Turning point for Australia’s hotel investment sector as activity hits a record low - CBRE Report
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Turning point for Australia’s hotel investment sector as activity hits a record low - CBRE Report
CBRE’s new Hotel Sales in Review 2020 report highlights recent deals such as the $180 million AccorInvest portfolio transaction as signs of a turning point for the sector, as the market begins a slow recovery from COVID-19.
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CBRE HotelsThe Fantauzzo Brisbane.
Hotel transaction activity in Australia has begun to rebound after one of the sector’s most challenging periods.
CBRE’s new Hotel Sales in Review 2020 report highlights recent deals such as the $180 million AccorInvest portfolio transaction as signs of a turning point for the sector, as the market begins a slow recovery from COVID-19.
While Australian hotel transaction volumes are expected to hit a cyclical low this year, CBRE Hotels Managing Director – Capital Markets, Michael Simpson said Iris Capital’s acquisition of the AccorInvest portfolio heralded a new phase for the sector.
Iris Capital acquire the AccorInvest Australian Hotel Portfolio Australia’s largest hotel deal for 2020 circa $180m. Image from AccorInvest.
“The new year is likely to see improved activity as capitalised investors take advantage of emerging opportunities materialising from the COVID-19 induced market dislocation,” Mr Simpson said.
“After a very subdued first half, there was an uptick in sales volumes in Q3 and Q4, with recent sales activity being underpinned by mandates to acquire assets offering attractive discount to replacement value and potential for yield enhancement over the medium term, as trading markets gradually recover.”
Mr Simpson noted that the restart in investment activity was most apparent within tightly held markets, as purchasers sought to capitalise on rarely afforded buying opportunities.
Fantauzzo Art Series Hotel at Brisbane's Howard Smith Wharves sold to Ghassan Aboud’s Crystalbrook Collection. Source: CBRE.
It follows a crippling period for the Australian hotel sector, with materially reduced international and domestic travel driving a hiatus in investment activity.
With investors adopting a ‘wait and see’ approach, hotel owners electing to hold firm until trading conditions improved and the value expectations between buyers and vendors diverging, just $670 million in hotel sales have been recorded year to date across 17 transactions - 63% lower than the 10-year average annual sales volume of $1.8 billion.
Overseas buyers have accounted for 55% of the total sales volume in 2020, with investment being characterised by high-quality asset purchases within tightly held CBD markets such as Brisbane, Melbourne and Sydney.
Despite the record low volume of transactions, CBRE Regional Director of Hotel Valuations Troy Craig noted that price discounts had been relatively minor all things considered– ranging between 5% to 15% on estimated pre-COVID values.
“These relatively small value reductions are somewhat reflective of the investment grade nature of the hotels which have been sold, as these assets typically transact within tighter yield ranges,” Mr Craig said.
Moving forward, Mr Craig said that with the impending wind-down of jobkeeper subsidies in March 2021, constrained international travel for the foreseeable future, and relatively limited “pre-Covid” transaction price discounts, there was potential for some owners to elect to pursue spot liquidity trades to recapitalise or simply pay down existing debt in 2021.
“That said, the investment market is underpinned by record-low interest rates and central bank quantitative easing policies. Sophisticated investors - many of whom were initially priced out of the market in pre-pandemic, on-market sales campaigns - are likely to be well positioned to chase these assets under more favourable terms on their debt facilities. As such, an active hotel transaction market is anticipated over the next 12 to 24 months as investors look for medium-term yield opportunities in a world starved of yield.”
Read and download the 2020 IN REVIEW National Hotel Sales Report.
Mentioned deals from 2020:
Novotel Brisbane sold to offshore group
The Bower Byron Bay hotel sold by CBRE to Gold Coast-based investor
