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CAPITAL MARKETS AUSTRALIA AND NEW ZEALAND INVESTMENT REVIEW 2016/17 Hotels Accelerating success.
CAPITAL MARKETS
AUSTRALIA AND NEW ZEALAND
INVESTMENT REVIEW 2016/17
Hotels
Accelerating success.
The Australian hotel market continues to attract strong levels of foreign
capital, led by investors from Asia. Both domestic and international
investors regard Australia as relatively low risk and a highly transparent
market for hotel investment. Yield compression across core markets
highlights the competitive tension between investors when there is
limited stock available to purchase. This has been further driven by strong
hotel operating metrics, particularly in Sydney and Melbourne, and the
current macro- economic environment. Australia is benefiting from
increased Asian inbound arrivals as well as strong domestic demand.
There is little doubt that Australian hotels are highly regarded. Investors have primarily been focused on the acquisition and development of major accommodation assets in key gateways. Opportunities to acquire established premium accommodation product in key tourism destinations is expected to remain limited over the coming year, thereby fueling investor demand. More recently however we have started to see domestic and offshore capital enquiring on well-located regional or unique assets across New South Wales, Victoria and Queensland. As a result we are seeing an increase in transactions occurring in areas outside of the capital cities and major resort markets.
Our Capital Markets Hotel Investment Review discusses key highlights and trends over the financial year ending 2017 (FYE2017) and our outlook for the coming financial year. Although Australia ranks high for global hotel investment, each hotel market within Australia should be considered individually as all have unique demand drivers and are at different stages of the supply cycle, impacting upon hotel performance and resulting investment potential.
Over the next year we anticipate that the performance of hotels in Sydney CBD will continue to be strong – with occupancy levels largely at their extremes, growth should be realised in Average Room Rates (ARR) and with very limited new supply entering the market the opportunity for revenue retention and profitability are strong. We anticipate limited buying opportunities however, with Sydney likely to continue to be a tightly held market.
Melbourne hotel performance levels remain strong but growth is currently muted and may come under pressure with new supply entering the market, although demand is also growing. Brisbane will be challenged for the medium term with current owners likely to want to hold on to their assets through this period and not sell until conditions improve. Perth may see more capital inflows, from those buyers seeking value in a counter cyclical environment, proving that opportunities still exist for those with higher risk/return appetites.
We trust you find the Capital Markets Hotel Investment Review an insightful read.
Introduction02 Key Findings
04 Year in Review
06 Transaction Trends
10 Hotel Forecast Indicators
12 Major Transaction Overview12 Sydney13 Melbourne14 Brisbane14 Canberra14 Adelaide15 Perth
16 Case Studies
16 Novotel Glen Waverley17 Travelodge Docklands17 333 Kent Street
18 NZ Hotel Overview
20 Valuation Outlook
21 Investment Outlook
22 Detailed Transaction List
24 Team
GUS MOORSHEAD OF HOTELS
KAREN WALESDIRECTOR TRANSACTION SERVICES HOTELS
MICHAEL THOMSONNATIONAL DIRECTOR HOTEL VALUATION & ADVISORY SERVICES
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INTRODUCTION
$73.66m
NOV 16$368,333
PRICE
DATE
PRICE PER ROOM
Novotel, Glen Waverley, VIC
Sold
PROUDLY SOLD BY COLLIERS INTERNATIONAL
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Key Findings
• FYE2017 proved to be a strong year for Australian
hotel transactions with a total of 41 hotel deals with
a total value of over $3.05 billion. This comes after
a more liquid FYE2016 with 66 transactions, however
with a lower total transaction value of $2.6 billion.
• New South Wales led sales volumes in FYE2017 with
around 42 per cent of sales volume, almost matched
by Victoria with 39 per cent of sales volume.
• Capital in Australian hotel transactions in FYE2017
was primarily sourced from China ($1.12 billion)
and Singapore ($820 million), followed by Australia
($439 million), and Hong Kong ($126 million).
41
42%
TOTAL VALUE
HOTEL DEALS
SALES VOLUMELED BY NSW
SALES VOLUME
IN VICTORIA
CAPITAL IN AUSTRALIAN HOTEL TRANSACTIONS IN FYE2017
FYE2017 PERFORMANCE ACROSS KEY HOTEL MARKETSCOMPARED TO FYE2016
3.05
39
1.12 820 439 126
$ bn
%
$ bn $ m $ m $ mChina Singapore Australia Hong Kong
Source: STR
Cairns
Darwin
Brisbane
Adelaide
Sydney
Perth
CanberraMelbourne
FYE17
FYE17
FYE17
FYE17
FYE17
FYE17
FYE17
FYE17
Occ 84.3% 1.7%
ARR $144.17 7.8%
RevPAR $121.51 9.6%
Occ 69.5% 5.2%
ARR $143.99 -8.4%
RevPAR $100.14 -3.6%
Occ 72.8% -0.5%
ARR $156.34 -7.1%
RevPAR $113.79 -7.5%
Occ 78.6% 2.0%
ARR $151.92 0.7%
RevPAR $119.46 2.7%
Occ 88.9% 0.7%
ARR $252.57 6.3%
RevPAR $224.55 7.0%
Occ 77.2% -5.1%
ARR $175.80 -8.6%
RevPAR $135.63 -13.3%Occ 76.6% 5.1%
ARR $170.82 3.9%Occ 86.4% -0.8%RevPAR $130.88 9.8%ARR $206.45 0.5%
RevPAR $178.46 -0.3%
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KEY FINDINGS
$3.05bnUP $450 MILLION ON FYE2016
FYE2017 SALES VOLUME
86%
OFFSHORE PURCHASES OF HOTELS IN FYE2017
This is in comparison to 49% being offshore purchases in FYE2016
InterContinental Hotel, Sydney NSW
Colliers International is proudly undertaking an operator search on behalf of Mulpha Australia Limited
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Year in Review
Ofshore buyers dominated transaction activity in FYE2017, buying just over
$2.6 billion o� hotel assets across the country.Tis included the $700million
sale o� the Ribbon Development in Darling Harbour Sydney -making up to
27 per cent o� the ofshore sales volume. Even excluding this sale- one o� the
largest single transactions in recent history – sales to ofshore buyerswould
still have represented over 60 per cent o� sales volumes in FYE2017.
Hotel sales by State
•
•
The majority o� sales (by total volume)
consistently occur in New South Wales and
Victoria, closely �ollowed by Queensland. In
terms o� the number o� transactions however,
Queensland has o�ten outpaced the other states
with signifcant transactions taking place on the
Gold Coast and in Tropical North Queensland.
We note the rarity o� port�olio o�erings in
the Australian hotel sector owing to the
largely disparate ownership base. The top
10 owners only own around 10 per cent o� the
total accommodation rooms across the country.
4,500 ($AUD Millions)
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
09 10 11 12 13 14 15 16 17
HOTEL TRANSACTIONS BY STATE FYE 2009-2016
NSW VIC SA QLD WA ACT
TAS NT Portfolio
Source: Colliers International
HOTEL INVESTMENT VOLUMES BY COUNTRY OF CAPITAL (FYE2017)
$ m20USA
Australia
$ m439
$ m1121,China Japan
Hong Kong
Other
Singapore
$ m
$ m
$ m
126
311
820
$ m235
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YEAR IN REVIEW
Novotel Christchurch, NZ Proudly sold (in-one-line with Ibis Christchurch) by Colliers International on behalf of Host Hotels & Resorts for NZ$43,800,000
Sold
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Transaction Trends
Prominence of offshore investors
The transformation over the last ten years is now established – the purchaser profile of Australian hotels has changed dramatically from locally based private investors, hotel owner operators and funds to now being dominated by Asian based investors. This has been driven by the stable economic performance, property cooling measures in home markets and relatively high yielding assets.
Similar to trends in other property sectors, Australia is firmly on the radar of Mainland Chinese investors. The rise of Chinese investors continued in FYE2017 mirroring their prominence over recent years. This incorporates two different categories of investors – those looking to acquire trophy assets at the top end of the market; or those looking at the mid to lower end of the market. Australia is likely to continue to be an investment target due to our growing Chinese population and tourism arrivals and relatively weaker Australian dollar. The signing of the China-Australia free trade agreement in December 2015 and open-skies air services agreement are expected to further underpin this transformation.
Outside of the gateway cities, Chinese investors are also clearly examining destinations with potential to attract increasing tourism. Examples of this are the purchases of a series of regional Tasmania assets by Chinese developer William Wei (Australian Travel and Culture Group) with the distinct aim of attracting holidaying Chinese retirees.
China Capital Investment Group acquired South Molle Island for $25 million this financial year, a little more than a year after buying the nearby Daydream Island Resort and Spa. This reflects the confidence the Shanghai-based group has in Australian tourism assets.
Chinese capital is also coming to Australia in the form of new hotel developments. We highlight the mixed-used development at Sydney Town Hall by Beijing-based developer Ausbao, a subsidiary of Chinese state-owned Beijing Capital Development Holdings. Colliers International was involved in the appointment of Crowne Plaza to operate the hotel which is scheduled to be completed in 2019. The development will also include 95 one, two and three bedroom apartments.
333 Kent Street in Sydney also sold to Chinese i-Prosperity Group and Bridge Capital. The site is DA approved for a high end hotel and residential apartments.
Investment activity from Singapore also continues to be strong with a key sales in Melbourne in particular, including the $230 million purchase of the Hilton South Wharf Hotel by the UOL Group, the Novotel Melbourne on Collins hotel purchased for $237 million by Singaporean Frasers Hospitality Trust, and the Travelodge Docklands by Sing Holdings for $107 million.
We have also seen the return of Japanese capital this financial year with the first Japanese hotel investment in almost a decade following the acquisition of the W Melbourne in a turn-key hotel development sale.
Investors looking for assets beyond capital citiesWhile Sydney and Melbourne dominate investment activity, diminishing stock in these markets is forcing investors to look further afield. Limited opportunities in capital cities overall has seen increased transaction activity in regional locations.
In FYE2017 of the 41 hotel sales that took place, 24, were in locations outside of the capital cities. This is a trend that we anticipate to continue over the short to medium term.
There has also been a visible shift in yields for hotels in regional locations as a result of increased investor demand. Owners are now able to receive a premium from potential buyers who wish to invest into these markets. Acquisitions of existing product are often the most financially sensible option of entering the market, given the restrictively high construction costs in regional areas and therefore market values still below replacement cost.
At the beginning of the FYE2017, Balgownie Estate Vineyard
Chinese Investors =
Ribbon Development Site, Sydney
13
$700m402hotelrooms
with
Brought by Greaton
includes
for
$1.12bHotels
159 residences 5 retail tenancies1 IMAX Cinema
of transactions in FYE17
HOT
EL
7
TRANSACTION TRENDS
A CO
LLIE
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TERN
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NAL
PUBL
ICAT
ION
Resort & Spa in regional Victoria on Yarra Glen was purchased by IE China for a substantial $30 million. In June 2017 Chinese investor Zhingou Capital Corporation bought the historic Morning Star Estate on Victoria’s Mornington Peninsula for $36.2 million. This is the most recent in a series of transactions where Chinese investors are becoming comfortable buying into the state’s hospitality sector outside the CBD. Chinese investors have also been active buyers on the Mornington Peninsula, buying the Red Hill Estate Winery and Eagle Ridge and Moonah Links golf courses.
Changing types of purchasers of Australian hotel propertyAustralian hotels have long been the mainstay of private investors, particularly from Asia, with many showing a penchant for the unique mix of hotel real estate and operating business. In the lead up to global financial crisis (GFC), Australian investment funds made their mark on the sector but with many having sold out over the subsequent years, investment to date has been somewhat limited.
Australia progressing through the hotel development cycleAcross Australia there is significant construction activity of new hotel supply.
Strong offshore interest has placed upward pressure on pricing for Australian hotels and yields have compressed, thereby improving hotel development feasibility. Development activity has increased after a decade low of supply increases.
Site availability, record low interest rates and the strong residential market triggering hotel/serviced apartment components in mixed use projects have all been contributing factors onshore, whereas the push for diversification and a succession of Free Trade Agreements has encouraged more overseas developers to look for opportunities in the Australian market. New construction technology is also bringing new product and players into the mix.
Looking in detail at the pipeline for each market, there is significant variance between capital cities. Smaller markets are at more risk from new supply coming online given the lower existing base.
Hotel Supply Indicators
Perth
18%
Canberra
6%Gold Coast
6%Sydney CBD
7%Tropical North Queensland
4%
Darwin
2%
36%
Melbourne CBD
7%
Brisbane
18%Adelaide
13%
Hobart
% Increase in rooms supply by year end 2018
8
Hayman Island, QLD
Similar to trends in the established market, Sydney and Melbourne CBD are the primary targets for offshore capital, particularly if we take into account the quantum of rooms under development. Gold Coast and TNQ stand out for the proportion of rooms being developed by offshore groups.
There are also some variations with the sources of capital for each market: Chinese capital features strongly in Sydney and on the Gold Coast, whereas South East Asian capital dominates in Melbourne and Middle Eastern funds (notably one group) are targeting TNQ. In terms of number of projects, domestic investors still dominate in Brisbane, Perth, Hobart and Adelaide but with some large projects being undertaken by offshore groups.
100 (% Rooms)
80
60
40
20
0
AUSTRALIAN ACCOMMODATION SUPPLY SOURCES OF DEVELOPMENT CAPITAL, 2015–2022F
Domestic
TNQ
Melbourn
e City
Gold Coas
t
Sydney
City
Brisban
e
Melbourn
e TR
Perth
Hobart
Sydney
TR
Adelaide
Darwin
Sydney
Met
ro
Canber
ra
Melbourn
e Met
ro
OffshoreSource: Colliers International
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Colliers International is proudly undertaking an operator search on behalf of Mulpha Australia Limited
TRANSACTION TRENDS
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Sold
333 Kent Street,Sydney, NSW
Proudly sold byColliers Internationalon behalf of MavilleBay Pty Ltd for$88,888,888.
Site DA approved for
a high end hotel and
residential apartments
WA
Hotel Forecast Indicators
10
Perth
Adelaide
Hobart
FYE17 FYE18
FYE17 FYE18
FYE17 FYE18
Occ 77.2%
ARR $175.80
RevPAR $135.63
Yield Range 6-8% Same as
previous FY
Occ 78.6%
ARR $151.92
RevPAR $119.46
Yield Range 6-8% Consistent
with FYE2017
Occ 83.3%
ARR $168.935
RevPAR $140.80
Yield Range 6-8% Same as
previous FY
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Occ = Occupancy, ARR = Average Room Rate, RevPAR = Revenue Per Available Room , FLAT =
HOTEL FORECAST INDICATORS
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Brisbane
Sydney
Canberra
Melbourne
FYE17 FYE18
FYE17 FYE18
FYE17 FYE18
FYE17 FYE18
Occ 72.8%
ARR $156.34
RevPAR $113.79
Yield Range 6-8% Same as
previous FY
Occ 88.9%
ARR $252.57
RevPAR $224.55
Yield Range 5-6.5% Further
tightening
likely
Occ 76.6%
ARR $170.82
RevPAR $130.88
Yield Range 6-8% Consistent
with FYE2017
Occ 86.4%
ARR $206.45
RevPAR $178.46
Yield Range 5-6% Further
tightening
likely
12
Major Transaction Overview SydneySydney remains the best performing hotel market in Australia with hotels in the CBD operating at historic highs. The underlying demand fundamentals for hotel stays remain strong. The city benefits from well-rounded fundamentals and boasts multiple sources of demand. The city has broad appeal to international tourists, particularly those from China, with visitors from China increasing by over 20 per cent in the past year alone. Corporate demand is also robust with a strong office sector and low office vacancies.
Sydney has strong appeal for investors with owners and operators regarding the city as highly strategic and the preferred point of entry with many reluctant to go further afield without having first secured a foothold in the Harbour city. Properties are becoming harder to attain with few assets in the city being marketed for sale. Over the past year there has only been five sales of hotels in the Sydney City – two of which were for hotel development sites on a turnkey basis.
With few hotels offered for sale over the past year, a pent-up demand for quality assets remains. When one does get offered for sale, it creates great interest amongst investors. The InterContinental Sydney Double Bay sale was the first luxury hotel to be sold in Sydney since the sale of the Westin Sydney in 2015. The 140 - room hotel sold in May 2017 for $140 million which is understood to be a record price for a non-CBD hotel in Australia. Royal Hotels Australia sold their hotel asset to Chinese investors Zobon Real Estate Group Co. Ltd and Shanghai United Real Estate Inc. As China’s first Real Estate consortium that focuses on global property developments, Shanghai United Real Estate was jointly established by 10 Chinese reputable and well-known property firms, which also includes Zobon Real Estate Group.
There have also been a number of sales in Sydney with sites approved for hotel use sold or developments which have been sold on a turnkey basis. The most notable was the Ribbon development which was sold for $700 million and will include a W hotel, as well as serviced apartment, retail and cinema components. The Four Points by Sheraton in Central Park which is under construction was also sold for $190 million to a domestic fund. This project also included an office component.
Sydney continues to exhibit some of the strongest supply and demand fundamentals in Asia Pacific. The supply outlook is largely benign, with the hotel inventory having declined over the past year with the closure of the 446-room Menzies hotel in 2016. Whilst a number of new projects are underway, hotel investors face strong demand for sites from alternate uses, notably the commercial office segment which has surged over the past year. Investment in new hotel construction is underway showing confidence in the Sydney CBD market but new supply is anticipated to be absorbed quickly, against a backdrop of improving tourism demand.
Sydney remains the best
performing hotel market
in Australia with hotels
in the CBD operating at
historic highs.
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42%SHARE OF NATIONAL HOTEL SALES VOLUME FYE2017
252 Sussex Street, Sydney, NSW
CURRENTLY BEING MARKETED FOR SALE BY COLLIERS INTERNATIONAL
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MAJOR TRANSACTION OVERVIEW
2,000
$1 billion
39%
MelbourneThe Melbourne hotel market continues to have strong market fundamentals however performance has flat lined over the past year as demand has softened. Nine accommodation properties are currently under construction in the Melbourne CBD which will add approximately 2,000 new rooms to the market over the next few years. Although there is new supply entering the market, Melbourne hotels still benefit from a year-round calendar of events which is the envy of every other capital city and ongoing investments in infrastructure. The Melbourne Convention and Exhibition Centre is being expanded which will increase Melbourne’s facilities to be larger than Sydney’s once more.
Melbourne has been the focal point for transaction activity with assets worth close to $1 billion changing hands across the city. Hilton Melbourne South Wharf was the most recent and largest transaction to take place in Melbourne CBD bought for $246 million by Singaporean UOL Group. Singaporeans have dominated the large Melbourne CBD sales, also purchasing the Novotel Melbourne on Collins for $237 million and the Travelodge in Melbourne Docklands for $107 million.
We also note that Chinese company i-Prosperity bought the Novotel Glen Waverley in November 2016 and the Japanese Daisho Group purchased the W hotel to be a part of Cbus Property’s development at 447 Collins Street in February 2017.
The Melbourne hotel market continues to
have strong market fundamentals, however
performance has flat lined over the past year.
new rooms anticipated to enter the Melbourne market over the next few years
transaction activity in Melbourne in FYE2017
Share of national hotel sales volume FYE2017
$107m
OCT 16
$367,698
PRICE
SALE DATE
PRICE PER ROOM
SoldTravelodge Docklands, VIC
PROUDLY SOLD BY COLLIERS INTERNATIONAL
14
BrisbaneTrading conditions in the Brisbane market have continued to soften over the past 12 months. Brisbane is anticipated to start to recover as it is coming out of a the supply cycle with no major new supply anticipated until the Casino development in 2022. We note that for YTD June 2017 demand growth has outstripped supply.
The Brisbane market continues to be reasonably tightly held with owners taking a wait and see approach to the impact of new supply. We anticipate that some owners, in secondary locations or with assets that need material upgrading, may take the opportunity to divest assets rather than re-invest.
One of the recent sales in Brisbane was the New Inchcolm Hotel & Suites which sold for $16.5 million in June 2017. Apart from this transaction, there were no other city centre transactions in FYE2017.
A number of major infrastructure projects are underway in Brisbane city which stand to transform the city as a tourist destination. The most significant of these is the $3 billion integrated resort development at Queens Wharf. The project will span almost 20 per cent of the city centre under the most current plans. The project is being developed by casino operator The Star Entertainment Group and its joint venture partners, Hong Kong-listed developers Chow Tai Fook and Far East Consortium. The latest plans include 12 hectares of prime riverfront land and feature a purpose-built casino, upgraded heritage buildings and a walking bridge to Southbank. Included are a proposed 2,000 apartments and 1,600 hotel rooms. While this brings the concern of new supply, it will however create demand-driving infrastructure that will help to hold more leisure tourists in Brisbane over weekend and holiday periods, thereby aiding the city’s hotel sector, which has struggled to retain demand during these periods, as tourists traditionally flocked to the Sunshine and Gold Coasts.
AdelaideThere have been very few hotel transactions in Adelaide over the past few years with a high proportion of strata stock in the city. Apart from the Quest Apartments Mawson Lakes in Adelaide North, there has not been a significant transaction in the Adelaide market since 2009 when the Hyatt Hotel and the Holiday Inn both transacted in Adelaide.
Investors have been focused on the development on new hotels. In 2015, three significant hotels opened in Adelaide which evidently impacted overall hotel market performance, with occupancy levels dropping in 2015 before recovering again in 2016. This recovery is expected to continue this year and into 2018, before the market sees an increase in hotel room stock Atura hotel at Adelaide Airport is due to open in late 2018, and a Sofitel hotel is proposed on Currie Street (anticipated to open in 2019).
CanberraThe Canberra market is tightly held with limited opportunities to acquire hotel assets. There was just one transaction in FYE2017, the Sundown Motor Resort which was sold to Gateway Lifestyle Group (domestic group) for $17 million, reflecting a 10 per cent capitalisation rate.
Canberra’s overall tourism environment is positive. While Canberra will always have a steady flow of corporate travellers, it is now emerging as a favourable destination for leisure travellers with its selection of museums, galleries, historic buildings and an emerging food and wine scene. Additionally, historically Canberra Airport only catered for domestic traffic but from September 2016 Singapore Airlines commenced direct services operating Canberra to Singapore and Canberra to Wellington, while Qatar is set to commence flights in February 2018.
$279.4mtotal sales volume IN QLD FYE2017 (over $5m)
KINGFISHER BAY RESORT, QLD
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MAJOR TRANSACTION OVERVIEW
PerthIn FYE2017 Perth was one of the more actively traded hotel markets. The Novotel Langley sold for $73.5 million in January 2017, then Quest East Perth transacted for $90 million and the Crowne Plaza East Perth was purchased for $50 million.
Colliers International has also noted that both domestic and international investors, fully aware of the current lull in hotel market performance, are increasingly interested in Perth assets as a counter-cyclical strategy.
We note that approximately 2,200 new hotel rooms are under construction in Perth at present with major new high quality level hotels to include Double Tree by Hilton AmanSari Northbridge and also a Double Tree by Hilton at Perth Waterfront, QT Perth, InterContinental Perth, The Westin Perth, Fragrance Hotel and a Ritz Carlton hotel.
2,200new hotel rooms are currently under construction in Perth
Hobart There has been increasing interest in Tasmania as a tourist destination, particularly since the Chinese Premier’s visit in 2014. In the year to March 2017, international visitors increased by 16 per cent compared with the same period in the previous year. Offshore interest has also increased with a number of notable transactions over the past year. Singaporean owner operator Fragrance Group acquired the Clarion in Launceston for $7.2 million, whereas a Chinese developer bought Tasmanian wedding and events venue Villa Howden. The venue is being marketed as a wedding destination for Chinese in Tasmania with management of the venue highlighting the appeal of the destination to the Chinese markets from the unspoilt natural environment. The developer is also constructing $10 million modular hotel called The Lodge in conjunction with lavender farm Bridestowe Estate in Tasmania.
Capital is also being invested in new developments, notably in Hobart with a record number of hotels under construction and proposed. Recently opened MACq 01 is an example of the new product entering the market. MACq 01 is the 114-room hotel by Tasmania’s Federal Group and is located on the old Macquarie 1 wharf site on Hunter Street, beside Hobart’s waterfront.
A $150 million project is also underway at Parliament Square to include a Marriott International’s Luxury Collection Hobart 128 room hotel. The project is being funded by Australian groups – Melbourne based Trawalla Group and Sydney based private developer Citta Property Group. This project is due for completion next year.
We also highlight significant investment by Singaporean company Fragrance Group with a large hotel currently under construction on Macquarie Street in Hobart due to open in 2017. The 296- room hotel will be the largest in Tasmania, and incorporates an enclosed roof top swimming pool, gym, meeting rooms, restaurants and retail tenancies.
Other Regional marketsCairns Cairns has been one of Australia’s strongest performing hotel markets over the past three years with double digit RevPAR gains each year, albeit coming from a very low base. Cairns is benefiting from increasing tourist numbers, with Cairns International Airport seeing an increase of 15.2 per cent in international tourists over the past year.
We highlight the substantial potential investment to be made by Middle Eastern backed Crystal Brook Group which is involved in three projects in Cairns. These projects include the Tradewinds redevelopment, a hotel and residential development on Abbott St and the redevelopment of the Esplanade backpacker resort Bellview Hotel and the adjoining Virginia House office block for a new build $100 million hotel.
Gold Coast Development on the Gold Coast has been buoyed by a $2.4 billion boost in infrastructure ahead of the Gold Coast 2018 Commonwealth Games, as well as the entry of international developers, notably from China. The development cycle for apartments however has turned down on the Gold Coast since the limitation of lending for foreign buyers which was driving the previous development cycle.
There are two small hotels in Southport, Meriton in Surfers Paradise, The Jewel and casino and new Avani apartments hotel (strata) under construction at present.
Dalian Wanda’s $900 million triple tower Jewel development on the beachfront at Surfers Paradise is under construction, and work is under way on the $1.1 billion Spirit tower from Chinese conglomerate Forise Holdings.
It is worth noting that very few Gold Coast hotels are owned in one line with a high proportion of strata stock which is leading more offshore investors to consider development.
DALIAN WANDA’S PROPOSED JEWEL, GOLD COAST
16
Sale of Melbourne’s largest internationally branded hotel east of the CBD.
VICTORIA
Novotel Glen Waverley
Situation — Mid 2016The syndicate of owners for this property had held the asset under a triple-net lease for the past 20 years. When the incumbent operator indicated they would not extend the lease at the end of its expiry in June 2018, the owners elected to sell the asset through an on-market campaign.
Colliers had pitched to the ownership group for previous opportunities, and although we had missed on those occasions, they were impressed with our offering and approach. This held us in good stead when we were asked to pitch against our competitors for the Novotel Glen Waverley. Ultimately, we were successfully appointed due to our track record and our understanding of how the expiration of the lease creates reversionary upside.
Process Through the collaboration between our Melbourne, Sydney and Brisbane offices, we ran an on-market campaign that delivered strong interest from a wide range of investor profiles. This enabled us to generate strong bids at the Expression of Interest stage. Following this, we created ongoing competitive tension throughout the Due Diligence phase, by running multiple bidders through to exchange.
Outcome – End 2016At the conclusion of the Due Diligence, we exchanged contracts with iProsperity Group for $73.33 million. The competitive bidding process helped deliver a sub six percent yield for the vendor and enabled the sale campaign to be completed within the vendor’s timing expectations.
“Through the collaboration between our
Melbourne, Sydney and Brisbane offices,
we ran an on-market campaign that
delivered strong interest from a wide
range of investor profiles”. Gus Moors, Head of Hotels
Vendor Private Syndicate
Purchaser iProsperity GroupSale Price $73.66 millionNumber of Rooms 200Price per Key $368,333
1
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$73.66mSALE
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RECENTLY WON HOTEL DEAL OF THE YEAR AT THE 2017 HOTELS WORLD CONFERENCE
CASE STUDIES
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VICTORIA NEW SOUTH WALES
TravelodgeDocklands 333Kent Street Sydney
Vendor M & L Hospitality
Colliers International negotiated the sale o� the Travelodge iProsperity Group partnered with China based institutional �und
Docklands at 66 Aurora Lane, Melbourne on behal� o� M&L manager, Bridge Capital, to acquire the 333 Kent Street ofce
Hospitality to Sing Holdings Limited. The Travelodge Docklands tower �or the symbolic price o� $88,888,888 million dollars �rom
is a limited service hotel with broad appeal to the tourism and Maville Bay Pty Ltd. The transaction o� 333 Kent Street was
ofce markets. brokered by Colliers International in September 2016.
The hotel opened in February 2010 and comprises 291 The International Expressions o� Interest Campaign attracted 9
guestrooms over ground plus �ourteen levels. The Travelodge o�ers and exceeded the owner’s expectations on market interest.
Docklands is operated by TFE Hotels, one o� Australia’s largest Interested parties were predominantly residential and hotel
hotel companies. The company is jointly owned and operated by developers with two groups looking to landbank the building.
the Sydney based Toga Group and the Singapore based Far East The 333 Kent Street has a Stage 1 Development Approval as
Hospitality Holdings. well as a design competition awarded to Lahznimmo Architects.
The property will retain its impressive heritage arch way �açade
as part o� the ultimate redevelopment scheme earmarked by
iProsperity �or a high end hotel and residential building that willPurchaser Sing Holdings capitalise on the sweeping views across Darling Harbour.
Sale Price $107,000,000
Passing yield Con�dential
Number o� Rooms 291
Price per Key $367,698
$ m107 88.8
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Current investment landscapeFollowing a surge in transactional volume between early-2015 and mid-2016, market activity in the FYE2017 has been comparatively subdued with only eight properties over NZ$5 million changing hands, aggregating to NZ$98.6 million. In contrast, FYE2016 saw sixteen properties transact totalling NZ$347.5 million due to purchasing opportunities created by the exit of Host Hotels & Resorts from the New Zealand hotel market and changes in circumstances for a number of local private investors.
Quality assets located in key centres remain highly sought after by both local and offshore interests. Well performing properties in Auckland and Queenstown in particular are rarely available despite strong investment interest. For example the second largest hotel in the country, the 410-room Langham Auckland, was understood to have attracted multiple expressions of interest prior to the owner withdrawing the property to take advantage of improving market fundamentals.
Regional sales risingDue to limited availability of investment stock in key centres, hotel investors have in recent months turned their attention to secondary and tertiary locations throughout the country in order to gain exposure to the booming tourism sector. In the past two years to FYE2017, there were nine transactions of NZ$5 million or more recorded outside of the country’s primary tourism markets, totalling NZ$75.1 million.
NZ Hotels Overview
New Zealand’s hotel sector continues to attract a growing level of investment interest with
globally attractive return profiles coupled with buoyant tourism fundamentals. However
due to the tightly held nature of the local hotel sector, investors has been forced to turn to
development opportunities in lieu of quality existing assets available for acquisition over
the course of FYE2017 (financial year ended June 2017).
Value implicationsThe general trend across most the country’s key markets have been continuing increases in hotel profitability, driven by sustained RevPAR growth, and further tightening in capitalisation rates evidenced from both actual transactions and investor sentiment. Current market dynamics have broadly resulted in continued growth in hotel values in most markets however moving forward this trend will be dependent on actual future supply increases and their impact on trading conditions.
Future outlookNew Zealand is now firmly on the radar of many global hotel investors who see further growth in the region and are attracted by its favourable investment climate, benign tax regime and positive market fundamentals. However, with quality assets continuing to be tightly held by existing owners, the following trends are likely to be observed over the coming months, namely:
• Transactional activity will likely remain relatively subdued compared to the recent peak as existing owners elect to hold onto their assets and enjoy growing returns driven by improving trading conditions; and
• Development activity will continue to rise, particularly in key markets such as Auckland and Queenstown, driven by the prospect of strong future trading conditions and a lack of acquisition opportunities in the market.
Written by: Vincent Feng, Hotels, New Zealand
IBIS CHRISTCHURCH
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Key Performance Indicators ADR % Change Occ % Change RevPAR % Change
(YE June 2017)
Total NZ NZ$182.76 11.8% 80.9% 0.5% NZ$147.91 12.4%
Auckland NZ$200.03 16.0% 87.0% 1.8% NZ$174.05 18.0%
Wellington NZ$173.43 5.9% 79.4% 0.3% NZ$137.66 6.1%
Christchurch NZ$160.05 3.2% 75.3% -3.0% NZ$120.53 0.2%
Queenstown NZ$209.22 17.3% 82.0% -0.5% NZ$171.50 16.7%
TRANSACTIONS VOLUME BY MARKET (FYE2017)
Rest of NZ
Auckland
Wellington
Queenstown Christchurch
Major Hotel sales by value
Major Hotel sales by value
Major Hotel sales by value
Major Hotel sales by value Major Hotel sales by value
FYE2016
FYE2017
FYE2016
FYE2017
FYE2016
FYE2017
FYE2016 FYE2017
FYE2017 FYE2017
NZ
NZ
NZ
NZ
NZ
NZ NZ
$
$$
N.A.
$
N.A.
$ N.A.
$ $
50.2
24.970.8
86.0
140.5
29.9 43.8
m
mm
m
m
m m
TRANSACTIONS VOLUME BY ORIGIN OF PURCHASER
56%22%
32%44%
4%6%
5%0%
2%28%
New ZealandNew Zealand
Hong KongHong Kong
AustraliaAustralia
SingaporeSingapore
ChinaChina
FYE FYE
2017 2016
Source: Tourism Industry Aotearoa
20
Valuation Outlook
Demand for Australian hotels continues to be strong, with prime CBD properties dominated by offshore investors and regional assets typically more sought after by domestic buyers, although with limited buying opportunities we are starting to see a trend of offshore buyers willing to consider locations outside the State Capitals.
As the trading performance of the key hotel markets in Australia shows a widening divergence buyers are going to have to increasingly consider opportunities outside the tightly held markets of Sydney and Melbourne. This trend is emerging with the recent acquisitions of the Novotel Langley and Crowne Plaza hotels in Perth both acquired as countercyclical purchases and looking relatively cheap on a value per room metric in comparison to the Eastern Seaboard.
We are now in a market where record values are being achieved in Sydney and Melbourne in particular driven by strong growth in revenue (particularly in the former market) from high occupancy levels and growth in room rates above typical long term averages. Demand growth particularly in Sydney is exceeding supply growth and we are experiencing a trend similar to other commercial property markets of tightening capitalisation rates and internal rates of return. Investors appear to be prepared to accept returns outside the typical long term ranges to secure assets in these markets on the assumption of continued capital growth. The unknown is the impact of new supply on the financial performance of existing hotels with unprecedented supply in the pipeline of most of the major hotel markets across the country. Not all of this supply will eventuate and the lapse in time between original due diligence being carried out and new hotels opening can result in hotels opening into very different market dynamics from those experienced when development approval was originally sought.
Good examples of this are the Perth and Brisbane Markets which were supply constrained during the Resources Boom and as a result State Governments were keen to encourage new supply. These new hotels are now opening into softer markets post the Resources Boom and compounding the challenge to existing operators of falling demand. As new supply enters the market we are likely to see existing hotels refurbishing in order to remain competitive.
The below graph shows the hotel transactions in various key markets across the country and demonstrates a degree of consistency around approximately 6 in Sydney and Melbourne and the possibility of lower yields in the strong leisure markets of Surfers Paradise and Cairns. However when comparing these locations to Sydney and Melbourne it should be remembered that they are coming off much lower bases in respect to occupancy and room rates and buyers are factoring in the opportunity of good growth in both these metrics with the emphasis more on projected income than historic. Non CBD locations continue to demonstrate a higher yield range with the market comprising a shallower pool of investors and fewer demand generators with the latter resulting in the potential for more volatile income streams and the increased risk therefore factored into the buying decision by purchasers.
We are now in a market where record values
are being achieved in Sydney and Melbourne
driven by strong growth in revenue from high
occupancy levels and growth in room rates
above typical long term averages.
0.12 Yield Range (%)
0.1
0.08
0.06
0.04
0.02
0
PASSING YIELD RANGES – FYE2017 HOTEL TRANSACTIONS
SydneyCBD
Melbourne CBD
Surfers Paradise
Cairns Other Capital Cities
Non CBDlocations
Source: Colliers International
Written by: Michael Thomson, National Director, Valuation, Hotels
2016
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VALUATION + INVESTMENT OUTLOOK
Investment Outlook
Transaction volumes are expected to moderate through FYE2018 after a six-year bull run with $14.8 billion worth of hotel assets having changed hands. Lower stock levels will drive pricing in core markets, where supply and demand fundamentals remain robust. Investors will continue to pursue yield, and move into secondary and regional markets where demand is strong. Some markets where hotel performance has turned negative will see more stress in 2017, resulting in potential opportunities for buyers.
Australia’s hotel investment market remains open and transparent for both onshore and offshore buyers. Foreign buyers appreciate the transparency our market provides and this is a key factor in their decision to buy here. The proportion of offshore capital is expected to steady in the coming year. Offshore investment has averaged over 65 per cent over the past six years with China emerging as a dominant source. Chinese investors have acquired three out of the top ten transactions by deal size. Over the medium term, Australia’s strong trade relationship with China bodes well for the continued placement of capital into the country’s burgeoning tourism segment. China is now Australia’s third most important export market after the USA and the UK for wine exports for example, which should see continued growth in food and wine tourism and as visitors seek out quality product and experiences.
Despite geo-political issues and terrorism, the global tourism industry has shown resilience and travel remains on the increase. The depreciation of the Australian dollar in late 2014 has been a boon for Australian tourism with international and domestic visitor nights projected to grow on average between 3-4 per cent per annum to FYE2020. Whilst the traditional source markets of US and UK have made strong gains, growth is being driven out of Asia and China in particular, boosted by the “Open Skies agreement” whereby there is no longer the stringent restrictions on Chinese flights to Australia thanks to Federal Government arrangements. Domestic travel to traditional leisure destinations is also a positive trend impacting hotel profitability.
Australia’s hotel development cycle is now well underway, after an extended low. 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. New stock is certain to place pressure on room rates in Brisbane and Perth. However, in Sydney and Melbourne, where occupancies have neared the 90 per cent mark in 2017, expectations are for the new supply to be matched by improving tourism demand.
Australia’s strong trade relationship with
China bodes well for the continued placement
of capital into the country’s burgeoning
tourism segment.
Written by: Gus Moors, Head of Hotels
22
10%
1%
42%
39%1%
7%
TRANSACTION VOLUMES BY STATE FYE2017
QLD
ACT
NSW
VICTAS
WA
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NSWAddress Suburb Sale Price Sale Date Price Per Room Vendor Purchaser
Proposed W Sydney Hotel - The Ribbon development
Sydney $700,000,000 Jul-16 Grocon Zhengtang Group (now Greaton)
Four Points by Sheraton, Central Park (under construction)
Sydney $190,000,000 Mar-17 Impact investment
Intercontinental Sydney Double Bay
Double Bay $140,000,000 May-17 $1,000,000 Royal Hotels Australia
Zobon Real Estate Group Co. Ltd and Shanghai
United Real Estate Inc.
Park Regis City Centre
Sydney $46,000,000 Aug-16 $377,049 Staywell Hospitality Group
Cornerstone Capital
Mercure Parramatta Parramatta $39,600,000 Jul-16 $240,000 Smith Property Group Pty Ltd
Silversea Investment Pty Ltd
Airport Sydney International Motor Inn
Rockdale $32,000,000 May-17 $266,667 TEEL and JV Lancemore Group
Bo Lian Unit Trust (Australia Ao Bo
Assets Management Pty Ltd
Bondi Backpackers Bondi $18,000,000 Nov-16 $346,154 The Millet Group
Sebel Kiama Kiama $13,000,000 Nov-16 Private - Shanghai investor
Lamrock Lodge Bondi $11,250,000 Aug-16 $208,333
Warners at the Bay Lake Macquarie $6,750,000 Aug-16 $135,000 Warners at the Bay Investment Group Pty Ltd
L’otel Darlinghurst Darlinghurst $5,800,000 Aug-16 $362,500 KMG Holdings S.C.C.E Pty Ltd
Quality Hotel on Olive Albury Mar-17 Hotel On Olive Pty Ltd
Trinity Accommodation Regional Hospitality Fund
NEW SOUTH WALES TOTAL $1,202,400,000
Detailed Transaction ListTransactions $5 million plus FYE2017
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DETAILED TRANSACTION LIST
VICAddress Suburb Sale Price Sale Date Price Per Room Vendor Purchaser
Novotel Melbourne on Collins
Melbourne $237,000,000 Sep-16 $623,684 La Salle Investment Management
Frasers Hospitality Trust
W Melbourne (Collins Arch development)
Melbourne $235,000,000 Feb-17 $799,320 CBUS Daisho Group
Hilton Melbourne South Wharf
Melbourne $230,000,000 Mar-17 $640,625 Host Hotels & Resorts and Plenary Group
UOL Group
Travelodge Docklands Melbourne $107,000,000 Oct-16 $367,698 M & L Hospitality Sing Holdings
Novotel Melbourne Glen Waverley
Glen Waverley $73,666,667 Nov-16 $368,333 iProsperity Group
Quest New Quay Docklands Melbourne $71,000,000 Jul-16 $321,267 MAB Corp Ascott Limited JV Qatar Investment Authority
Morning Star Estate Mount Eliza $36,200,000 Jun-17 $1,810,000 Zhongou Capital Corporation
Balgownie Estate Vineyard Resort & Spa
Yarra Glen $30,000,000 Jul-16 $428,471 Des & Rod Forrester
IE China
All Nations Backpackers Hotel
Melbourne $30,000,000 Jun-17 Russell Family Tr Shesh Ghale
Mercure Geelong Geelong $25,000,000 Mar-17 $181,159 Kildair Hotels Event Hospitality
Camberwell Serviced Apartment Hotel
Hawthorn East $15,000,000 Mar-17 $535,714 Chinese Investor
Best Western Plus Brooklands Of Mornington
Mornington $9,000,000 Feb-17 $169,811 Gillon Group Huan Gu
Peppers Mineral Springs Hotel
Hepburn Springs
$7,358,000 Aug-16 $183,950 Private - Australian investor
VICTORIA TOTAL $1,106,224,667
QLDAddress Suburb Sale Price Sale Date Price Per Room Vendor Purchaser
Sheraton Grand Mirage Resort
Gold Coast $140,000,000 Feb-17 $476,190 Miiresorts Group (formerly Pearls Australasia)
Star Entertainment JV Hong Kong
based Chow Tai Fook Enterprises &
Far East Consortium
Rydges Esplanade Cairns
Cairns $40,000,000 Sep-16 $165,289 Abacus Property Group
Mulpha
South Molle Island Resort
Airlie Beach $25,000,000 Aug-16 $132,979 Craig Ross China Capital Investment Group
Peppers Airlie Beach Resort
Airlie Beach $20,000,000 May-17 Latitude Development Group
Wyndham Vacation Resorts Asia Pacific
New Inchcolm Hotel & Suites
Spring Hill $16,500,000 Jun-17 $330,000 Peter Flynn Ovolo Group
Jephson Hotel Toowong $15,800,000 Nov-16 $309,804 Locally based Indian investors (Australia)
Club Crocodile Resort
Airlie Beach $9,000,000 Jul-16 $55,901 Well Smart Investment Group
Heron Island Heron Island $7,100,000 Mar-17 $61,207 Delaware North Aldesta Hotel Group/Saliance
Kingsford Smith Motel Hamilton
Hamilton $6,000,000 Jun-17 $166,667 Charlton Hotels Star Hotels
QUEENSLAND TOTAL $279,400,000
2016
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Transactions $5 million plus FYE2017
ACTAddress Suburb Sale Price Sale Date Price Per Room Vendor Purchaser
Sundown Motor Resort
Canberra $17,000,000 Apr-17 $166,667 Charlton Hotels Gateway Lifestyle Group
ACT TOTAL $17,000,000
Detailed Transaction List
TASAddress Suburb Sale Price Sale Date Price Per Room Vendor Purchaser
Hanlon House at Stanley
Stanley $15,550,000 May-17 William Wei
Clarion Hotel City Park Grand
Launceston $7,200,000 Nov-16 225,000 Global Premium Hotels - parent
company of Frangrance Hotels
Villa Howden North West Bay Hobart
$4,450,000 May-17 William Wei
TASMANIA TOTAL $27,200,000
Address Suburb Sale Price Sale Date Price Per Room Vendor Purchaser
Quest East Perth East Perth $90,000,000 Apr-17 Local developer Savills IM Asia Pacific Fund
Novotel Langley Perth $73,500,000 Jan-17 $287,109 Alceon M&L Investment (Singapore)
Crowne Plaza East Perth
East Perth $50,000,000 Apr-17 $264,550 Avant Hotels Australia Pty Ltd
I- Power Management Pty LTD
WESTERN ASUSTRALIA TOTAL $213,500,000
WA
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Team
NATIONAL NSW NZ
NT
QLD VIC
GUS MOORS MICHAEL NIGEL CHRIS MILOU KAREN WALES DEAN HUMPHRIESTHOMSON GREENAWAY
CHRIS BENNETT
ROBERT BIRD DENISE KIRK ALAN KENTWELL TONY WEST
JACK CHARTERS
NEIL SCANLAN BADEN MALCAHY LEO CARNE GUY WELLS
VINCENT FENG
MICHAEL DOCKER
EILISH HURLEY
Head of Hotels Director Director National Director
Australia National Director National Director +61 413 615 398 +61 405 227 152 +64 9 358 9896
+61 404 005 066 +61 412 053 598 +61 431 288 677
Director
+64 9 356 8802
Assistant Valuer Analyst Hotels Senior Executive Director
+61 419 124 533 +61 414 708 112 +61 411 536 626 +61 409 422 458
Director
+64 9 356 8826
National Director National Director Executive Associate Director
+61 437 700 007 +61 439 034 033 +61 439 736 861 +61 405 612 416
Senior Analyst
+64 9 359 1107
Executive
+61 431 421 000
Analyst
+64 9 359 7965
Sydney SydneySydney Sydney Sydney
Sydney Sydney Newcastle Darwin
Brisbane Brisbane Brisbane Melbourne
Melbourne
Hotels
Colliers International does not give warranty in relation to the accuracy o� the in�ormation contained in this report. I� you intent to rely upon the in�ormation
contained herein, you must take note that the in�ormation, fgures and projections have been provided by various sources and have not been verifed by us.
We have no belie� one way or the other in relation got the accuracy o� such in�ormation, fgures or projections. Colliers International will not be liable
�or any loss or damages resulting �rom any statement, fgure, calculation or any other in�ormation that you rely upon that is contained in the material.
COPYRIGHT 2017
CAPITAL MARKETS
AUSTRALIA AND NEW ZEALAND
INVESTMENT REVIEW 2016/17
