel investment


The Australian hotel investment market has experienced one of the strongest years on record with total transaction volumes reaching $1.44 billion for the year-to-date.

Mr Craig Collins, CEO – Australasia, Jones Lang LaSalle Hotels said, “Australian hotel transaction volumes are currently at the second highest level on record, behind the 2007 peak when transaction volumes reached $1.78 billion. A total of 25 hotel transactions above $5 million have occurred so far this year, including two national record breaking deals being the Marriott Portfolio and the Shangri-La Hotel Sydney.”
 
“Continuing the trend experienced over the past three years, Asian investors dominated Australian hotel investment accounting for 72% of year-to-date transaction volume. Whilst Singaporeans were typically the primary source of investment from 2009 through 2011, Hong Kong investors have been the most active this year being responsible for 30% of total transaction volume. Meanwhile, the sale of the Marriott Portfolio set Malaysian investors firmly into second place at 29% of total transaction volumes,” Mr Collins noted.
 
Mr Mark Durran, Managing Director, Investment Sales – Australasia, Jones Lang LaSalle Hotels noted, “The largest deal of the year was Colonial First State’s Marriott Portfolio which consists of a total of 1,016 rooms across three five star CBD hotels in Sydney, Melbourne and Brisbane and sold to Bursa Malaysia listed Starhill REIT in June. It was also the largest hotel transaction by total value to ever occur in Australia at $415 million.”
 

 

In the same month, Australia’s largest single asset hotel transaction occurred when the five star Shangri-La Hotel Sydney sold to its existing Hong Kong based hotel operator Shangri-La Hotels & Resorts for $330 million.
 
Mr Durran said, “Interestingly, this year we have witnessed growing enquiry from China with hotels we currently have on the market. This is a geographic market which up until now has had very little involvement in this sector. This year however they have acquired two assets which represent 5% of total market volume.” He added, “We are also noticing increasing levels of interest from global and sovereign wealth funds. They are attracted to Australia’s solid economic fundamentals and have been seeking large-scale core plus opportunities. We expect this level of interest to continue as offshore investors look to attain assets in one of the most stable and desirable hotel investment markets in the world.”

 

The transaction volume of hotels in New South Wales has totalled just over $772 million for the year-to-date, representing the highest level ever on record after the previous 2007 peak ($753 million). This level of activity was boosted by a number of major Sydney sales including the sale of the 96 room boutique five star Observatory Hotel Sydney to Hong Kong-based Langham Hospitality Group, the Sydney Harbour Marriott (as part of the Marriott Portfolio), the Shangri-La Hotel Sydney and most recently the 227 room Mercure Potts Point Sydney which sold to Iris Group for $65 million. Regional sales included the Crowne Plaza Hunter Valley and Novotel Newcastle which were both acquired by the Schwartz Family Company for $45 million and $16.5 million respectively.
 

 

Mr Collins noted, “The positive sentiment for Sydney reflects the limited availability of investment grade product and minimal new supply under construction. There are only circa 400 hotel rooms due to open in 2013 with over 300 of these room located at the airport.” He added, “In terms of trading, Sydney reported the second highest year-to-date Revenue Per Available Room (RevPAR) in the country at $175.”
Western Australia has experienced total year-to-date transaction volume of $116 million, driven largely by the recent sale of the 300 room Esplanade Hotel Fremantle for $88.5 million to Australian property syndicator, Primewest. This was the highest sale price ever achieved for a Western Australian hotel. Other major deals included the King Way Hotel at $16.4 million and the Mantra Bunbury at $11.5 million, which both sold to private local companies.

 

The best performing market in terms of RevPAR so far this year has been Perth, where growth of 12.8% has been achieved. “Perth in particular has the wonderful ability to successfully drive room rate growth due to the strong corporate bias of its demand profile which results in an acute shortage of rooms in the Monday to Thursday period of each week,” said Mr Collins. 
 

 

Queensland’s transactional activity so far this year is the second highest on record at $323 million behind the 2010 peak of circa $400 million. Transactions were concentrated in Brisbane and included the 191 room Holiday Inn Brisbane to Shangri-La for $48 million, the Brisbane Marriott (as part of the Marriott Portfolio), and the 154 room Lennons Plaza Hotel Brisbane to SilverNeedle Hospitality at circa $57 million. The largest deal outside of the capital city was the 200 room five star Palazzo Versace at circa $68.5 million.

 

Mr Collins said, “Brisbane has historically been a very tightly held investment market and the hotels that were offered to the market were quickly recognised as a rare opportunity to gain a foothold in this market.” He added, “Brisbane has been one of the standout hotel trading markets this year-to-date, with RevPAR growing by 3.0% to surpass the 2008 peak and reach $159. Underpinned by strong ongoing corporate demand, a recently extended convention centre and continued growth in international and domestic airport passenger movements, this trading trajectory is expected to continue over the medium term.”
 
In Victoria, following a record year for transactional activity in 2011, year-to-date hotel investment activity is also the second highest on record at $199 million. Major hotel transactions included the 273 room Hotel Enterprize which sold to a private Singaporean group for $23 million, the Melbourne Marriott (as part of the Marriott Portfolio), the 340 room 4.5 star Rendezvous Melbourne which sold to Singaporean-based The Straits Trading and the 211 room 4.5 star Novotel St Kilda that was acquired by the Barana Group for circa $50 million.
Mr Durran said, “New hotel rooms in Melbourne are also very limited with circa 175 rooms at the Sheraton Melbourne development due to open next year. With a benign new supply pipeline, an enviable calendar of events, and a convention centre that is expected to receive stronger levels of demand over the coming years, the trading outlook for this market is positive.”
 
Looking forward to 2013, Mr Collins said, “We are expecting this strong level of investment activity to continue into 2013. Trading across the country remains strong and following on from this year there are still numerous buyers looking for quality Australian hotel assets, both in the capital cities and major regional markets.”