The research showed strong increases in visitor numbers, aided by attraction to the city via its many international and local sporting events, together with world-class conference facilities, has kept occupancy levels high, and in turn, ADR and RevPAR continue to be elevated.

“Victoria is a highly sought-after accommodation market to invest in, driven by its variety of visitors,” said HTL Property’s Head of Research Vanessa Rader.

“Strong international visitors dominated by the family market enjoy the Melbourne CBD location; while domestic visitors like to travel further out of town in order to explore the natural wonders, as well as the wine regions.

“Melbourne has done much to promote its town and attract visitors; as evidenced by the various sporting events regularly held, together with the growing arts scene the city's attraction as a conference destination, has kept occupancy high and ADR competitive.

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“This market has seen some new supply added and will continue to do so over the next few years, which we anticipate will keep these indicators stable.

“While investors (notably offshore buyers) will continue to aggressively contest these assets, keeping investment yields some of the lowest in the country.”

HTL Property Director of Asia Pacific Region Andrew Joliffe said demand for accommodation assets remained high, however limited quality stock available to the market had resulted in 2018 recording a record low in sales volumes.

“Sales turnover for 2018 has exceeded $400million, which is approximately 40 per cent down on 2017 results; and well behind the highs achieved in 2015,” Mr Joliffe said.

“The sale of Pullman on the Park in mid-2018 propping up these volumes, selling for $156million to iProsperity Group, on a reported yield of 5.50 per cent.

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Pullman on the Park

“With Melbourne CBD and surrounds enjoying strong visitor demand, regional activity has historically been limited, typically recorded at less than 5 per cent of the total volume of sales.

“CBD assets continue to be in strong demand, with overseas buyers vying for these assets; the Quincy Hotel (under construction) being the only city hotel selling in 2018 to InterGlobe out of India for $91.3million, (representing close to $380,000 per room).”

Mr Jolliffe said interest in accommodation hotel assets across Australia was high, particularly by overseas investors.

“This is at its highest in Melbourne given the strong international visitor numbers as well as domestic visitor attraction; keeping investment yields some of the lowest in Australia,” he said.

“Currently, Victorian yields range from 4.30 per cent to 7.75 per cent with an average of 5.50 per cent, which has compressed by 210 basis points in the last five years.

“Offshore activity is high with buyers hotly contesting CBD and suburban assets within a short proximity of the city centre.”

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Mr Joliffe said Victoria was the second most visited state in Australia by international visitors behind NSW, while domestic visitors choose Victoria behind NSW and Queensland.

“Tourism forecasts highlight these higher international visitor nights in 2017/2018, reaching 76,629 representing a 7.13 per cent increase over the last year, whereas domestic visitor nights of 65,994 represented just 0.67 per cent improvement,” he said.

“Looking ahead, international visitor nights are forecast to grow on average 7.16 per cent per annum over the next five years, while domestic nights projections are for 2.51 per cent annual growth over the same period.”

Mr Joliffe said recent data from STR illustrated that the Melbourne Accommodation market has been trending slightly behind prior years, albeit ADR had remained steady.

“New stock additions to the market has kept competition high, and put pressure on the occupancy levels and RevPAR,” he said.

“The accommodation market is cyclical with the various trends obvious across the Melbourne market. High occupancy is enjoyed during three periods throughout the year, February–March, July–August and October–November.

“Most recent data for February 2019 highlights peak occupancy of 89.1 per cent a new monthly high, with ADR recorded at $197.74.”

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