Head of Hotels Australia, Gus Moors reports that Q1 2017 recorded an uptick in hotel transaction volumes, increasing 20.9 per cent to total $778 million.
Q1 2017 recorded an uptick in hotel transaction volumes, increasing 20.9 per cent to total $778 million, but skewed upwards by the inclusion of two large sales ($200 million plus). Overall, deal flow has moderated with only nine transactions recorded during the first quarter. This compares to 18 in Q1 2017. A number of assets which did transact had also been on the market for an extended period (up to 16 months) and therefore volumes do not reflect the dearth of hotel stock currently being offered.
Whilst Sydney has dominated activity over the past two years, Victoria stepped up in 2017 with five out of the nine sales. We also saw the first major (+$50M) transaction in Perth for more than 18 months. This may indicate a return to countercyclical buying with considerable new accommodation supply slated to open over the next two years.
Asian investors dominated deal flow, accounting for 85 per cent of the total capital invested, although Chinese capital was noticeably absent this quarter. Singaporeans were the most active, but we also saw the first Japanese hotel investment in almost a decade with the acquisition of the W Melbourne in a turn-key hotel development sale.
Against a backdrop of generally improving tourism demand, we expect to see development deals feature more prominently through 2017 in Sydney and Melbourne. High capital inflows has seen new pricing benchmarks being set, thereby improving hotel development feasibility. Asian investors in particular are focussed on the development of mixed use towers, haloed by internationally branded hotels.
Over 2015 and 2016, the New Zealand hotel market has witnessed its most buoyant period of transaction activity for ten years with 24 hotel transactions in excess of $5 million each, a total in excess of $500 million.
Recent strong visitor growth numbers, record occupancies and record of occupancy and revenue, have seen investment yields compress in the order of 100 to 200 points across the main tourism markets, with the strongest yields being achieved in Auckland and Queenstown. Development activity is on the rise, driven by the prospect of strong future trading patterns and a lack of existing stock, with the majority of the development set to occur in Auckland, Christchurch, Queenstown and Wellington.
The largest single hotel transaction in the last decade was concluded in 2016 with the sale of the 273 room Novatel Lakeside Queenstown for NZ$91 million. New Zealand based investors accounted for around 39 per cent off all hotel transactions by value in this period, followed by capital originating from Hong Kong (30 per cent) and Singapore (18 per cent).
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See also:
Get to Know Gus Moors, Head of Hotels Australia, Colliers International