Australian hotel sales reach record high.
Sunday, 20th January 2008
Source : Jones Lang LaSalle Hotels
Hotel transaction activity in Australia during 2007 surpassing the 2006 total of A$1.22 billion to $1.63 billion and the previous high of A$1.59 billion recorded during 2004.  

The result demonstrates the ongoing positive investor sentiment for Australia's hotel markets as well as confidence in Asia Pacific's hotel and tourism sector.

During 2007, the Australian hotel market witnessed 37 major (value above $5 million) transactions, the largest of which included the Grand Hotel Group takeover by Morgan Stanley and recent sale of Park Hyatt Sydney to a private Japanese property investor.  "Australia's hotel markets continue to perform well, driven by strong domestic corporate demand off the back of the local economy," said Mr David Gibson, CEO Asia Pacific, Jones Lang LaSalle Hotels.

On average, investors paid A$312,152 per room for hotels across Australia.  "Reflective of a higher level of product being offered for sale throughout the year, this was a 52.4% increase over 2006," said Mr Mark Durran, Executive Vice President – Investment Sales, Jones Lang LaSalle Hotels. 

Asian buyers have returned to Australian shores, accounting for 35% of total hotel transaction activity – a significant increase on last year's 4%.  "Whilst domestic buyers accounted for most of the remainder (62%), this renewed offshore interest has largely been driven by the increased availability of high quality assets being formally marketed for sale," said Mr Durran.

Active domestic players during the year included investment fund Abacus Property Group and Amalgamated Holdings Limited, the parent company of Rydges Hotels and Resorts.

"Prospects for greater transaction volumes were restricted by the limited number of hotel assets for sale in Australia and the threat of further interest rate rises," said Mr Gibson.  With such positive hotel trading performance conditions, many investors opted to adapt a hold strategy.  

Investors are factoring in strong growth in income performance that is not considered achievable in other property assets.  "The higher prospective yields offered by hotels relative to other sectors plus redevelopment potential in many hotel and resort transactions continue to attract more investors - for example Valad Property Group who purchased the Sir Stamford Double Bay (Ritz) and Sheraton Noosa during 2007 who have historically not invested in the sector," said Mr Durran.

"Although most states witnessed some acquisition activity, sales remain concentrated in Queensland, New South Wales, Victoria and Western Australia," said Mr Gibson. 

Strong investor interest in the sector is being driven by favourable market fundamentals.  "Most major markets in Australia are continuing to record increases in room yields (RevPAR - Revenue per Available Room), demand growth remains strong and occupancies high as hotel room supply remains stable in most markets," said Mr Gibson.

New Zealand

Hotel investment liquidity softened through 2007 due primarily to the lack of available opportunities. New Zealand is a considerably smaller market than Australia which tends to result in fits and starts of investment activity.  "However, in excess of $600 million worth of major hotels have transacted in New Zealand over the past two years," said Mr Dean Humphries, National Director, Jones Lang LaSalle Hotels – New Zealand.  He added, "Whilst we anticipated a stronger level of hotel transaction activity during 2007, hotels remain tightly held in New Zealand."

Asia Pacific

Total hotel transaction volume in Asia Pacific almost doubled during 2007 when compared to 2006 to reach US$12.1 billion.   The 2007 record was greatly assisted by the biggest deal across all real estate sectors – Morgan Stanley Real Estate Fund's purchase of Japan's All Nippon Airways (ANA) hotels portfolio for US$2.3 billion. 

The ANA deal ensured Japan secured top billing in terms of transaction volume in 2007 at $6.8 billion. Australia took second place at $1.3 billion and Hong Kong third at $850 million. 

"Yields have continued to tighten in the region – especially in some core traditional markets such as Tokyo and Singapore," said Mr Gibson.  He added, "The lack of availability of stock in these markets and the weight of capital looking to be invested means prices are still rising."  Yields in Japan, Hong Kong and Singapore, which ranged between 4% and 6% in 2006, have tightened another 25 basis points – the sub-prime crisis notwithstanding.
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