Hotel investors can rest easy in capital cities
Although the strong Australian dollar is hurting the tourism sector, hotels, particularly in capital cities, are still selling well.
According to Michael Thomson, national director of hotels and leisure at Colliers, limited supply, strong demand and high occupancy rates continue to drive the sector forward.
“Most state capitals are performing well despite the strong dollar,” Thomson told Property Observer. “Occupancy rates are at 80% at the moment, and in Sydney it is closer to 90%. The dollar has not had a huge impact on buyers.”
US investors in particular appear unfazed by the unfavourable exchange rate. LaSalle Investment Management snapped up the 380-room Novotel Melbourne on Collins Street in the CBD for $204 million in early May and revealed it had US$1 billion up its sleeve for more acquisitions in the Australian hotel market.
International director Andrew Heithersay told the Australian Financial Review a major factor in its decision to invest was the “limited supply outlook coupled with Melbourne’s growing and diverse accommodation demand drivers”.
Just a week earlier, US hospitality property group Host Hotels & Resorts spent about $137 million for a 75% stake in the 396-room Hilton Melbourne South Wharf Hotel.
Asian investors have also shown strong interest in the Australian market. Singapore investor Michael Kum added the one-year-old 275-room Travelodge in Melbourne’s Docklands to his hotel portfolio in February for a reported $54 million, and in January the prestigious 10-year-old 296-room Hilton Melbourne Airport Hotel was sold to Pan Pacific Hotels Group for $108.9 million. It was last sold in 2004 for $40 million. Patrick Imbardelli, president and CEO of the Singapore-based company, said in a press release the deal demonstrated the company’s “commitment to growing in the Australian market”.
Such positive results are reflected in NAB’s March 2011 Hotel Market Outlook, which rates the hotel sector as one of the best performers in the commercial property market.
The outlook is particularly rosy for CBD hotels, where high demand from business travellers and supply constraints are keeping prices up.
Outside of the major metropolitan regions, however, the picture is markedly different, with hotels more dependent on the struggling leisure market. In this sector, the high dollar is having a restraining impact, made worse by natural disasters such as the cyclones and flooding in Queensland.
Overall, though, NAB forecasts capital values in the hotel sector to increase by 4.1% over the next year and by 5.3% over the next two years. Jones Lang LaSalle Hotels expects about $750 million worth of hotel stock to change hands in 2011, in line with the long-term average. In addition, the group expects improved trading conditions in 2011 as the “favourable supply / demand balance which existed prior to the global financial crisis comes into focus once more,” according to the company’s 2010: What A Year For Investment report.
Among the high-profile CBD hotels currently up for sale are the 273-room Hotel Enterprise on Spencer Street, Melbourne, close to Southern Cross Station, being sold by Jones Lang LaSalle, and the 67-room New Esplanade Hotel in Perth being marketed on behalf of receivers by CB Richard Ellis and Jones Lang LaSalle.