Offshore buyers dominate the hotel market through 2013

According to new CBRE analysis, foreign investors are dominating over local buyers in Australia’s hotel market, with foreign sales accounting for close to 90% of all major sales in 2013.

CBRE’s Hotel Investment Market report highlights that $1.85 billion in hotels valued at over $10.0 million transacted last year, representing a total of 51 properties. Of this, $1.65 billion or nearly 90% was traded to offshore buyers.

CBRE Hotels Regional Director Ken Smith said Australia remained the hot spot for overseas hotels investors.

“Asian investors continue to dominate the top end of the market, attracted by our strong performance fundamentals and our mature and transparent market,” Mr Smith said.

“Exceptional return on equity is being achieved from hotel investment at the current time given investment yields remain quite static in the current low interest rate environment.”

The dominance of offshore buyers represented a significant shift from mid last decade in the lead up to the GFC, when domestic institutional investors were the main players in the hotels arena.

“As the effects of the GFC took hold, local institutions withdrew from the market leaving major private and offshore investors as the main market participants,” Mr Smith said.

“The predominance of offshore buyers became even more apparent last year with a raft of Asian institutional investors targeting this market due to the availability of funds and the performance of the Australian economy.”

Transactional activity in 2013 included the sale of the 30 hotel TAHL portfolio to the Abu Dhabi Investment Authority and the

acquisition by South Korea’s Mirae Asset Group of the Four Seasons in Sydney. These deals accounted for close to two-thirds of last year’s total sales volume  and in both cases the purchasers were new entrants to the Australian hotel market.

Last year’s sales surge followed an active 2012, with the number of sales in the two years combined exceeding the boom years of 2004/5 when purchasers were positioning for growth.

Mr Smith said the investment momentum had continued into 2014 with preliminary deals including the sale of the Park Hyatt in Melbourne to another new entrant to the Australian hotel market, China’s Fu Wah International Group.

CBRE’s review highlights that hotel occupancies remain strong in most major corporate markets, where room rate growth is continuing.

“A softening Australian dollar will also help our competitive position, stimulating international visitor demand and lessening the attractiveness of domestic outbound destinations.”

Mr Smith added that supply continued to be constrained in most markets, although signs were emerging that projects were seriously being considered in Brisbane, Melbourne and Perth.

“Barriers to entry remain high in Sydney, which underpins the longer term performance of this market and makes it the centre of investment interest.”