Offshore investors expected to buy up hotels

Offshore investors are forecast to become more dominant in the Australian hotel market over the next six months, according to CBRE. 

Demand is expected to pick up in spite of the strong Australian dollar, with investors attracted by what is considered a safe, long-term investment market. 

Research by CBRE Hotels of offshore investor activity over the past 10 years has found that contrary to what might be expected, offshore investment in Australian hotels has picked up when the dollar is high and tailed off when the currency has lost value. 

According to CBRE Hotels regional director Rob Cross in general terms the strength of the Australian dollar has had no impact on hotel investment demand. 

“In fact the volatility of US and Europe has strengthened interest down under as we are viewed as a safe haven to park money,” he tells Property Observer. 

According to Cross, the only limitation to offshore investment is the current lack of purchasing opportunities in the Pacific region.” 

“Hotel investment demand well exceeds supply, as offshore buyers continue to circle the Australian hotel sector for any possible opportunity to secure assets, particularly in our strong corporate centres.” 

In 2001, when the Australian dollar fell to less than 40 US cents investment in Australian hotels dropped to around $500 million. In 2007, when the dollar rose to 90 US cents, investments soared to $1.8 billion.

According to Colliers total investment in the hotel sector sits at around the $550 million mark for the first six months of the year with $134 million worth of transactions recorded in the first three months and $411 million recorded in the second three months. 

Offshore buyers have been responsible for the bulk of these purchases notably: 

• Singapore’s Pan Pacific Hotels Group acquired the 296-room Hilton Melbourne Airport Hotel for $108.9 million in January
• Singaporean investor Michael Kum added the Travelodge in Melbourne’s Dockland’s to his portfolio for a reported $54 million in February.
• US hospitality giant Host Hotels & Resorts acquired a 75% stake of the Hilton Melbourne South Wharf Hotel for $137 million in April
• US-based LaSalle acquired the Novotel on Collins for $205 million 

According to Wayne Bunz, senior director at CBRE Hotels, investors have not been deterred by the strong Australian dollar and are willing to pay a premium to secure a hotel property in what is considered a safe market. 

“Despite the high Australian dollar, overseas investors still see value in Australian assets and consider hotels - notably those with a majority business clientele base - as safe, long term investments,” Bunz says.