Hotel Intelligence Australia

Transcription

Hotel Intelligence
Australia
2011
Hotel Intelligence Australia provides
a comprehensive overview of hotel
investment market trends
This report includes a detailed analysis of trading and investment trends across
five sub-segments – prime CBD, suburban, resort markets, secondary CBD and
mining centres.
Ayers Rock Resort, Northern Territory
Hotel Intelligence Australia • 2011 • 1
Table of Contents
Economic Outlook & Tourism
2
Hotel Development
5
Investment Market Trends
8
2010 Transaction Map
12
Summary by Sub-Segment
Prime CBD
14
Suburban
17
Resort
19
Secondary CBD
22
Mining Centres
24
Jones Lang LaSalle Hotels, the first and leading global hotel investment services firm, is uniquely positioned to provide the depth and
breadth of advice required by hotel investor and operator clients, through a robust and integrated local network. In 2010, Jones Lang
LaSalle Hotels provided sale, purchase and financing advice on $4.1 billion worth of transactions globally. In addition, advisory and
valuation services were provided on over 1,000 assignments. The global team comprises over 230 hotel specialists, operating from
39 offices in 20 countries. The firm’s advice is supported by a dedicated global research team, which produced 70 publications in
2010 in addition to client research. Jones Lang LaSalle Hotels’ services span the hospitality spectrum; from luxury single assets and
large portfolios to select service and budget hotels, resorts and pubs. Services include investment sales, mergers and acquisitions,
capital raising, valuation and appraisal, asset management, strategic planning, operator selection, management contract negotiation,
consulting, industry research and project development services. Jones Lang LaSalle Hotels’ clients have access to the resources of its
parent company, Jones Lang LaSalle (NYSE: JLL).
www.joneslanglasallehotels.com
2 • Hotel Intelligence Australia • 2011
Economic Outlook & Tourism
Global snapshot
After the significant set backs of the global financial crisis (GFC),
2010 was an important rebound year for the global economy.
While still facing a number of challenges for a sustainable recovery,
the rate of global economic growth is expected to ease back in
2011 to 3.7%, following growth of 4.1% in 20101. However, the
distribution of growth is highly uneven with the Asia Pacific, and to a
lesser extent American economies, leading the way.
“Australia is projected to enter
its 20th consecutive year of
economic growth in 2011 having
staved off the adverse global
headwinds over the past couple
of years.”
Karen Wales
Senior Vice President – Research and Consultancy
Global Economic Growth
2009 to 2012F
Australian Key Economic Indicators
2001 to 2015F
Eastern Europe
8.0%
Western Europe
Percentage Growth (Per Annum)
7.0%
2012F
Policy Interest Rate
Unemployment Rate
Real GDP
2015F
2011F
Source: Consensus Economics April 2011, Jones Lang LaSalle Hotels
2014F
2010
0.0%
2013F
GDP Increase
2009
1.0%
2012F
8%
2010
6%
2011F
4%
2009
2%
2008
0%
2007
-2%
2006
-4%
2.0%
2001
-6%
3.0%
2005
Australia
4.0%
2004
Asia Pacific
5.0%
2003
North America
6.0%
2002
Latin America
Consumer Price Inflation
Source: IHS Global Insight May 2011, Jones Lang LaSalle Hotels
Inflationary pressures are a particular issue for the emerging
Asia Pacific markets and are causing increasing unease in some
developed economies, including Australia. Most Asia Pacific central
banks have begun implementing tightening measures to combat
inflation and further policy interventions are likely in the balance
of 2011. Higher interest rates are also likely to emerge as a key
concern for investors, whereas the rapid growth of emerging
economies is also placing upward pressure on primary commodities
and asset prices.
Australia – “the Lucky Country”
Ranked 13th in the world in terms of nominal GDP (US$ billions),
Australia is projected to enter its 20th consecutive year of economic
growth in 2011 having staved off the adverse global headwinds over
the past couple of years and the short term impact of recent natural
disasters (floods/cyclones).
A tight labour market, combined with increases in external demand
for commodities, has underpinned strong consumer confidence from
GFC levels, although some weaknesses are emerging in selected
tourism sectors and geographies, particularly in light of interest rate
rises and the recent strength of the Australian dollar.
1
IHS Global Insight, March 2011
IHS Global Insight expects the economy to grow just 2.4% in 2011,
as natural disasters occurring in the eastern states during the first
quarter are expected to reduce export potential, while compromising
the balance sheets of affected households and businesses.
Reconstruction activity is expected to recover in the second half
of the year, with households and businesses spending their claim
payouts to help put their lives and businesses back in order.
Expectations of weaker growth in 2011 are also the result of a
moderation in consumer spending. Consumption is projected to be
constrained by higher interest rates, but falling unemployment and
rising skill shortages should result in rising real incomes.
RBA pauses on interest rates
After raising the leading interest rate an additional 25 basis points in
November 2010, the Reserve Bank of Australia (RBA) is expected
to hold interest rates until at least mid 2011 allowing time to assess
the economy’s adjustment to higher interest rates, the impacts of
the natural disasters, and monitoring of inflation conditions.
The Currency Factor
Comparison Tourism Ratio and Trade Weighted Index
40
70
45
50
60
55
60
65
50
Inbound: Outbound
Trade Weighted Index
Ratio: inbound to outbound
AUD (TWI - 11mth Iag)
70
75
The leading interest rate has increased 175 basis points since its
October 2009 low point, aligning it with what the RBA views as just
above the long-run “average” interest rate. The RBA is expected
to maintain a slightly tighter-than-neutral policy setting through the
first half of 2011, but the policy rate is expected to rise by 50 to 100
basis points by the end of the year.
The Australian dollar climbs above parity
The Australian dollar has hit new post-float highs in early 2011,
despite some weakness experienced in January 2011 owing to
concerns about the effects of the floods on economic growth.
This continues the appreciating path evident throughout 2010,
supported by further monetary loosening in the United States as
well as strong domestic growth and a rebound in the terms of
trade to multi-decade highs, owing to stronger commodity prices.
The Australian dollar first reached parity with the US dollar in early
November and after a brief correction, it ended 2010 at AUD0.977/
USD1.000, an appreciation of 12.3% from the end of 2009. On
average, the Australian dollar appreciated by 15% versus the US
dollar in 2010.
80
40
Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11
Source: Tourism Research Australia, Jones Lang LaSalle Hotels
Australia’s appeal to international source markets has been flat
with inbound arrivals totalling around 5.5 million each year between
2006 and 2009. In 2010 arrivals increased 5.4% – the highest rate
of growth since 2005 – to total 5.9 million. This growth reflects
improvements in the global economic environment but also the
easing of infrastructure bottlenecks over the past couple of years,
notably aviation capacity. However, growth has slowed during the
first quarter of 2011 (-5.1%)
Inbound tourism is forecast to increase over the next few years with
growth averaging 4.5%. This compares to an average of 6.8% per
annum for outbound travel as the balance of trade between inbound
and outbound tourism continues to reverse.
Australia - Net Visitor Chart
2000 to 2012F
1.3
1.2
Tourism trends reflect economic backdrop
1.1
The impact on the domestic leisure segment has been pronounced
as Australia’s solid economic performance has made overseas
travel more affordable, whilst conversely underpinning the domestic
corporate segment which has resulted in strong trading in Australian
city hotel markets over much of the past decade. A preference for
short mini-breaks and event travel, boosted by more affordable
air travel, is also favouring city destinations. Lacklustre inbound
tourism, particuarly leisure travel, has been placing downward
pressure on Australia’s resort and some regional markets.
These various travel trends are expected to continue over the short
to medium term and may even reflect a longer term mind-shift for
the Australian tourism market.
2
Tourism Research Australia, October 2010
0.9
0.8
0.7
0.6
2011F
2012F
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
0.5
2000
The strengh of the Australian dollar has been a major factor for
the Australian tourism industry since 2004; driving outbound travel
and conversely reducing the competitiveness of domestic tourism.
Difficulty in competing effectively against changing consumer
preferences has also become evident.
Index
1.0
Index - Long Term Trend
Note: Australia becomes a net exporter of tourists above 1.0
Source: Australian Bureau of Statistics, Tourism Research Australia, Jones Lang LaSalle Hotels
The allure of Asian and Pacific destinations
Outbound travel from Australia has increased at an accelerated
rate averaging 11.2% per annum over the past seven years, before
reaching a pinnacle in December 2010. Outbound departures from
Australia totalled 7.1 million in 2010 compared to 3.4 million in 2003.
This is equivalent to one trip being taken each year by a third of the
resident population.
250
140.0
30%
25%
120.0
20%
15%
100.0
10%
80.0
5%
0%
60.0
Annual Growth
Outbound Travel Trends
Major Destinations for Australian Travellers 2000 to 2010
Australia’s Top Ten Airports
Passenger Movements FY1986 to FY2010
Passenger Movements (Millions)
Asian and Pacific destinations are leading the charge with strong
growth in outbound travel to medium-haul destinations across
South East Asia, as well as Fiji, China and Japan. Over the past
18 months, increasingly favourable exchange rates and growth in
aviation capacity has also resulted in a surge of Australians visiting
the United States.
-5%
40.0
-10%
-15%
20.0
0.0
150
Regional
Domestic
International
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
-25%
1986
Index (Base Year 2000)
-20%
200
Total Growth
Source: BITRE, Jones Lang LaSalle Hotels
100
50
2000
2001
2002
2003
2004
2005
2006
2007
New Zealand
Pacific
South-East Asia
North-East/Southern & Central Asia
2008
2009
2010
Europe, North Africa & Middle East
North America
Outbound travel is projected to continue to grow over the longer
term, presenting further challenges for Australia’s leisure markets.
The growth of cheap flights, tourism demand generators and
competitively priced product is adding to the allure of offshore
destinations, particularly across Asia. Development in Australia’s
key tourist areas has been limited by comparison and likely to
be held back by market forces over the medium term. The gap
between tourist accommodation offerings will therefore become
increasingly evident.
Domestic capacity across Australia has also increased with the
emergence of low cost carriers (LCCs), increasing competition in
the airline industry and opening up travel to a price sensitive market.
In the period since the entry of Virgin Blue around a decade ago,
best domestic air fares have halved in real terms. While Jetstar and
Tiger have taken the lead in recent domestic airfare discounting,
Qantas ‘Red e-Deal’ and Virgin Blue’s ‘Go fares’ and ‘Blue Saver’
also offer low prices. This has resulted in strong growth in domestic
passenger movements averaging 7.7% per annum between 2003
and 2010.
Domestic Air Fare Index
1992 to 2010
180
160
140
Aviation bottlenecks have eased
Growth in international seat capacity is expected to increase further
through 2011 by an estimated 7.7%, driven mainly by an increase
in direct flights from Asia and China in particular (c.40% in 2011).
Modest increases in inbound tourism are expected as a result. Over
the longer term, international aviation capacity is projected to grow
at an average rate of 3.9% between 2009 and 2020 with a similar
rate of growth for inbound tourism.
Index
100
80
60
40
20
Real Business Class
Real Full Economy
Oct-10
Oct-09
Oct-08
Oct-07
Oct-06
Oct-05
Oct-04
Oct-03
Oct-02
Oct-01
Oct-00
Oct-99
Oct-98
Oct-97
Oct-96
Oct-95
Oct-94
Oct-93
0
Oct-92
The global aviation industry has faced some serious challenges
over the past decade, with the most recent economic slowdown
resulting in global passenger traffic falling by 3.5% in 20092. On
the contrary, Australia experienced a 5.0% increase in international
seat capacity in 2009 and 6.0% in 2010. Increased activity is being
dispersed across Australia as city airports seek to attract a higher
proportion of international passenger traffic. Growth was strongest
into Perth (14.7%), Melbourne (13.3%), Adelaide (9.4%) and Sydney
(7.5%) in CY 2010. However, Sydney still accounts for the lion’s share
of inbound traffic with more than double the number of international
passenger movements compared to next-best rival Melbourne.
120
Real Best Discount
Source: BITRE, Jones Lang LaSalle Hotels
Airline prices are expected to rise throughout 2011 as airlines raise
surcharges to compensate for higher fuel prices. Supply constraints
of crude oil following unrest in the Middle East and a drop in refinery
production in Japan after the March earthquake and tsunami is
driving up prices.
Hotel Development
“A number of city rejuvenation or expansion projects are
planned over the medium term which could provide rare hotel
development opportunities in Australia’s prime CBD markets.”
Troy Craig
Managing Director - Strategic Advisory
Hotel development slows to a trickle
Australia’s accommodation room supply has remained fairly
static over the past thirteen years with the total number of rooms
increasing at an average rate of 2.1% per annum (55,000 rooms)
between 1997 and 2010. Growth was strongest in the lead up to the
Sydney Olympic Games in 2000, but has moderated over the past
decade to average just 1.5% per annum (32,000 rooms).
The feasibility of new hotel development remains challenging across
Australia as hotel values have not kept pace with the rapid growth in
construction and underlying land costs over the last thirteen years –
the peak of the last development cycle. The development of hotels
is generally considered high risk with few “traditional” styled projects
providing an acceptable level of profit or return on capital. Whilst
the level of success would anecdotally appear higher for smaller
developments at the lower end of the market, such developments
are often underpinned by group operating structures and corporate
investment drivers. Many non-strata hotels also continue to be sold
at prices below replacement cost and thus there has been little
impetus to build.
Australia’s Accommodation Supply
1997 to 2010
250,000
Accommodation Rooms
200,000
150,000
100,000
50,000
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Hotels
Motels
Serviced Apartments
Source: Australian Bureau of Statistics, Jones Lang LaSalle Hotels
Alternatively and more commonly over recent years, hotel
developments have leveraged off the strata investment market.
This has allowed the development to be sold down on a “retail”
basis as individual strata units to private investors rather than
on a “wholesale” basis as a larger commercial investment.
Increases in serviced apartment room supply have therefore
been considerably higher than for the accommodation market
overall with rooms increasing at an average rate of 7.7% per
annum. This compares to hotels rate of growth of 1.8% per annum
and motels 0.3% per annum.
Many of the investment drivers which resulted in the growth of
strata-titled tourist accommodation product have now changed and
development activity has moderated over the past two years with
growth averaging only 1.3% per annum. Construction costs are
higher, debt is less freely available and retail investors have been
de-leveraging. Low or negative returns, particularly in Australia’s
leisure markets, and the lack of a secondary market are also
weighing heavily on the sector.
Gearing up for the next development cycle
Availability of debt is a key factor in hotel development and
investment, affecting the number of buyers in the market and their
ability to pay. Investment is rarely purely debt driven, but also
dependent on property fundamentals and income expectations.
Banks typically have a lower appetite for specialised property
assets, such as hotels, reflective of their higher risk profile and the
associated degree of business risk. Loan-to-value ratios (LVRs)
average around 50% as the generally accepted level of leverage
that an established trading asset can sustain during volatile times.
Hotel values can also experience a compounding effect during the
downward phase of the cycle from both a reduction in income and a
softening in initial yields (cap rates).
Proposed Barangaroo Development, Sydney
Government stakeholders may look to step in
Australia – Accommodation Building Approvals
Moving Annual Average 2001 to Jan 2011
While the favourable supply/demand imbalance projected over
the next few years is undeniably positive for existing owners, a
lack of accommodation development feasibility and aging product
may prohibit the growth and evolution of the Australian tourism
industry over the long term. Increasingly governments recognise
that insufficient tourist accommodation can act as a stranglehold on
economic growth, however, few effective actions have been taken
to date.
200
180
160
Value ($ Millions)
140
120
100
80
60
40
20
Jun-10
Jun-09
Dec-09
Jun-08
Dec-08
Jun-07
Dec-07
Jun-06
Dec-06
Jun-05
Dec-05
Jun-04
Dec-04
Jun-03
Dec-03
Jun-02
Dec-02
Jun-01
Dec-01
0
Accommodation Building Approvals
While the trading recovery in Australian hotels evident over the
past year has surprised on the upside, it has not been sufficient
to warrant more development projects being progressed as
development debt is still difficult to obtain. Consequently,
accommodation building approvals across Australia have slowed
through 2010 to their lowest annual level since 2001 with only $678
million of projects approved. This represents just 38.2% of the level
recorded in 2007, prior to the global financial crisis, and highlights
how the lack of development debt will continue to restrict the flow of
new accommodation product over the short to medium term.
Government incentives most favoured by industry stakeholders
for stimulating accommodation development include payroll
tax reform, conversion of heritage buildings to tourism use,
development bonuses or uses and site land release. However
many stakeholders also recognise that the use of incentives can
result in more rooms being added over and above those warranted
from future market conditions as developers move to capitalise on
the perceived benefits of any such incentives. If market conditions
change unexpectedly, this can result in pronounced supply-driven
downturns as evident in Sydney in 2001. Hotel markets need
time to correct if a self-sustaining industry is to be developed and
incentives should therefore only be used on occasion and assessed
on a case-by-case basis and not uniformly applied in any given
market.
Targeted development is more effective
While more complex for Government, predicating that major
infrastructure developments include a tourism component could
be a more effective means to ensuring appropriate levels of
accommodation development, supported by the creation of activity
pockets. In most instances, hotels are not demand generators in
themselves, but they service demand. The geographic dispersal
of tourism attractions across Australia and in many cities makes
it difficult to ensure focused and deliberate development. Tourism
infrastructure which is appealing to target markets can help to
diversify the offering, particularly when done through the creation
of destination hubs, for example financial centres, sports,
entertainment and cultural activities, as seen in Melbourne. Hotels
are best located in these areas or in business parks and near
airports on the city fringe.
A number of city rejuvenation or expansion projects are planned
over the medium term which could provide rare hotel development
opportunities in Australia’s prime CBD markets. These include
Barangaroo in Sydney, Brisbane’s RNA Showgrounds, Melbourne’s
Victoria Harbour and North Wharf developments, Perth’s Waterfront
and Adelaide’s Riverbank.
Similarly, the viability of new accommodation product can be
improved through the development of convention infrastructure,
whilst also driving additional revenues into the local economy.
Expansion or development of convention infrastructure has recently
been completed or is underway in Darwin, Melbourne and Brisbane,
whereas new facilities are in the various planning stages in Adelaide
(expansion), Canberra (Lake Burley Griffin), Melbourne (Exhibition
Centre), Sydney (Redevelopment of Entertainment Centre and
White Bay Cruise Terminal) and Perth (Burswood expansion).
This is likely to spur new accommodation product in these locations.
Future development – what, where and when?
A long period of sustained economic growth and a safe, stable
and transparent investment environment has kept Australia on the
radar for domestic and international investors. However with few
new hotels being built in most Australian cities, low availability of
investment grade product will see prices increase with limited new
supply impacting markets and restricted stock available for sale.
Coupled with strong growth in trading, this is expected to result
in hotel development becoming feasible over the medium term,
although higher competing alternate uses will continue to quell the
flow of new development, particularly in prime CBD markets.
We estimate that on average RevPAR would need to increase by
around 40-50% on 2010 levels for accommodation development
to be considered viable or at least having a fair chance of success
in Australia’s prime CBD markets. Notwithstanding the current
development debt constraints, we anticipate that new supply will
become evident in most markets from 2015. Our assessment
includes a range of variables which are highly subjective and open
to interpretation.
Projects may progress, for example, on the basis of assumed
lower construction or land costs and/or higher trading expectations,
particularly if worked up when hotel trading performance is strong
as is anticipated over the next few years. Having regard to the likely
quantum and timing of new supply will be critical for existing owners
who are looking to exit, if they are to maximise investment returns.
Over the coming cycle, we anticipate that more accommodation
development will need to be directed to the budget/midscale
segments as Australian room supply is disproportionately weighted
to the 4-star segment. The supply of lower graded product as a
proportion of the total room supply has declined over the past
ten years. Historically budget room supply in Australia has been
dominated by the motel segment, but increasingly new branded
budget hotel product is being developed by international and
domestic operators which should be encouraged.
The dispersal of room supply outside of city centres is also
expected to continue in Sydney and Melbourne, whilst becoming
evident in Perth and Brisbane. Viability of projects in these
suburban locations will have greater regard to individual asset
location. This can increase significantly if a property is well located
to tourism demand generators and in some instances could even
make accommodation product the highest and best use of land.
Established suburban accommodation centres such as North
Sydney, North Ryde, St Kilda, Parramatta and the airport precincts
are expected to continue to expand, whereas new rooms are also
likely to be built where demand for accommodation is high.
Australia’s Accommodation Supply
As at end of 2010
Hotel
Motel
Serviced Apartments
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Accommodation Rooms
5-star
4-star
3-star
2-star
Conversely, serviced apartment development is expected to remain
relatively constrained over the next few years, particularly when
compared to historic growth rates, given the emerging negative
yield spread. We believe that a positive yield spread would have
to be evident for at least three years before retail investors were
tempted back into the strata-titled serviced apartment investment
market to such an extent as to have a material impact on
development activity.
Investment Market Trends
Volumes Recover
The four years to 2007 saw record investment in the Australian
(and global) hotel property sector as it benefited from a surge in
investor demand under-pinned by an abundance of both equity and
competitively priced debt. An improved outlook for earnings growth
due to limited new supply in most markets and strong demand
growth also underpinned this unprecedented demand for the sector.
The onset of the US sub-prime credit crunch in the latter part
of 2007 and increasing volatility in world debt/equity markets
throughout 2008 resulted in rapidly declining market sentiment,
and added uncertainty to the outlook. Consequently, transaction
volumes declined markedly across the world and reached a low
point in Australia during the first half of 2009 with only $100M of
assets exchanging hands.
Hotel Investment Trends
Transaction Volumes & Price per Key 1993 to 2010
$250,000
2,000
Travelodge Docklands, Melbourne
1,800
$200,000
1,600
Australian Buyer Profile
Source of Investment 1993 to 2010
$150,000
1,200
1,000
$100,000
800
Price per Key ($)
Volume ($M)
1,400
2,000
1,800
600
400
1,600
$50,000
1,400
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Volume ($M)
$0
Price per Key
Source: Jones Lang LaSalle Hotels
Volume ($M)
200
1,200
1,000
800
600
As the green shoots of economic recovery became evident
through mid-2009, savvy investors wasted no time proclaiming
their re-ignited passion for the hotel sector. Reminiscent of the late
1980s and early 1990s, the state of debt, equity, hotel property and
capital markets were such that investors with cash and the ability
to move efficiently were able to capitalise on the changed global
environment. Australian hotels were a key target, particularly for
Asian investors, boosted initially by a short term currency weakness
and 49-year record low interest rates in April 2009.
Transaction volumes surged in the second half of 2009, before
there was a clear indication that trading markets had bottomed.
As the trading market recovery became evident, 2010 saw the
investment upsurge gather pace with volumes reaching an above
average $1.4 billion. Activity was largely two-fold featuring both
prime assets in major city locations and distressed resort stock. The
buyer and seller profiles were similarly distinct with the sell down of
assets by the domestic funds and acquisitions by Asian investors
and some domestic players.
400
200
0
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Domestic Asian
North America
Middle East
European
Other
Unknown
Global
Australian transaction volumes are projected to return to the longterm trend over the next couple of years, with around $1 billion of
assets changing hands each year. Investors will continue to focus
on the gateway cities and major resort markets which drew most
of the acquisition attention in 2010, while watching secondary and
emerging markets for attractive values in an improving business
climate.
“As Australia’s accommodation market has matured, it has
become increasingly diverse and now offers the full gamut of
investment opportunities for investors targeting value, growth
and yield strategies.”
Craig Collins
Chief Executive Officer – Australasia
Return to more traditional buying
While Asian investors have dominated over the past three years, we
anticipate the gradual return of more traditional buyer types, such
as the domestic investment funds, over the medium term. While
having emerged as one of the primary selling groups in 2009 and
2010, many of the fundamentals which attracted them to the sector
have not changed. The weight of capital being driven by compulsory
superannuation still has more than a decade to build before
significant withdrawals are made.
Initial yields revert to near term trend
Across Australia, long-term hotel initial yields have averaged
around 7.6%, but have tightened more recently to average 7.3%
since 2000. Similar to other property assets, average initial yields
reached a low point in 2007 of 5.8% but have softened over the
past three years. In 2010 initial yields averaged 7.6% in line with
the long-term trend.
Property Investment Trends
Transaction Volume by property Type 2001 to 2010
Billions
Capital values for Sydney 4-star hotels contracted on average by
23.6% between Q407 and Q409 but posted a 14.2% recovery in
2010. Capital values in core cities are projected to rise strongly
over the next three years. RevPAR (revenue per available room)
contracted by 7.3% over the same period, but increased by 12.6%
during 2010, with recent trading surpassing 2008 peak levels.
Hotels in Sydney, Melbourne, Brisbane and Perth are expected to
record the strongest growth over the next few years.
18
16
14
Volume ($)
12
10
Australian Property Yields
1996 to 2010
8
6
4
12%
2
11%
Capital growth may start to free up more product
On the whole, Australian hotel values are expected to increase
through 2011 as market fundamentals continue to improve. This
is providing the momentum for increased investment trades,
encouraging investors to assume greater risk to achieve intended
returns. This competition will introduce more liquidity into the sector
as credit markets ease and the lending environment improves as
banks successfully refinance their loans.
8%
7%
6%
Hotel
Retail
Office
2010
2009
5%
2008
Cross-border investments will continue, with the stronger dollar
having limited impact on foreign investment levels to date which
reflects the fact that many Asian currencies have appreciated at
similar rates to the AUD.
9%
2007
10%
2006
Industrial
2005
2010
2004
Office
2009
2003
Retail
2008
2002
Hotel
2007
2001
2006
2000
2005
1999
2004
1998
2003
1997
2002
1996
2001
Weighted Average Yield
0
Industrial
Yields are expected to consolidate during 2011, not returning to the
2007 levels. The tightening recorded in 2010 reflected improved
trading expectations and return of supply/demand balance which
existed prior to the GFC. Unlike the early 1990s, the absence of
significant supply in the current downturn and the advent of on-line
distribution channels have allowed operators to switch to alternative
sources of demand as corporate customers cut back on travel
budgets. Yields are likely to moderate again over the medium term
as income gains are realised.
Novotel on Collins & Australia on Collins Shopping Centre, Melbourne
The dichotomy of accommodation product
As Australia’s accommodation market has matured, it has become
increasingly diverse and now offers the full gamut of investment
opportunities for investors targeting value, growth and yield
strategies. Reflecting this we have segmented the market into five
major sub-categories to allow for more detailed analysis as outlined
over the following pages.
Together these five sub-markets have accounted for 90% of
transaction activity over the past twenty years and more than
60% of Australia’s total accommodation room supply in 2010.
Australian Investment Trends
Activity by Sub-Market 1991 to 2010
1800
1600
Transaction Volume ($AM)
Major Australian Sub-Markets
RevPAR Index 2004 to 2010
RevPAR Index (Base Year 2004)
200
180
1400
1200
1000
800
600
400
160
200
140
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
120
Prime CBD
100
80
Suburban
2004
Prime CBD
2005
2006
Suburban
2007
Resort Markets
2008
2009
Secondary CBD
2010
Mining Centres
Resort Markets Secondary CBD Other
Sofitel Wentworth Sydney
2010 Transaction Map
Transaction Name, Location, Date, AUD$M Price, AUD$K Price per Room
*
CDL Hospitality Trust , Perth & Brisbane (5 assets), Feb-10, $175.0M, PPR$153.6
Darwin
*
Ayers Rock Resort , Yulara, Oct-10, $300.0M, PPR$379.7
Kings Hotel Perth, Perth, Jul-10, $40.0M
(Price includes hotel, offices, restaurant,
two bars and a multi storey carpark)
*Sold by Jones Lang LaSalle Hotels
Perth
*
Sheraton Mirage Port Douglas , Port Douglas, Mar-10, $35.0M, PPR$120.3
*
Fitzroy Island , Cairns, Feb-10, $7.9M, PPR$167.0
Cairns Plaza Hotel*, Cairns, Aug-10, $5.9M, PPR$98.3
*
Brampton Island , Brampton Island, Jan-10, $5.9M, PPR$54.4
Cairns
*
Koala Backpackers & Whitsunday Wanderers Resort , Airlie Beach, Mar-10, $13.8M, PPR$90.2
Noosa Sanctuary Resort, Noosa, Nov-10, $60.0M, PPR$397.4
Platinum International Hotel, Harristown, Oct-10, $8.2M, PPR$215.8
Brisbane
Avica Resort & Spa, Merrimac, Mar-10, $11.5M, PPR$425.9
Paradise Resort, Surfers Paradise, Jun-10, $33.1M, PPR$92.7
*
Courtyard by Marriott Surfers Paradise , Surfers Paradise, Jul-10, $47.0M, PPR$116.3
Sheraton Mirage Gold Coast, Surfers Paradise, Mar-10, $62.5M, PPR$213.3
Sydney
*
Swissotel Sydney , Sydney, Feb-10, $90.0M, PPR$249.3
*
Sofitel Wentworth Sydney , Sydney, May-10, $130.0M, PPR$298.2
Metro Hotel on Pitt Sydney, Sydney, Jun-10, $24.2M, PPR$210.3
Adelaide
Canberra
*
Metro Hotel Sydney Central , Sydney, Jul-10, $39.5M, PPR$179.5
*
*
Fairmont Resort Blue Mountains , Sydney, Oct-10, $26.0M, PPR$123.8
Courtyard by Marriott Parramatta , Parramatta, Aug-10, $24.1M, PPR$133.0
Melbourne
Peppers Convent Retreat, Hunter Valley, Feb-10, $6.0M, PPR$352.9
Bentley Motor Inn, Bentley, Jun-10, $5.3M, PPR$115.2
Holiday Inn on Flinders Melbourne, Melbourne, Mar-10, $44.0M, PPR$220.0
The Crossley by Mercure, Melbourne, Aug-10, $16.6M, PPR$188.6
*
Hilton Melbourne Airport , Melbourne, Dec-10, $108.9M, PPR$394.5
Hobart
*
Sofitel Mansion Hotel & Spa and Shadowfax Winery , Werribee, Mar-10, $6.8M, PPR$74.2
Prime CBD Markets
We have broadly defined Australia’s prime CBD markets as
City Local Government Areas (LGA) with more than 4,000
accommodation rooms. In order of magnitude, this includes
Sydney (19,866 rooms), Melbourne (17,475 rooms), Brisbane
(9,107 rooms), Perth (5,802 rooms), Canberra (4,899 rooms) and
Adelaide (4,498 rooms). Together these six markets account for
27.1% of Australia’s total accommodation room supply.
Prime CBD Market Comparison
220
Australia’s prime CBD markets have recorded strong RevPAR
growth over the past ten years averaging 5.9% per annum.
Limited new supply (1.7% per annum or 7,281 new accommodation
rooms) has been outpaced by modest demand growth averaging
2.8% per annum and occupancy levels have increased from 69.4%
in 2000 to 80.8% in 2010. Over this same period, ADR growth has
been modest (pulled back by the impact of the GFC) increasing at
an average rate of 3.1% per annum over the ten year period, largely
in line with the rate of inflation.
Prime CBD Cumulative Hotel Trading
Key Trading Performance Indicators 2000 to 2010
85%
$180
$160
$120
$100
70%
$80
ADR / RevPAR A$
$140
75%
$60
65%
180
160
140
120
100
80
60
2000
2001
2002
Adelaide
2003
Brisbane
2004
2005
Canberra
2006
2007
Melbourne
2008
Perth
2009
2010
Sydney
Demand Profile
$200
80%
200
Recent Trading Performance
Occupancy (%)
Growth is expected to continue to drive strong performance in these
markets for some time to come, but both markets face a degree of
downside risk from new supply emerging over the medium term.
Sydney and Melbourne, on the other hand, offer the opportunity for
strong and stable returns. These markets are both sufficiently sized
that the risk from new supply is considerably reduced, although
demand is increasingly dispersed across the wider metropolis with
the growth of satellite accommodation centres in suburban markets.
According to Tourism Research Australia, domestic and
international business demand accounts for around 40% of all
visitor nights spent in Australia’s prime CBD markets each year.
We estimate that the proportion of room night demand is closer to
60% given the lower room density among corporate travellers. Total
room density in prime CBD markets is around 1.4 persons. This
compares to 2.0 persons across Australia.
$40
$20
60%
Prime CBD Visitor Night Demand Index
Luxury Segment (4-star & above) 2005 to 2010
$0
2000
2001
2002
2003
2004
2005
Average Daily Rate
2006
2007
RevPAR
2008
2009
2010
Occupancy
120
Nominal RevPAR in these markets has now fully recovered to preGFC levels and markets are expected to record strong growth over
the medium term. With occupancy levels at record highs, growth will
be driven by higher ADRs which should see strong profit growth and
increases in value over the coming years.
110
100
90
80
70
Comparison of the six markets highlights Brisbane, Perth and
Canberra as the primary growth engines, whereas performance
in Australia’s two largest accommodation markets, Sydney and
Melbourne, has lagged by comparison. The meteoritic rise of
Brisbane and Perth is in line with the commodities and related
services boom, coupled with the relatively small size of these
accommodation markets and with new development held back by
market forces.
60
2005
Domestic Leisure
2006
2007
Domestic Business
2008
International Holiday
2009
2010
International Business
Prime CBD Investment Trends
Transaction Volume & Average RevPAR 2000 to 2010
1,200
$160
$120
800
$100
600
$80
$60
400
$40
200
Prime CBD Visitor Night Demand Index
Standard Segment (3-star & below) 2005 to 2010
Average RevPAR (A$)
$140
1,000
Transaction Volume (A$000's)
Corporate demand is highest in luxury product (rated 4-star and
above) at around 50% compared to standard product (rated 3-star
and below) at 35%. Having recorded a sharp decline in 2009,
the business segment has been the primary driver of the trading
recovery in Australia’s prime CBD markets, particularly for luxury
product, although the level of corporate visitor night demand still
remains below that evident in 2007 and 2008, prior to the global
financial crisis. On the contrary, the trading recovery in the standard
segment (3-star and below) is being driven by the domestic leisure
and interestingly international business segments with both markets
having surged in 2010.
0
$20
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
$0
Average RevPAR
Transaction Volumes
130
120
With trading performance in these six markets expected to record
strong growth over the next few years, investment product is likely
to remain scarce and assets which are brought to market will be
hotly contested. Few additions to accommodation supply in these
markets over the past ten years has heightened this disconnect and
an element of pent-up investor demand for quality assets in these
locations persists.
110
100
90
80
70
60
2005
Domestic Leisure
2006
2007
Domestic Business
2008
2009
2010
Prime CBD Pricing Trends
Average Price per Room (PPR) 2000 to 2010
Park Hyatt Sydney
1,300
1,200
The six prime CBD markets have dominated Australia’s hotel
investment landscape over the past twenty years, accounting for
around 60% of transaction volume with an average of $500 million
of assets exchanging hands each year. More recently volumes
have been higher, averaging in excess of $600 million each year,
but representing a slightly lower proportion (around 55%) of total
investment activity as investors have put Australia’s second tier and
resort markets on their investment radars.
1,100
Average Price per room ($K)
Investment Sales and Pricing
1,000
900
800
Park Hyatt Sydney
Park Hyatt Sydney
700
600
500
400
300
200
100
0
2000
2001
2002
2003
Maximum PPR
2004
2005
Normalised PPR
2006
2007
Average PPR
2008
2009
2010
Minimum PPR
Park Hyatt, Sydney
Adelaide Convention Centre & Intercontinental Hotel
Over the past twenty years pricing for prime CBD accommodation
assets has averaged around $196K per room, however this has
increased 19.0% to $233K since 2000. Notwithstanding, there still
exists a high degree of variability in asset pricing with transactions
ranging between $35K and $1.275 million (per room) during this
period. At the upper end of the range is the Park Hyatt Sydney,
which has achieved a record price per room each time it has sold.
This asset has also achieved a sales price over and above that of
the wider luxury market where sales have been more in the order
of $500K per key. This reflects the unparalleled location and iconic
status afforded to this luxury hotel by the global investment market.
Prime CBD
Average Initial Yield Ranges 2000 to 2010
14.0%
12.0%
Initial Yield %
10.0%
8.0%
6.0%
4.0%
2.0%
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Long-term initial yields for prime CBD accommodation assets have
tightened over the past decade. As markets have matured and
strong trading has crystallised the high degree of variability in initial
yields which existed prior to 2003 has narrowed with initial yields
coming in between +/- 240 basis points of the average. Yields for
prime CBD assets reached a low point in 2007 before softening
somewhat in 2009. Over the course of 2010 yields returned to the
long term trend.
Australia’s major CBD markets have expanded over the past
twenty years and fringe accommodation markets have emerged.
We have broadly defined suburban markets as the Tourism Region
less the City LGA (as specified by the ABS) with more than 5,000
rooms. While most notable in Sydney and Melbourne, emerging
markets are also evident in Perth and to a lesser extent Brisbane.
Together these four markets account for 13.2% of Australia’s total
accommodation room supply.
Australia’s key suburban markets have recorded slight RevPAR
growth over the past ten years averaging 2.7% per annum. Modest
new supply (2.4% per annum or 5,598 new accommodation rooms)
has been outpaced by modest demand growth of 3.2% per annum
and occupancy levels have increased from 62.6% in 2000 to 67.3%
in 2010. ADR growth has been soft (pulled back by the impact of the
GFC) increasing at an average rate of 2.0% per annum over this ten
year period.
Suburban Cumulative Hotel Trading
$160
80%
$140
Occupancy (%)
$100
$80
65%
$60
60%
ADR / RevPAR A$
$120
70%
$40
55%
$20
50%
0
2000
2001
2002
2003
2004
2005
Average Daily Rate
2006
2007
RevPAR
2008
2009
Suburban Market Comparison
300
250
200
150
100
50
2000
2001
2002
2003
Mackay
2004
Townsville
2005
2006
Hobart
2007
2008
2009
2010
Darwin
Demand Profile
85%
75%
Similarly to the prime CBD markets, Brisbane and Perth suburban
centres are the primary growth markets. Overall, nominal RevPAR
in these periphery markets is still slightly below the 2008 high, but
markets are expected to record modest growth over the medium
term as corporate demand recovers and lower yielding business
is increasingly pushed out from CBD hotels. We therefore expect
these markets to see a more moderate level of ADR growth than
their CBD counterparts, but with greater capacity for occupancy gains.
Suburban Markets
2010
Occupancy
Cumulatively, suburban accommodation markets recorded a higher
rate of RevPAR decline in 2009 (-9.4%) than prime CBD markets
(-7.3%). This reflects the reduced ability for accommodation product
in these markets to stimulate additional demand through marketing
and promotions as visitors do not regard these locations as
destinations. Demand is therefore somewhat finite.
Suburban markets recorded only a small reduction in ADR in
2009 (-2.0%) but occupancy levels fell for two consecutive years
(-5.9 points). This compares to a 4.8% reduction in ADR in prime
CBD markets but with occupancy levels falling by only 3.2 points
over the same two year period.
visitor nights spent in suburban accommodation markets each year
and with a similar proportion for both luxury and standard product.
Domestic visitor nights outweigh international nights by around
2.8:1.
Having recorded a sharp decline in 2009, the business segment
has been the primary driver of the trading recovery in Australia’s
suburban markets. Growth has been strongest in product rated
4-star and above with current demand at record levels. Offsetting
this has been a reduction in corporate demand in the lower tier
segments which spiked in 2009 as consumers traded down to lower
grades of accommodation product during the GFC.
Suburban Investment Trends
$120
350
$100
250
$80
200
$60
150
$40
100
$20
50
0
Average RevPAR ($A)
300
2000
2001
2002
2003
2004
2005
2006
Transaction Volumes
2007
2008
2009
2010
$-
Average RevPAR
Over the past twenty years, pricing for suburban accommodation
assets has averaged around $155K per room, however, this has
increased by 14.3% to $177K since 2000. Assets sold for residential
conversion have been omitted from pricing calculations as the
transacted price does not reflect the ongoing hotel cashflow.
Norwest Business Park, Sydney
Suburban Visitor Night Demand Index
All Accommodation Product 2005 to 2010
Suburban Pricing Trends
200
160
700
140
600
120
Price per Room ($K)
180
100
80
60
40
2005
Domestic Leisure
2006
2007
Domestic Business
2008
2009
2010
500
400
300
200
100
0
2000
2001
2002
2003
Maximum PPR
Transaction activity in the four suburban markets has accounted
for around 15% of Australia’s total transaction volume over the
past twenty years with an average of around $130 million of assets
exchanging hands each year. This has recorded little change over
the past decade. A key driver of activity during this period has been
the sale of many city fringe assets for conversion to higher alternate
use, notably residential.
Suburban accommodation markets are expected to remain
attractive to investors over the coming years, particularly as CBD
product becomes scarce, but with activity directed towards key
locations and assets located within close proximity to strong
demand generators, for example business parks.
2004
2005
2006
Average PPR
2007
2008
2009
2010
Minimum PPR
Long-term initial yields for suburban accommodation assets have
also tightened over the past decade, highlighting the narrowing yield
differential to prime CBD accommodation assets since 2000.
This trend has reversed over the past two years with the yield
differential compared to prime CBD assets increasing to 100 basis
points compared to 40 basis points over the past decade. On the
whole, we do not expect the yield differential to narrow to such an
extent over the next few years. Investors are expected to continue
to place a stronger weighting on hotel trading fundamentals and
non-prime assets will be priced accordingly.
Resort Markets
We have broadly defined Australia’s resort markets as those
with more than 2,000 rooms and where the primary demand
driver is leisure tourism. Currently all of these are in Queensland,
highlighting the importance of this segment to the State economy.
In order of magnitude, markets include Gold Coast (13,114 rooms),
Cairns (7,516 rooms), Sunshine Coast (5,684 rooms), Whitsundays
(2,887 rooms) Port Douglas (2,655 rooms) and Great Barrier Reef
(2,560 rooms). Together these six markets account for 15.1% of
Australia’s total accommodation room supply.
Great Barrier Reef, Queensland
Australia’s resort markets have recorded modest RevPAR growth
over the past ten years averaging 4.8% per annum. Limited new
supply (1.0% per annum or 3,311 new accommodation rooms)
has been matched by lacklustre demand with growth averaging
1.0% per annum. Accordingly occupancy levels have remained
static over the ten year period. Notwithstanding, ADR growth has
been modest increasing at an average rate of 4.8% per annum.
Australia’s resort markets recorded strong RevPAR growth up to
2007 averaging 8.1% per annum, but performance has declined
over the past three years. The surging Australian dollar has
resulted in lacklustre inbound tourism arrivals and strong growth in
outbound travel which is having a magnified impact on Australia’s
resort markets.
Resort Markets Cumulative Hotel Trading
$200
85%
$180
80%
Comparison of the six markets highlights the Sunshine Coast,
Gold Coast and Great Barrier Reef as the primary growth markets,
whereas performance in the Whitsundays, Cairns and Port
Douglas has lagged by comparison. Indeed, indexed RevPAR for
accommodation product in Port Douglas and Cairns has recorded
little change when compared to the 2000 base year and highlights
the challenging trading environment in Australia’s tropical north over
the past decade.
Resort Market Comparison
180
160
140
120
100
80
$160
$140
ADR / RevPAR A$
Occupancy (%)
75%
60
2000
2001
2002
$120
70%
$100
65%
$80
2003
Cairns
Gold Coast
2004
2005
2006
Port Douglas
Great Barrier Reef
2007
2008
2009
2010
Sunshine Coast
Whitsundays
$60
60%
$40
55%
50%
$20
2000
2001
2002
2003
2004
Average Daily Rate
2005
2006
RevPAR
2007
2008
2009
2010
$0
Occupancy
Domestic and international leisure visitor night demand have both
trended downwards over the past five years and there has been
little sign of a trading recovery over the past year as economic
conditions have stabilised. The downward trend is apparent across
all key source markets, except for China. However this market only
accounted for 3.8% of total visitor night demand (domestic and
international) in paid accommodation in Australia’s resort markets
in 2010, up from 2.0% in 2005
Demand Profile
international leisure demand accounts for more than 80% of all
visitor nights spent in Australia’s resort markets each year and with
a similar proportion for both luxury and standard product. Domestic
visitor nights outweigh international nights by around 2.2:1, although
this proportion is higher for hotels rated 4-star and above at 2.5:1.
Lizard Island, Queensland
Resort Markets Visitor Night Demand Index
Australia’s resort markets have been a major contributor to hotel
investment activity over the past twenty years. Transaction volumes
have averaged around $149 million each year since 1991 and
increasing to $231 million over the past decade. This represents
around 20% of the total transaction volume and is largely a result of
high levels of activity in 2004 and 2005 with the sell down of assets
by Asian investors, particularly the Japanese. Notable transactions
in excess of $75 million included Hayman Island, ANA Surfers
Paradise, Cairns International and Gold Coast Sheraton Mirage.
150
140
130
120
110
100
90
80
70
60
2005
Domestic Leisure
2006
2007
Domestic Business
2008
2009
2010
Resort Markets Investment Trends
700
$120
600
Being so highly dependent on leisure tourism, accommodation
operators in Australia’s resort markets have few opportunities to
diversify their offering to attract alternative sources of business.
Markets which have been more successful at doing so include the
Gold Coast and Sunshine Coast which are more easily accessible,
and have been able to attract a higher proportion of MICE business.
Anecdotally we understand that this segment has been slow to
recover over the past year, but we expect modest growth over the
medium term.
$100
500
$80
400
$60
300
$40
200
$20
100
0
2000
2001
2002
2003
2004
2005
Transaction Volumes
2006
2007
2008
Average RevPAR
2009
2010
$0
Average RevPAR (A$)
160
With trading in Australia’s leisure markets expected to remain
challenging over the coming year, we expect to see more disposal
activity, particularly as lenders look to move on underperforming
assets. Instances of distress are likely to be greatest among stratatitled serviced apartment product.
700
600
Price per Room ($K)
Australia’s leisure markets have the highest level of serviced
apartment product of all the sub-markets at around 41% of total
accommodation rooms. This compares to 24.2% in Australia’s prime
CBD and suburban markets. Serviced apartment supply is highest
in the Gold Coast, Sunshine Coast and Tropical North Queensland.
Resort Markets Pricing Trends
500
400
300
200
100
Over the past decade, strata-titled serviced apartment product in
these locations has often been developed without sufficient regard
to tourism demand fundamentals. Markets are being squeezed by
higher unemployment, following the downturn in tourism demand,
and increasing levels of tourism apartment stock being withdrawn
from letting pools and sold by stressed individual owners, placing
downward pressure on house and apartment prices.
The secondary market for strata-titled tourism product is very
thin, particularly where the guaranteed return period has expired.
While this is likely to result in apartment stock being sold at a
discount over the next few years, it should also result in a reduction
in tourism supply over the medium term as more apartments are
converted to residential use. Moving forward, planning controls
should be tightened to better define the purpose of use and to
give investors greater confidence that accommodation markets
will not become engorged by second-rate poorly operated
apartment product.
Over the past twenty years pricing for Australia’s resort market
assets have averaged around $120K per room, however this has
increased 28.2% to $155K since 2000. This is the highest growth
for any sub-market and is thought to reflect the composition of
asset sales over the past decade rather than any significant uplift
in pricing.
Gold Coast, Queensland
0
2000
2001
2002
2003
Maximum PPR
2004
2005
2006
Average PPR
2007
2008
2009
2010
Minimum PPR
Long-term average initial yields for resort accommodation
markets have recorded no material change over the past ten years.
Contrary to prime and suburban markets, the degree of variability
among initial yields has increased over this period, highlighting the
volatility of the sector and the premium investors place on individual
asset quality.
Secondary CBD
Cumulatively, occupancy levels in Australia’s secondary CBDs
peaked in 2008 at 74.8% before declining over the next two years
as significant increases in accommodation room supply came on
line. Supply increases in these markets between 2007 and 2009
averaged 7.3% per annum. However, ADR did not decline even
when significant supply increases coincided with the downturn
in overall tourism demand, highlighting the strength of these
emerging centres.
Growth has been strongest in Mackay and Darwin with both
markets benefiting from the mining and resources boom.
Nominal RevPAR in these secondary CBDs is still 5.4% below
the 2008 high but markets are expected to record modest growth
over the medium term as corporate demand recovers and new
supply additions are absorbed.
Medina Grand & Vibe Waterfront, Darwin
Australia’s secondary CBD markets have recorded strong RevPAR
growth over the past ten years averaging 6.3% per annum. Modest
new supply (3.4% per annum or 2,967 new accommodation rooms)
has been outpaced by demand growth of 4.4% per annum and
occupancy levels have increased from 63.4% in 2000 to 69.8% in
2010. ADR growth has been strong increasing at an average rate of
5.3% per annum over this ten year period.
$160
80%
$140
Occupancy (%)
$100
70%
$80
65%
$60
60%
$40
55%
$20
50%
0
2000
2001
2002
2003
2004
2005
Average Daily Rate
2006
2007
RevPAR
2008
2009
Occupancy
2010
ADR / RevPAR A$
$120
75%
250
200
150
100
50
2000
2001
2002
2003
Mackay
2004
Townsville
2005
2006
Hobart
2007
2008
2009
2010
Darwin
Demand Profile
visitor nights spent in accommodation product in secondary CBD
locations each year.
Secondary Cumulative CBD Hotel Trading
85%
300
Australia’s secondary CBD markets are defined as city
accommodation markets with between 2,000 and 4,000 rooms. In
order of magnitude, this includes Darwin (3,519 rooms), Townsville
(2,575 rooms), Hobart (2,312 rooms) and Mackay (2,196 rooms).
Together these four markets account for 4.6% of Australia’s total
accommodation room supply.
Secondary CBD Market Comparison
Domestic business demand considerably outweighs international
demand by around 6:1 although this was closer to 15:1 at the
market peak in 2007. While domestic business visitor nights
increased by 13.8% in 2010, they are still more than 30% below the
level recorded in 2007. If only a proportion of this demand recovers,
the resultant positive impact on accommodation trading in these
centres will be considerable.
Constitution Dock, Hobart
Secondary CBD Visitor Night Demand Index
Secondary CBD Investment Trends
90
160
140
120
100
80
70
40
10
2007
Domestic Business
2008
2009
2010
Transaction activity in the four secondary CBD markets has
accounted for around 2% of Australia’s total transaction volume
over the past twenty years with around $20 million of assets
changing hands each year. This has recorded little change over the
past decade with higher levels of activity held back by the low level
of investment grade stock. Darwin and Townsville accommodation
assets have traded most frequently with room night demand in both
centres underpinned by a high level of Government demand.
$40
30
20
2006
$60
50
40
2005
$80
60
60
Domestic Leisure
$100
80
0
Average RevPAR ($A)
180
$120
100
200
$20
2000
2001
2002
2003
2004
2005
Transaction Volumes
2006
2007
2008
2009
2010
$0
Average RevPAR
Secondary CBD locations are expected to remain attractive to
investors over the coming years as they offer significant buying
opportunities for investors looking for a strong yield play. The price
per room has increased over the past ten years to average $75K,
up 25.6% compared to the twenty years since 1991.
Other major secondary CBD locations worthy of consideration
include Rockhampton (1,861 rooms), Coffs Harbour (1,481 rooms),
Alice Springs (1,423 rooms), Newcastle (1,381 rooms), Albury
(1,279 rooms), Gosford (1,208 rooms), Toowoomba (1,215 rooms),
Wollongong (1,207 rooms) and Launceston (1,103 rooms).
Mining Centres
Strong ADR gains have been achieved in spite of this with RevPAR
growth in these four centres outpacing all other sub-markets.
Nominal RevPAR in Australia’s mining centres is now 6.8% higher
than the 2008 peak.
With mining and related services underpinning Australia’s recent
strong economic growth, we thought it appropriate to review the
impact this is having on local accommodation markets. Our review
focusses on recent trading trends as investment activity in these
markets has been limited, reflecting the low levels of investment
grade stock.
We expect these markets to continue to record strong growth over
the medium term in line with resurgent commodities markets and
with new accommodation room supply held back by the cost versus
value gap which is heightened in these remote locations.
Australia’s mining centres have recorded strong RevPAR growth
over the past six years averaging 10.0% per annum. Few additions
to supply (1.2% per annum or 213 new accommodation rooms)
have been outpaced by modest demand growth averaging 2.8% per
annum and occupancy levels have increased from 55.7% in 2004 to
61.1% in 2010. The relatively low average annual occupancy level
reflects the seasonal nature of these markets and the daily demand
patterns of corporate travellers, many of whom fly in and out of
these centres each week. Despite these apparent impediments,
ADR growth has been exceptionally strong increasing at an average
rate of 8.3% per annum over this period and having recorded no
years of decline.
Mining Centres Cumulative Hotel Trading
85%
$160
80%
$140
$80
65%
$60
60%
$20
50%
$0
2004
2005
2006
Average Daily Rate
2007
2008
RevPAR
2009
2010
Occupancy
160
140
120
100
80
40
2004
2005
2006
Mount Isa
2007
2008
North West WA
2009
Kalgoorlie/Boulder
2010
Gladstone
Demand Profile
According to Tourism Research Australia, domestic and international
business demand accounts for around 35% of all visitor nights
spent in accommodation product in these mining centres each
year (including Broome). Domestic business demand considerably
outweighs international demand by around 6:1 although this was
closer to 15:1 at the market peak in 2007. While domestic business
visitor nights increased by 13.8% in 2010, they are still more than
30% below the level recorded in 2007. If only a proportion of this
demand recovers, the resultant positive impact on accommodation
trading in these centres will be considerable.
Mining Centres Visitor Night Demand Index
220
200
$40
55%
180
60
Occupancy (%)
$100
70%
200
ADR / RevPAR A$
$120
75%
220
Our analysis comprises four markets which in order of magnitude
include the North West of Western Australia excluding Broome
(2,328 rooms), Kalgoorlie/Boulder (879 rooms) and Gladstone (692
rooms) and Mount Isa (375 rooms) in Queensland. Together these
four markets account for 1.9% of Australia’s total accommodation
room supply.
Mining Centres Market Comparison
180
160
140
120
100
80
60
Cumulatively, occupancy levels in Australia’s mining centres peaked
in 2007 at 66.9% before declining over the next two years. The
reduction was most evident in 2009 when occupancy levels reduced
by 10.0%. Demand remains lacklustre in 2010 with occupancy
gains coming from a reduction in room supply.
40
2005
Domestic Leisure
2006
2007
Domestic Business
2008
2009
2010
Contributors
Craig Collins
Chief Executive Officer – Australasia
Craig Collins is the Chief Executive Officer for Australasia and has worked for
Jones Lang LaSalle Hotels for over 17 years. Craig heads a team of 30 hotel specialists
across Australia and New Zealand. Craig’s knowledge and experience of the complex
markets across Asia Pacific has assisted our Australasian team in maintaining our
market leading position.
Over the past three years, Craig has personally facilitated four of Australia’s largest
tourism real estate transactions as well as overseeing numerous other hotel and
resort sales undertaken by Jones Lang LaSalle Hotels. Prior to that he spent seven
years in Asia and has well-established relationships with both long established and
emerging investors.
Craig holds a Bachelor of Business (Land Economics) degree from the University of
Western Sydney.
Troy Craig
Managing Director – Strategic Advisory
Troy assumed leadership of Jones Lang LaSalle Hotels’ Australasian Strategic Advisory
business in 2002, a team comprising 12 professionals. Since then, he has carried out
numerous valuation, consultancy and feasibility studies. Prior to that, Troy spent four
years based in our Singapore office carrying out various valuations and consultancy
assignments all across Asia.
Over the past five years, Troy has valued many of Australia’s leading CBD hotels
and suburban pubs for some of Australia’s major financial institutions. Major hotels
valued include Hamilton Island, Four Seasons Sydney, Sydney and Melbourne Marriotts,
the Thakral, Rydges, Medina, Accor/TAHL and Travelodge portfolios, as well as
numerous smaller properties.
Troy holds a Bachelor of Business – Land Economics from the University of Western
Sydney and is a Fellow of the Australian Property Institute. He is a Registered Valuer in
NSW, WA and QLD and permitted to value in all other states and territories.
Karen Wales
Senior Vice President – Research & Consultancy Asia Pacific
Karen is responsible for the firm’s hotel investment research in the Asia Pacific
region and has been involved in several major global research assignments and
the provision of strategic advisory services including market and demand studies,
financial feasibilities and consultancy in the hotel and tourism sector.
Karen has an in-depth understanding of the hotel and tourism industry, with previous
experience in advisory and asset management, as well as strong operational experience.
Karen possesses a Bachelor of Arts (majoring in history, politics and economics) from
University of Newcastle-upon-Tyne as well as a Masters of Business Administration
(MBA) from AGSM, University of New South Wales.
Real value in a changing world
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COPYRIGHT © JONES LANG LASALLE IP, INC. 2011
All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable.
Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.

Hotel Intelligence Australia

Transcription

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