Offshore investors expected to snap up CBD hotels after sector delivers 18% returns in 2011
Asian and Middle Eastern investors are expected to target Australia’s CBD hotel sector in 2012 after the sector delivered total returns of 17.8% in 2011, led by Sydney hotels.
Sydney hotels delivered investors a 20% total return in 2011 outpacing Melbourne hotels, which managed returns of 13% in an overall strong year for inner city hotel markets, according to the latest Property Council of Australia (PCA)/IPD Hotel Index.
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Using data from 99 hotels worth about $5.6 billion, the index reveals that Sydney hotels outperformed the wider market and Melbourne hotels on the key industry measures of occupancy rates and revenue per available room (RevPAR).
On average, one night in a Sydney hotel room generated revenue of $182, compared with $148 in Melbourne and $143 nationally.
While Sydney clearly has bragging rights over Melbourne, both markets experienced significant increases in returns over the year alongside a buoyant inner-city hotel market.
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Troy Craig, managing director of strategic advisory at Jones Lang LaSalle Hotels, says the 2011 results are encouraging news for the hotel investment community and “will ensure that Australia remains a key target for global and regional hotel investors”.
“Transaction volume is expected to reach around $1.2 billion in 2012, representing an uplift of 20% over 2011 and slightly above the long-term trend.
“More owners are expected to take advantage of the trading upswing and exit over the next couple of years. Asian buyers are expected to continue to dominate, although competition is increasing with a number of Middle Eastern sovereign wealth funds targeting acquisitions in the world’s most transparent real estate market,” he says.
Anthony De Francesco, managing director of IPD in Australia and New Zealand, says the hotel sector has shown “strong investment performance” over 2011.
“The strong investment returns reflects rising RevPAR as a result of persistently high occupancy rates due to low levels of supply and relatively strong demand.”
“We expect the hotel property sector to continue to perform strongly over the remainder of this year given its strong space market fundamentals against core property sector markets,” he adds.
Tony Ryan, principal of Ryan Lawyers, which acts on behalf of hotel groups, says total returns increasing by nearly 50% for investment-grade hotels.
“Capital growth was the principal driver reflecting strong fundamentals and a confidence in future cash flows. With domestic corporate demand still robust, CBD hotels are hard to beat,” he says.