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Capital cities driving hotel investment growth: Colliers

The value of Australia’s hotel inventory is climbing thanks to government investment in tourism.

Significant investment by federal and state governments over the last 6-8 years has led to Australia’s ‘investment grade’ hotel room inventory soar in value to over AUD$56 billion, new research from market analysts Colliers International has found.

The firm’s Capital Markets Hotels Investment Review found that since the Australian government elevated Tourism to a national investment priority, the capital base has broadened and led to the development of 27,000 new rooms. The total market of ‘investment grade’ hotel rooms now sat at an estimated inventory of over 145,000 rooms, Colliers says.

Collier said it considered investment grade stock to be hotels, motels and serviced apartments with over 75 rooms and holding a 2-5 star rating, along with chain-operated product and luxury boutique hotels of less than 50 rooms.

The report said it found average prices per key of $386,000 each, with the overall result skewed somewhat by the skyrocketing values being seen in primary Sydney and Melbourne markets.

Colliers International Head of Hotels, Gus Moors, said hotel values had increased significantly in some markets in recent years.

“With transaction volumes having averaged around $1.6 billion each year over the past decade, annual deal flow accounts for only 3.0% of the total accommodation stock.

“This suggests a relatively illiquid market, in part due to inter-generational owners, mostly from Asia, and a high proportion of strata-titled stock. However current ownership trends point to an uptick in activity.

“As accommodation development increased in recent years, a higher proportion of rooms are now held by developers. Many of these groups are likely to look to exit over the next few years to recycle capital into other projects. This should see deal flow increase.”

Asian investment would continue to rise, the report noted, with around AUD$18 billion worth of accommodation stock now held by investors based in Asia.

“Interestingly, however, domestic and regional hotel and serviced apartment operators now represent the largest owners of Australian accommodation real estate, having amassed almost $9billion of real estate since the global operating companies started to sell down assets and adopt asset-light strategies,” said Colliers International Director of Hotels, Karen Wales.

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