AUSTRALIAN HOTEL MARKET UPDATE Trading, Development and Investment February 205
TABLE OF CONTENTS. Australian Hotel Markets Snapshot 2. Snapshot per Key Australian Market 2 3. Australian Hotel Development Pipeline 2 4. Australian Hotel Development Trends 3 5. Australian Hotel Sales 4 6. Australian Hotel Yields 5 7. Australian Outlook for 205 7 8. CBRE Hotels Services 8 2
RevPAR AUSTRALIAN HOTEL MARKETS SNAPSHOT A$80 A$60 A$40 A$20 A$00 A$80 A$60 A$40 A$20 A$0 % Change Adelaide +5.7% Brisbane +2.2% Cairns +0.3% Canberra / ACT -7.0% Darwin -.% Gold Coast +9.6% Hobart +5.8% Melbourne +4.5% Year Ending Dec-203 Year Ending Dec-204 Perth -3.8% Sydney +4.2% Australia +4.% Leisure is back! An overall 4.% increase in revenue per available room (RevPAR), a lift in hotel trading profit due to low cost increases, together with a tightening of investment yields prove hotels are an attractive asset class for investors and operators alike. The best performing markets in Australia for 204 were not the Sydney and Melbourne investment favourites but Cairns and the Gold Coast. Strong performers were also the often overlooked markets of Adelaide and Hobart while Perth and Brisbane held up better than expected given the economic shift in their states. CBRE expects 205 will witness a continuation of last year s trends given the strong occupancy levels being experienced in most markets, limited new supply under construction and the benefits of a low Australian dollar to domestic and international holidaymakers decision making. Page 3
MELBOURNE ADELAIDE PERFORMANCE (Year Ending December 204) ADR AU$49.69, Tourism Research Australia (TRA) SUPPLY (Year Ending December 204) Existing Hotels, Motels and Serviced Apartments: 0 (7,882 rooms) Key Recent Openings ibis Adelaide 3.5* 3 keys Jul-204 Quest King William 4* 05 keys Aug-204 Art Series Watson Hotel 4* 40 keys Nov-204 Mayfair Hotel 4* 70 keys Jan-205 Key Mooted Projects OCC 79.6% AU$9.7 VS. 203 +5.7% Adelaide Casino Expansion 5* 250 keys 2020 DEMAND for Hotels, Motels and Serviced Apartments (Year Ending September 204) Visitor Arrivals 4% Dominant Source Markets. Victoria 2. New South Wales 3. South Australia Based on visitor nights Source: TRA, CBRE Hotels 9% 3% 36% HISTORICAL PERFORMANCE (Year Ending December) A$60 A$50 A$40 A$30 A$20 A$0 86% Domestic Visitor Nights 26% International Purpose of Visit 42% Holiday Business VFR Other VFR: Visiting friends and relatives 2009 200 20 202 203 204 74% Length of Stay 2.9 days Visitors ( 000):,4.5 Visitor Nights ( 000): 3,20.26 90% 70% 60% 50% RevPAR ADR Occupancy The Adelaide market has demonstrated surprising resilience to a significant increase in room supply. The completion of the Adelaide Oval redevelopment has provided a much needed spark to the city and has been supported by a successful events calendar and consistent corporate demand. The positive impact on performance is reflected in high occupancies and Average Daily Rate (ADR) growth. New room supply has the potential to dilute existing demand and place considerable pressure on occupancy; yet, increased direct international flights to Adelaide is viewed as a major potential upside to this market. CBRE Hotels anticipates that the mooted supply levels entering Adelaide in the next two years will be absorbed by the market with any overall dip in the general market to be short-lived. ADR growth is expected to be limited. Page 4 2
MELBOURNE BRISBANE PERFORMANCE (Year Ending December 204) ADR AU$87.94 OCC 78.3%, TRA AU$47.7 VS. 203 +2.2% DEMAND for Hotels, Motels and Serviced Apartments (Year Ending September 204) Visitor Arrivals 8% Visitor Nights 28% Length of Stay 2.5 days SUPPLY (Year Ending December 204) Existing Hotels, Motels and Serviced Apartments: 58 (3,439 rooms) Key Recent Openings Four Points Brisbane 4* 246 keys Mar-204 Gambaro Hotel 5* 68 keys May-204 NEXT Hotel 4* 304 keys Sep-204 Key Properties Under Construction Capri by Fraser 4.5* 239 keys Jul-205 Rydges RNA Hotel 4* 208 keys Oct-205 Holiday Inn Express 4* 226 keys Mar-206 Key Mooted Projects Mary Street 5* 36 keys Sep-206 Emporium Southpoint 5* 46 keys Jan-207 W Brisbane 5* 305 keys Nov-208 Redevelopment / Renovation 2 Based on visitor nights Source: TRA, CBRE Hotels % 4% 33% HISTORICAL PERFORMANCE (Year Ending December) A$200 A$80 A$60 A$40 A$20 82% Domestic International Dominant Source Markets 2. Queensland 2. New South Wales 3. Victoria Purpose of Visit 2 42% Business Holiday VFR Other VFR: Visiting friends and relatives 2009 200 20 202 203 204 72% Visitors ( 000): 2,26.56 Visitor Nights ( 000): 5,332.77 90% 70% 60% 50% RevPAR ADR Occupancy The Brisbane hotel market has seen reduced corporate demand from the mining sector and Government; however, looking forward CBRE Hotels expects continued growth in demand off the back of strong growth forecasts for domestic and international visitors. The Brisbane Council s moratorium on infrastructure charges on 4 and 5 star hotels has seen an influx of supply with a number of projects recently completed, under construction, approved or mooted. The market has absorbed the supply growth relatively well, however, it is anticipated that supply will exceed demand during the short to medium term resulting in lower occupancy levels and softening RevPAR. Page 5 3
MELBOURNE PERFORMANCE (Year Ending December 204) ADR AU$27.70 OCC 74.3%, TRA SUPPLY (Year Ending December 204) Existing Hotels, Motels and Serviced Apartments: 93 (7,728 rooms) AU$94.84 VS. 203 +0.3% DEMAND for Hotels, Motels and Serviced Apartments (Year Ending September 204) Visitor Arrivals 45% 55% Domestic Visitor Nights 44% International Dominant Source Markets. Queensland 2. New South Wales 3. China 56% Length of Stay 3.5 days Visitors ( 000): 975.04 Visitor Nights ( 000): 3,365.2 Purpose of Visit 9% 2% 3% 76% CAIRNS Holiday Business VFR Other Based on visitor nights Source: TRA, CBRE Hotels VFR: Visiting friends and relatives HISTORICAL PERFORMANCE (Year Ending December) A$40 A$20 A$00 A$80 90% 70% 60% 50% A$60 2009 200 20 202 203 204 RevPAR ADR Occupancy Cairns is currently one of the best performers in the market, exceeding market expectations and recording a strong recovery from a low base. Cairns had the highest RevPAR growth in Australia in 204 and improved occupancy levels, however ADR and RevPAR remain well below other destinations. Cairns is currently witnessing a strong rebound in international and domestic tourist arrival numbers as a result of increased air capacity into the region, especially from Asia. The increase in demand is outstripping the limited supply levels. There are a lack of developments in the pipeline and CBRE Hotels expects to see the market respond to these favourable conditions. Page 6 4
MELBOURNE PERFORMANCE (Year Ending December 204) ADR AU$62.3 OCC 70.8%, TRA AU$4.93 VS. 203-7.0% DEMAND for Hotels, Motels and Serviced Apartments (Year Ending September 204) Visitor Arrivals 7% Visitor Nights % CANBERRA / ACT Length of Stay 2. days SUPPLY (Year Ending December 204) Existing Hotels, Motels and Serviced Apartments: 69 (6,527 rooms) Key Recent Openings Hotel Hotel 5* 68 keys Nov-203 Avenue Hotel Canberra 5* 23 keys Nov-204 Hotel Kurrajong Canberra 4.5* 47 keys Dec-204 Key Properties Under Construction Little National Hotel 4* 20 keys Jun-205 Vibe Hotel Canberra Airport 4.5* 9 keys Oct-205 Key Mooted Projects Abode Belconnen 4* 05 keys 206 Palko 53 keys ANU School of Art Gallery 250 keys Redevelopment / Renovation 93% 2 Based on visitor nights Source: TRA, CBRE Hotels 36% HISTORICAL PERFORMANCE (Year Ending December) A$200 A$80 A$60 A$40 A$20 A$00 Domestic 89% International Dominant Source Markets 2. New South Wales 2. Victoria 3. Queensland Purpose of Visit 2 6% 3% 45% Business Holiday VFR Other VFR: Visiting friends and relatives 2009 200 20 202 203 204 Visitors ( 000):,075.88 Visitor Nights ( 000): 2,24.55 90% 70% 60% 50% RevPAR ADR Occupancy The statistics suggest an uninspiring outlook for Canberra / ACT. A wave of new supply in 204, Government spending cuts and a market reliant upon Government bookings (controlled by a single third party) has resulted in subdued performance. Demand will continue to be driven by Government business and events. However, recent negative pressures on the market are not typical and the outlook is reasonably positive. Over the long term, the completion of major projects such as the Australia Forum and the City to the Lake project, along with the introduction of international flights to Canberra, if they occur, are expected to restore confidence, despite new product entering the market in the next 2 months. Page 7 5
MELBOURNE DARWIN PERFORMANCE (Year Ending December 204) ADR AU$89.42 OCC 76.0%, TRA AU$43.88 VS. 203 -.% DEMAND for Hotels, Motels and Serviced Apartments (Year Ending September 204) Visitor Arrivals 4% Visitor Nights 6% Length of Stay 4. days SUPPLY (Year Ending December 204) Existing Hotels, Motels and Serviced Apartments: 44 (4,683 rooms) Key Recent Openings H Hotel Darwin 4.5* 86 keys May-203 Quest Berrimah 4.5* 88 keys Sept-204 Élan Soho Suites 4.5* 30 keys Nov-204 Key Properties Under Construction Top End 05 Mitchell Street 4.5* 33 keys Mid-206 Palmerston Hotel 6 keys 206 Key Mooted Projects Best Western Expansion 64 keys Mid-206 85 Mitchell Street 200 keys 207 Casuarina Shell Site 75 keys 207 Redevelopment / Renovation 2 Based on visitor nights Source: TRA, CBRE Hotels 5% 7% HISTORICAL PERFORMANCE (Year Ending December) A$200 A$80 A$60 A$40 A$20 A$00 86% Domestic 84% International Dominant Source Markets 2. New South Wales 2. Northern Territory 3. Victoria Purpose of Visit 2 48% Holiday Business VFR Other VFR: Visiting friends and relatives 2009 200 20 202 203 204 Visitors ( 000): 392.60 Visitor Nights ( 000):,64.2 90% 70% 60% 50% RevPAR ADR Occupancy The Darwin market is buoyed by tourism, the resources industry, Government services and defence operations. Despite a contraction in mining activity, large projects such as the INPEX Ichthys LNG (estimated total cost of US$34 billion) will continue to drive demand in the medium term. Positive sentiment is underpinned by limited supply during the high season, pushing occupancy rates and ADRs higher. Additionally, business demand continues to smooth seasonality. However, this success may only be short-lived as in two to three years the INPEX project will require a smaller residential workforce. Nevertheless, other major resource projects are currently underway or confirmed and the NT Tourism Vision 2020 is currently being implemented. Page 8 6
MELBOURNE PERFORMANCE (Year Ending December 204) ADR AU$67.26 OCC 7.2%, TRA AU$9.0 VS. 203 +9.6% DEMAND for Hotels, Motels and Serviced Apartments (Year Ending September 204) Visitor Arrivals 23% Visitor Nights 24% Length of Stay 3.6 days GOLD COAST SUPPLY (Year Ending December 204) Existing Hotels, Motels and Serviced Apartments: 68 (7,087 rooms) Key Properties Under Construction Jupiter's Casino Hotel 5* 75 208 Key Mooted Projects Jewel Luxury Resort 5* 53 208 Wave Break Island Cruise Ship Terminal and Casino 2 Based on visitor nights Source: TRA, CBRE Hotels 6% 2% 0% HISTORICAL PERFORMANCE (Year Ending December) A$80 77% Domestic International Dominant Source Markets 2. Queensland 2. New South Wales 3. Victoria 76% Visitors ( 000): 2,002.42 Visitor Nights ( 000): 7,270.7 Purpose of Visit 2 82% Holiday Business VFR Other VFR: Visiting friends and relatives 90% A$60 A$40 A$20 A$00 70% 60% 50% A$80 2009 200 20 202 203 204 RevPAR ADR Occupancy After an extended period of minimal growth in supply and demand, due to softer economic and competitive conditions, the Gold Coast market is seeing a return to form with the recovery buoyed by strong investor confidence, foreign investment, increased tourist numbers, the completion of the Light Rail project and the upcoming 208 Commonwealth Games. The Gold Coast hotel market has enjoyed relatively stable supply over the last five years and going forward, the supply outlook looks relatively benign. Increased demand from both domestic and international visitors is expected to result in continual growth in both occupancy and ADR over the short and medium term. Page 9 7
MELBOURNE HOBART PERFORMANCE (Year Ending December 204) ADR AU$59.30 OCC 79.7%, TRA AU$26.97 VS. 203 +5.8% DEMAND for Hotels, Motels and Serviced Apartments (Year Ending September 204) Visitor Arrivals 3% Visitor Nights 7% Length of Stay 2.7 days SUPPLY (Year Ending December 204) Existing Hotels, Motels and Serviced Apartments: 52 (2,753 rooms) Key Recent Openings Alabama Hotel Hobart 7 keys Sept-203 Key Properties Under Construction Macquarie Wharf Shed Hotel 4.5* 3 keys Jan-206 The Icon Complex Hotel 200 keys 207 Key Mooted Projects Penny Royal Hotel Dec-205 Redevelopment / Renovation 87% Based on visitor nights Source: TRA, CBRE Hotels 7% HISTORICAL PERFORMANCE (Year Ending December) A$70 A$50 A$30 A$0 A$90 Domestic 83% International Dominant Source Markets. Victoria 2. New South Wales 3. Tasmania Purpose of Visit 2% 2% 69% Holiday Business VFR Other VFR: Visiting friends and relatives 2009 200 20 202 203 204 Visitors ( 000): 552.74 Visitor Nights ( 000):,53.38 90% 70% 60% 50% RevPAR ADR Occupancy Demand in the Hobart market has been strong over the past 2 months largely due to the continued popularity of the Museum of Old and New Art (MONA), strategic marketing by Tourism Tasmania s Discover Tasmania promotions and consistent corporate and Government demand. The new room supply mooted for this market will rely on tapping both induced and unsatisfied demand if a significant downturn in occupancy is to be averted. However, on a rolling business case basis it is likely that not all of the proposed developments will proceed. The outlook for Hobart is low but steady RevPAR growth. Page 0 8
MELBOURNE PERFORMANCE (Year Ending December 204) ADR AU$85.08, TRA Key Recent Openings OCC 8.7% SUPPLY (Year Ending December 204) Existing Hotels, Motels and Serviced Apartments: 346 (3,374 rooms) Sheraton Melbourne Hotel 5* 74 keys Mar-204 Brady Hotels 4.5* 46 keys Sept-204 The Larwill Studio 4* 00 keys Dec-204 Key Properties Under Construction VS. 203 +4.5% QT Melbourne 4* 88 keys May-206 Peppers Docklands 4.5* 87 keys Dec-206 Punt Hill 560 Finders St 4 30 keys Jul-206 Key Mooted Projects AU$5.3 Parkroyal Docklands 5* 28 keys Jul-206 Four Points Docklands 4* 269 keys Jan-207 Aloft on Lonsdale Street 4.5* 300 keys Aug-207 DEMAND for Hotels, Motels and Serviced Apartments (Year Ending September 204) Visitor Arrivals 20% Based on visitor nights Source: TRA, CBRE Hotels 36% HISTORICAL PERFORMANCE (Year Ending December) A$200 A$80 A$60 A$40 A$20 Domestic Visitor Nights 35% International Dominant Source Markets. New South Wales 2. Victoria 3. Queensland Purpose of Visit 7% 2% MELBOURNE 45% Holiday Business VFR Other VFR: Visiting friends and relatives 2009 200 20 202 203 204 65% Length of Stay 2.9 days Visitors ( 000): 4,878.86 Visitor Nights ( 000): 4,006.45 90% 70% 60% 50% RevPAR ADR Occupancy Strong demand levels supports a CBD and inner fringe market occupancy of over. Unlike many Australian capital cities, Saturday night is the strongest which reflects the inherent nature of this market s segment mix of corporate and leisure business. ADR growth has been lacking largely due to consortia resistance to increases and third party internet reservation sites which capture significant commissions. Melbourne is anticipated to absorb the new room supply although hidden supply is the elephant in the room given the huge number of current and proposed apartment developments in the CBD and fringe. The outlook for Melbourne is steady RevPAR growth generally at CPI levels. Page 9
MELBOURNE PERFORMANCE (Year Ending December 204) ADR AU$200.97, TRA SUPPLY (Year Ending December 204) Existing Hotels, Motels and Serviced Apartments: 99 (0,436 rooms) Key Recent Openings OCC 83.6% Key Properties Under Construction VS. 203-3.8% Old Treasury Building 5* 48 keys May-205 Crown Towers Burswood 5* 500 keys 206 Key Mooted Projects AU$67.9 Terrace Hotel 5* 5 keys Mar-203 Old Perth Port 4* 260 keys 206 Westin Hotel 5* 300 keys Jan-207 Ritz Carlton Hotel 5* 204 keys 208 DEMAND for Hotels, Motels and Serviced Apartments (Year Ending September 204) Visitor Arrivals 2% Based on visitor nights Source: TRA, CBRE Hotels 2% 7% 38% HISTORICAL PERFORMANCE (Year Ending December) A$220 A$200 A$80 A$60 A$40 79% Domestic Visitor Nights 34% International Dominant Source Markets. Western Australia 2. New South Wales 3. Victoria Purpose of Visit 43% Business Holiday VFR Other VFR: Visiting friends and relatives 2009 200 20 202 203 204 66% Length of Stay 3.5 days Visitors ( 000):,204.2 Visitor Nights ( 000): 4,238.39 90% 70% 60% 50% RevPAR ADR Occupancy PERTH Despite the downturn in the mining industry, statistics still show strong occupancies and ADRs because of the need for more hotels, predominantly in Perth. Perth is a market in transition: the boom style demand conditions supported by an active mineral and resources sector now need to be replaced in large part by traditional leisure tourism. Given that airline seat capacity is a major consideration for this market, it is essential that carriers maintain current capacities and tourism authorities effectively market the West. Substantial development around the Perth CBD not only increase the room supply but add to the appeal of the city as a destination and provide much needed new quality room stock. It is likely to be a bumpy demand transition over the short term. Page 2 0
MELBOURNE PERFORMANCE (Year Ending December 204) ADR AU$200.28, TRA SUPPLY (Year Ending December 204) Key Recent Openings OCC 83.7% AU$67.57 VS. 203 +4.2% Existing Hotels, Motels and Serviced Apartments: 357 (39,326 rooms) InterContinental Double Bay 5* 40 keys Nov-204 The Langham 5* 98 keys Dec-204 DEMAND for Hotels, Motels and Serviced Apartments (Year Ending September 204) Visitor Arrivals 29% 7% Domestic Visitor Nights 46% International Dominant Source Markets 2. New South Wales 2. Victoria 3. Queensland 54% Length of Stay 2.9 days Visitors ( 000): 5,36.94 Visitor Nights ( 000): 5,40.68 Purpose of Visit 2 9% 7% 35% 49% SYDNEY Holiday Business VFR Other Key Properties Under Construction Greenland Primus Hotel 5* 73 keys 205 2 Based on visitor nights Source: TRA, CBRE Hotels VFR: Visiting friends and relatives Guardian Assurance Building 4* 282 keys 206 Sofitel Sydney ICC 5* 66 keys 207 Key Mooted Projects Crown Sydney Barangaroo 5* 350 keys 209 Key Properties Exiting Market The Menzies Hotel 4* -446 keys 206 Sir Stamford Hotel 5* -05 keys 206 Redevelopment / Renovation HISTORICAL PERFORMANCE (Year Ending December) A$220 90% A$200 A$80 70% A$60 60% A$40 50% A$20 2009 200 20 202 203 204 RevPAR ADR Occupancy Sydney, as Australia s premier gateway and financial centre, attracts demand from a wide variety of sources. It accommodates high levels of domestic corporate demand mid-week, domestic leisure on weekends, international corporate business throughout the year and international leisure in the warmer months. Strong demand levels have produced high occupancies and escalating ADRs. With minimal new supply in the short term, occupancies are likely to remain high with ADR growth at inflationary levels or better. Page 3
Number of Rooms Number of Rooms AUSTRALIAN HOTEL DEVELOPMENT PIPELINE Key Australian Markets 3,500 3,000 CBD Markets +7.3% 3,500 3,000 Greater City Regions Markets (including CBD and surrounds) 2,500 2,500 2,000 +7.0% 2,000,500,500,000 +0.7% +5.2%,000 +.0% +5.7% 500 0 Brisbane CBD Melbourne CBD Perth CBD Sydney CBD 500 0 +3.2% +0.0% Adelaide Cairns Canberra / ACT Darwin +.3% Gold Coast +.4% Hobart Under Construction Percentage increase on existing supply in respective markets Note: Mooted hotels are based on CBRE's estimates of developments more than 50% likely of occurring and opening before 208. CBD was selected for Brisbane, Melbourne, Perth and Sydney due to their size. Mooted Under Construction Despite the fundamentals for new hotel development remaining challenging, particularly for full service offerings, the availability of sites sees Melbourne and Brisbane showing the greatest supply growth expectation. Barriers to entry for new developments remain high, particularly in Sydney, and while funding pressures have eased dramatically, the foot race to highest and best use sees alternate asset classes, most notably residential, keeping the hurdle high. CBRE Hotels expects development to be dominated by limited service hotels, mixed use schemes, redundant office conversions and concept venue developments over coming years. Full service hotels may be promoted in government site releases in key markets where occupancies are high and where hotel development is seen as a key element to economic activity and growth. Mooted Page 4 2
AUSTRALIAN HOTEL DEVELOPMENT TRENDS Over the past 2 months, CBRE Hotels has observed the following hotel development trends: New hotel owner operators are expanding and establishing their flags in key gateway cities, while several established groups have capitalised on the strong market fundamentals to sell on favourable terms. Operator demand for prime hotel development continues to drive competitive Hotel Management Agreement negotiations throughout Australia s capital cities. There is a trend for new hotel developments to steer away from traditional full service models and create more rooms focused hotels with food and beverage elements that are separately leased to specialist tenants. Hotel designs are becoming less standardised and are focusing on differentiation through interior design that is customised to the destination. Technology continues to play an important part of new hotel design, allowing guests to check-in / check-out, unlock their rooms through their smartphone and operate in-room amenities including electronic blinds, televisions, airconditioning and lights, among other features. Active lobbies with a merging of common spaces, including the reception, lobby, café and meeting areas, offer more profitable use of floor space and typically include a high level of design / style input. Modular construction is an emerging solution to feasibility challenges. Thus far, the practical reality has been a noticeable time benefit. Mixed use projects that include residential, commercial and hotel components remain the main format for new hotel development. Page 5 3
2003 2004 2005 2006 2007 2008 2009 200 20 202 203 204 Total Hotel Sales (AU$ million) Number of Hotel Sales AUSTRALIAN HOTEL SALES 2,500 Total Hotel Sales vs Number of Hotels Sold 60 2,000 50,500,000 500 40 30 20 0 0 0 Source: CBRE Hotels Total Hotel Sales Total Number of Hotels Sold The market in Australia is relatively small and therefore market averages in terms of transaction size, value per room and yield and can be skewed by a small number of outlying transactions. Nonetheless, sufficient enough volume occurs to give quite a graphic picture of the market. The number of sales in 202 and 203 exceeded the boom years of 2004/5 when purchasers were positioning for growth. Transactional activity for 203 included the sale of the 30 hotel TAHL portfolio and the Four Seasons in Sydney, accounting for close to two thirds of total sale volume. 204 has also seen a number of major transactions including the Park Hyatt Melbourne, the Sofitel Wentworth Sydney and the Sheraton on the Park, all of which attracted major international interest. With the upcoming sale of the Hilton and Westin hotels in Sydney, CBRE Hotels expects sales volumes for 205 to once again exceed AU$.5 billion. Page 6 4
2003 2004 2005 2006 2007 2008 2009 200 20 202 203 204 AUSTRALIAN HOTEL YIELDS Initial Yield to Stabilised Yield Gap 0.00% 9.00% 8.00% 7.00% 6.00% 5.00% Source: CBRE Hotels Initial Yield Stabilised Yield The expectation of continued income growth, low interest rates and an intensification of investment demand have all combined to see yields compress further in 204. Unlike the investment surge prior to the GFC, where investors were punting on growth, the narrow gap between the actual initial yield and the perceived stabilised yield shows the shift from growth to income as the main value driver. The weighted stabilised yield in 204 of 7.54% demonstrates not only yield compression that has been experienced in property investment generally but also investor confidence in the hotel asset class. A continuation of stable fundamentals, investment pressure and low interest rates will see yields remain tight and compress further for noteworthy investment opportunities. Page 7 5
AUSTRALIAN HOTEL YIELDS Initial Yields 204 Melbourne Park Hyatt Yield: 6.2% 888 Hotel, Sydney Yield: 7.% ibis Styles Kingsgate Melbourne Yield: 7.5% Abode Woden Yield: 9.0% Rydges Darwin Airport Hotel & Resort Yield: 0.5% 5% 6% 7% 8% 9% 0% % Sheraton on the Park, Sydney Yield: 6.3% Source: CBRE Hotels Oaks on Lonsdale, Melbourne Yield: 7.% Novotel Wollongong Yield: 8.5% Chifley Penrith Yield: 9.4% Sunnybank Star Motel & Apartments Yield: 0.5% The Park Hyatt Melbourne, the Sofitel Wentworth Sydney and the Sheraton on the Park have recently been acquired by Asian based investors who have been attracted to the freehold nature of these major assets and their locations in key Australian cities. The significant interest in each property, has been reflected in the forecast initial yield for each of the assets falling below 6.5%. CBRE Hotels expects that the yield profile for well located, major hotel assets within the main Australian corporate markets will continue to harden, reflecting the investment surge from international investors seeking to take advantage of Australia s relative economic stability, security and continued growth prospects. Page 8 6
AUSTRALIAN OUTLOOK FOR 205 The Australian hotel market continues to perform strongly with occupancies maintaining an upward trend, aided by the weaker Australian dollar. Arrivals from China are increasing but the traditional inbound markets remain New Zealand, the United Kingdom and the United States, while domestic demand remains dominant. The operating environment in major city markets in recent years has been characterised by full house occupancies exceeding, strong ADR growth and limited new supply. Underpinning this position of strength has been Australia s economic growth that has averaged almost 3% per annum for the last seven years. As the Australian economy transitions from mining investment to export production and the Australian dollar falls to levels that support the balance of trade position and tourist visitations, market fundamentals are positioned to support solid longer term performance well into the future. Investors continued to display a robust appetite for hotel properties in Australia with strong sales setting record yields and price points. The shortage of saleable good quality and well located assets continues to boost pricing. Buyers from Asia were very active over the course of 204 and accounted for virtually all deals for assets priced over AU$50 million. Domestic buyers primarily high net worth individuals are generally focusing on assets below AU$40 million as they feel competition at the upper end of the market is too strong at present. Recent major transactions include the AU$463 million acquisition of the five-star Sheraton on the Park Sydney. The deal set a new record for the largest single hotel asset sale in Australia. The buyer was China-based Sunshine Insurance Group. The outlook for 205 is positive with strong trading conditions in the short to medium term and a large volume of capital chasing deals, particularly in the key Sydney and Melbourne markets. Page 9 7
CBRE HOTELS SERVICES For more information, please contact: CBRE HOTELS AUSTRALIA KEN SMITH Regional Director, Pacific O: +6 2 9333 3422 M: +6 43 025 442 E: ken.smith@cbrehotels.com Level 2, 363 George Street Sydney NSW 2000 www.cbrehotels.com Please click on any of the above icons for more information on CBRE Hotels services. THROUGHOUT THIS PUBLICATION SOURCE: STR GLOBAL, LTD. REPUBLICATION OR OTHER RE-USE OF THIS DATA WITHOUT THE EXPRESS WRITTEN PERMISSION OF STR GLOBAL IS STRICTLY PROHIBITED. Page 20 8