Australia: Opportunity knocks in 2009 for cashed up foreign hotel investors
As interest rates have reduced and hotel yields have softened, hotels offer a positive yield spread as well as the opportunity for medium-term income growth. “As the year progresses, yields are expected to realign to more accurately reflect the quality of an asset as investors give greater credence to the basics of hotel investment – location, income, management, contract terms and gearing,” said Mr Gibson.
“While we do not expect to see many trophy assets come to market in 2009, a good number of hotel owners will seek to dispose of assets due to realignment of debt levels and investment portfolios,” said Mr Craig Collins, Managing Director - Investment Sales, Jones Lang LaSalle Hotels.
Consistent with reduced retail expenditure and tightening business spending, many hotels are experiencing some softer trading. “January was a great start to the year for many resorts, particularly in Queensland. However the reduced inbound travel is likely to result in lower leisure demand this year. The real test will be how well the demand for meetings holds up,” said Mr Gibson. However, “The lower Australian dollar is also expected to provide a welcome boost to the Australian tourism industry and reverse the weak inbound and strong outbound growth over the last few years.”
More Australians are expected to holiday at home this year as consumers continue to tighten their belts.
Credit markets will remain tight in 2009, however historically conservative lending standards in Australia will help ease the transition to recovery. “Lenders will be presented with ample opportunities and pre-existing relationships will therefore become paramount as lenders are highly selective of where and to whom they lend,” said Mr Gibson.
Australia enjoys a relatively benign supply outlook in most markets, particularly in Sydney which has high barriers to entry. “Sydney will remain an investor hot spot however Perth and Brisbane are still held in high regard even though the resources boom has now softened,” said Mr Collins.
New Zealand is experiencing more stress on its economy and many of its finance companies have fared as poorly as those in the US and Europe. “Auckland remains a popular destination and is rated as a strong buy if hotel assets come to market at the right price,” said Mr Collins.
Compared to 2007, the number of transactions in 2008 around Australia slowed by 41.9% whereas volumes declined by a more significant 56.8% to $763.8 million. Only one large-scale transaction occurred ($100 million plus) during 2008, and offshore investors accounted for the majority of buyers for hotel assets above $20 million. “Having been the domain of domestic investors over the last few years, Asian investors picked up Novotel Rockford Darling Harbour and Westin Melbourne in the second half of 2008 and are completing due diligence on a number of other assets at present,” said Mr Collins.