An influx of foreign investors set a new benchmark in Australian hotel transactions during the 2014 financial year, spending more than $2 billion on properties around the country.
Big-ticket transactions included the $463 million sale of Sydney’s Sheraton on the Park hotel to Chinese insurer Sunrise, and the sale this week of Brisbane’s NEXT Hotel to Challenger for $144 million. The sales have hotel experts tipping that activity would continue to build in the coming year.
“Trophy asset demand and pricing has encouraged the owners of other large Sydney luxury hotels, The Hilton and The Westin, to go to market with high price expectations,” Dransfield Hotels and Resort director Dean Dransfield said, in the group’s Hotels 2015 report.
Annual hotel returns hit 12.9 per cent in the 12 months to the end of the September quarter, said the IPD Index. At the same time, competition for major hotel sites had resulted in a tightening of yields, with some transactions taking place on a yield of less than 6 per cent.
The Hotels 2015 report revealed hotels in Sydney and Melbourne rode a wave of high occupancy levels to lift room rates and to grow earnings during the year. RevPar – a key industry which measures earnings per room – lifted 5.9 per cent and 5.6 per cent in Sydney and Melbourne.
Falling mining investment levels delivered a king-hit to hotel performance in Perth and Melbourne in fiscal 2014. Revenue growth dipped 11.4 per cent in Perth and 8.4 per cent in Brisbane.
Six out of 10 cities nationally recorded an average occupancy above 75 per cent, while delays in development plans kept a tight lid on supply.
Hotel development remained sluggish in spite of a string of approvals granted within the past 12 months, Mr Dransfield said.
Australian major-city hotel supply grew marginally by 0.4 per cent – equating to just 357 rooms – well below expectations for 2300 rooms. This followed two years of flat growth and marked the fifth year in a row of growth below 2.5 per cent.
The data showed hotels were taking longer to build, and timetables for the deliver of major hotels now commonly stretched longer than five years from proposal to opening – longer than historical averages.
However, there was little evidence that demand was growing fast enough to fill the new hotel rooms.
Analysts had expected a falling Australian dollar would stoke local demand by making Australia a more affordable holiday destination, but demand rose just 0.1 per cent compared with the 3.3 per cent expected.
Even so, banks remained supportive of the sector and capital is readily available for good projects, Mr Dransfield said.