Q1 2018 Hotel Market Analysis Chinese investors lead acquisitions
INTRODUCTION The Australian hotel market had a strong end to 2017 and start to 2018, with the eastern seaboard states of New South Wales, Victoria and Queensland displaying solid growth and fundamentals. Tourism Overview: Inbound Action Australia received 8.8 million international visitors 1 in the year to December 2017, representing a 6.6% increase on the previous year. Last year, Australia welcomed 1.35 million Chinese visitors, with this group overtaking New Zealanders to become Australia s largest inbound visitor segment, highlighting China s importance to Australia. The number of Chinese outbound tourists reached 130.5 million 2 in 2017, so Australia has captured just 1.04% of this market, indicating potential for a rise in market share in the future. Looking forward, Tourism Australia has identified India as a key emerging market, with a rapidly-growing number of arrivals from this country. But it s worth noting just one carrier serves the India to Australia route, versus nine airlines that fly between China and Australia. 1 Tourism Australia YE 2017 arrival statistics 2 Nielsen Chinese outbound report ipg Q1 2018 Hotel Market Analysis - 2 -
Australia Hotel STR Snapshot Year to Date 2018 Darwin 66.2% Darwin $118.15 Cairns $145.41 Cairns 81.7% Brisbane 70.2% Brisbane $152.31 Gold Coast $204.38 Gold Coast 74.5% Perth 77.0% Adelaide 81.8% Melbourne 87.4% Sydney 88.9% Canberra 77.1% Perth $169.68 Adelaide $164.99 Melbourne $223.21 Sydney $283.27 Canberra $171. 27 Hobart 88.5% Hobart $184.56 Australian City Occupancy Rate (%) Australian Average Daily Rate ($) Year to Date (January - March 2018) 1 PROPERTY Occ % ADR RevPAR Percent Change from 2017 2018 2017 2018 2017 2018 2017 Occ ADR RevPAR Room Rev Room Avail Room Sold Sydney Centre Melbourne Centre 88.9 91.0 283.27 271.48 251.77 247.04-2.3 4.3 1.9 4.9 2.9 0.5 87.4 88.3 223.21 221.62 195.01 195.75-1.1 0.7-0.4 1.9 2.3 1.2 Brisbane 70.2 71.0 152.31 150.81 106.90 107.08-1.1 1.0-0.2 5.6 5.8 4.6 Adelaide 81.8 82.0 164.99 163.92 134.99 134.34-0.2 0.7 0.5 4.6 4.1 3.9 Cairns Area 81.7 81.3 145.41 136.74 118.82 111.12 0.6 6.3 6.9 4.6-2.2-1.7 Gold Coast 74.5 73.2 204.38 195.52 152.33 143.07 1.9 4.5 6.5 5.4-1.0 0.8 Perth 77.0 75.6 169.68 175.78 130.69 132.83 1.9-3.5-1.6 2.8 4.5 6.5 Darwin Area 66.2 58.3 118.15 113.32 78.17 66.06 13.5 4.3 18.3 17.8-0.5 12.9 Canberra 77.1 77.7 171.27 171.64 132.00 133.41-0.8-0.2-1.0 3.0 4.1 3.2 Parramatta+ 84.7 75.7 196.62 188.25 166.61 142.43 12.0 4.4 17.0 23.0 5.2 17.8 Hobart Area 88.5 93.3 184.56 192.78 163.30 179.82-5.1-4.3-9.2 3.8 14.3 8.4 Sydney Airport 89.6 89.1 171.37 170.44 153.51 151.82 0.6 0.5 1.1 25.5 24.1 24.8 1 STR Global ipg Q1 2018 Hotel Market Analysis - 3 -
Monthly Results January: Numbers surprise on the upside The hotel sector returned a strong result for the first quarter, with major tourist destinations recording year-on-year growth. For instance, the Gold Coast hotel market achieved an average daily rate (ADR) of $240, up by 4.7% compared to last year s result. Occupancy rates in the Parramatta and Sydney Airport hotel markets held ground during a period that is usually slow for both sectors. Parramatta benefitted from visitors to Homebush Olympic Park going to Ed Sheeran and Bruno Mars concerts during the month. Current Month (January 2018 vs January 2017) 1 PROPERTY Occ % ADR RevPAR Percent Change from January 2017 2018 2017 2018 2017 2018 2017 Occ ADR RevPAR Sydney Centre 84.6 87.3 254.78 247.89 215.44 216.48-3.2 2.8-0.5 Melbourne Centre 83.9 84.7 225.06 228.91 188.81 193.81-0.9-1.7-2.6 Brisbane 62.9 63.0 141.38 140.38 88.99 88.46-0.1 0.7 0.6 Adelaide 76.7 76.8 146.29 147.58 112.22 113.33-0.1-0.9-1.0 Cairns Area 79.5 78.4 143.09 142.80 113.74 111.93 1.4 0.2 1.6 Gold Coast 83.4 81.0 240.90 236.83 200.88 191.93 2.9 1.7 4.7 Perth 70.2 70.5 163.16 170.25 114.61 119.94-0.3-4.2-4.4 Darwin Area 59.8 46.5 114.91 111.38 68.72 51.81 28.6 3.2 32.6 Canberra 69.4 70.9 156.07 158.01 108.38 112.10-2.1-1.2-3.3 Parramatta+ 79.7 66.9 166.35 166.38 132.53 111.37 19.0-0.0 19.0 Hobart Area 88.3 93.0 189.88 200.08 167.61 185.99-5.0-5.1-9.9 Sydney Airport 84.7 82.0 152.15 150.74 128.83 123.56 3.3 0.9 4.3 1 STR Global ipg Q1 2018 Hotel Market Analysis - 4 -
February: Sydney market full The Gold Coast hotel market achieved an ADR of $240, up by 4.7% compared to last year s result. During the month Sydney s occupancy rates declined, although ADRs rose. This shows the Sydney market is at capacity, giving hoteliers the ability to yield manage their rates. The February uplift in the Sydney market should continue through to March, and ADRs are forecast to hover around $300 across all star grades of hotels. The Brisbane market appears to have stabilised, recording steady ADR growth. There is further supply expected with the opening of W Brisbane and the Rosewood and Ritz casino hotels. Whilst supply is rising, the market is likely to be supported by heightened demand from an anticipated return of the mining sector. The Perth market continues to trend downward, and this dynamic is expected to continue through 2018 and into 2019 before any recovery may be expected. The Hobart and Sydney Airport markets, with an already-healthy supply of rooms, will be impacted by further hotel developments mooted to be in the near term pipeline. Current Month (February 2018 vs February 2017) 1 PROPERTY Occ % ADR RevPAR Percent Change from February 2017 2018 2017 2018 2017 2018 2017 Occ ADR RevPAR Sydney Centre 91.8 93.2 306.35 290.95 281.30 271.23-1.5 5.3 3.7 Melbourne Centre 90.7 89.5 210.05 209.18 190.53 187.26 1.3 0.4 1.7 Brisbane 74.6 72.7 153.33 153.42 114.34 111.60 2.5-0.1 2.5 Adelaide 85.3 83.0 163.28 162.43 139.24 134.79 2.8 0.5 3.3 Cairns Area 86.1 82.3 154.24 137.95 132.73 113.52 4.6 11.8 16.9 Gold Coast 74.3 72.4 178.34 172.49 132.49 124.95 2.6 3.4 6.0 Perth 80.9 77.2 170.91 179.92 138.19 138.91 4.7-5.0-0.5 Darwin Area 66.4 62.2 116.73 111.89 77.56 69.55 6.9 4.3 11.5 Canberra 80.7 77.9 176.03 173.43 142.07 135.17 3.6 1.5 5.1 Parramatta+ 88.4 78.3 204.71 193.44 181.04 151.41 13.0 5.8 19.6 Hobart Area 91.4 94.4 183.00 194.10 167.35 183.25-3.1-5.7-8.7 Sydney Airport 92.3 92.6 183.17 182.94 169.14 169.43-0.3 0.1-0.2 1 STR Global ipg Q1 2018 Hotel Market Analysis - 5 -
March: Mixed results across Australia Sydney Sydney s March occupancy rates retracted compared to previous years, although this was offset by a higher ADR. This signals a continuing surge in demand, offset by a dearth of CBD hotel supply. With few hotel developments in the pipeline, additional supply may come from the cooling residential market, with an opportunity for developers to revise their plans to incorporate hotels in some projects. Brisbane Brisbane s occupancy rates retracted 5% during the month, with a moderate increase in ADRs compared to the previous year, which may signal the market is recovering. This is in part due to rising commodity prices creating demand from mining and resources businesses, with China s One Belt Road initiative driving demand for iron ore. Gold Coast occupancy rates have been steady at around 74%, however ADRs were up by more than 10% as a result of the Commonwealth Games. Melbourne During the month, Melbourne occupancy rates retracted compared to previous years, as additional supply came online with the opening of Four Points by Sheraton Docklands and Novotel South Wharf. Subsequently, ADRs in that market have compressed and further downward pressure is expected in the short to near term before the market stabilises as new supply is absorbed. Melbourne has a good track record of being able to absorb new supply, thanks to the large-scale events it hosts such as the Formula 1, Melbourne Cup and Australian Tennis Open. With limited new supply in the near term in Sydney s development outlook, Melbourne will continue to be the beneficiary of Sydney s demand overflow, with additional direct international flights announced to the city to take advantage of Melbourne airport s 24-hour capability. Event-driven demand has helped support the Brisbane market as it has weathered the resources sector slowdown over the past few years. The Commonwealth Games and concert events are expected to lead to an uplift in the first quarter of 2018. Star Entertainment Group s planned new casino, with a 2022 estimated completion date, should support the Brisbane market in the future. Gold Coast New supply in this market will be supported by the 300-room Jewel project, recently sold by Dalian Wanda to the Yuhu Group, and the 80-room extension of The Star Casino. Although it s understood a number of mooted development sites have been shelved. ipg Q1 2018 Hotel Market Analysis - 6 -
Perth Perth occupancy rates have recovered slightly, however ADRs have continued to decline as existing hotels aggressively compete for business. Continued pressure on room and occupancy rates is likely thanks to new supply coming onto the market. Hobart The Hobart market experienced a significant decline in both occupancy rates and ADRs, as the market corrected following historic highs in 2017. President Xi Jinping s visit, along with Tasmania s natural scenic attractions, bolstered tourism arrival numbers, particularly from Chinese tourists. Domestic arrival numbers have also risen, signalling further buoyancy in the market. Current Month (March 2018 vs March 2017) 1 PROPERTY Occ % ADR RevPAR Percent Change from March 2017 2018 2017 2018 2017 2018 2017 Occ ADR RevPAR Room Rev Room Avail Room Sold Sydney Centre Melbourne Centre 90.5 92.6 290.06 276.24 262.60 255.93-2.3 5.0 2.6 5.5 2.8 0.5 87.8 90.9 233.57 225.89 205.17 205.24-3.3 3.4-0.0 2.2 2.2-1.2 Brisbane 73.8 77.6 160.80 156.98 118.63 121.85-5.0 2.4-2.6 3.4 6.2 0.9 Adelaide 85.2 86.2 183.41 179.77 156.36 154.94-1.1 2.0 0.9 5.1 4.1 3.0 Cairns Area 79.9 83.3 139.15 129.72 111.13 108.03-4.1 7.3 2.9 2.9 0.0-4.1 Gold Coast 68.2 67.7 183.46 165.89 125.12 112.32 0.7 10.6 11.4 10.7-0.7 0.1 Perth 80.3 79.2 174.34 177.06 140.02 140.23 1.4-1.5-0.2 4.7 4.9 6.3 Darwin Area 72.0 66.7 119.12 115.90 85.76 77.30 7.9 2.8 10.9 10.7-0.2 7.7 Canberra 80.8 83.3 180.27 181.40 145.70 151.03-2.9-0.6-3.5 0.4 4.1 1.0 Parramatta+ 86.5 82.0 217.02 201.62 187.66 165.37 5.4 7.6 13.5 19.4 5.2 10.9 Hobart Area 86.1 92.5 179.24 182.51 154.25 168.91-7.0-1.8-8.7 4.4 14.3 6.3 Sydney Airport 91.8 93.0 179.18 176.55 164.43 164.19-1.3 1.5 0.1 26.1 25.9 24.2 1 STR Global ipg Q1 2018 Hotel Market Analysis - 7 -
Hotel real estate and transactions With 482-rooms, the sale of the Watermark Hotels in Surfers Paradise and Brisbane has been the most notable hotel transaction over the past two months, with these properties purchased by ipg s joint venture partner, SB&G. Another notable transaction was the Sheraton Melbourne, which sold for $135 million to Qatar Airways, representing $775,000 per key. The combined Mercure & Ibis Brisbane properties were sold to German fund, Commerz Real, for $77 million. On a counter cyclical strategy, Novotel Perth was sold in the middle of 2017 for $80 million at $316,000 per key to Singaporean group M&L Hospitality. This follows a handful of other Singaporean groups entering the Perth market that have picked up Perth s Mandurah Hotel and the Holiday Inn City Centre Perth. Fullshare s purchase of a portfolio of North Queensland hotels, including the landmark resort Sheraton Grand Mirage Port Douglas, was a highlight among acquisitions made by Chinese investors. Nanshan Group s acquisition of the Pullman Mascot and Riverside Oaks golf club properties are other significant deals made by Chinese investors. Shanghai United s purchase of the InterContinental Double Bay for $135 million highlighted the lack of hotels for sale in the Sydney CBD market, and placed further downward pressure on Sydney s capitalisation rates. 482 Rooms Watermark Hotels in Surfers Paradise & Brisbane ipg Q1 2018 Hotel Market Analysis - 8 -
2017-2018 Transaction Table PROPERTY LOCATION STAR NO. OF ROOMS PURCHASER PRICE PER ROOM $ PRICE Watermark Hotels Surfers Paradise & Gold Coast Holiday Inn City Centre Perth Gold Coast 4.5 482 SB&G Hotel Group (Salter Brothers & Gu) Perth 4.5 186 Legend Land Perth (Singapore) $186,722 $90,000,000 $349,462 $65,000,000 Aria Hotel Canberra 4 128 Aligned FM $273,438 $35,000,000 Emporium Hotel Brisbane 5 102 Ovolo/Hind Hotels $392,156 $40,000,000 Ibis Brisbane Brisbane 3 194 Commerz Real $186,441 $36,169,554 Mercure Brisbane Brisbane 4 219 Commerz Real $186,441 $40,830,579 Sheraton Melbourne Melbourne 5 174 Qatar Airways $775,862 $135,000,000 Adina on Flinders Melbourne 4.5 65 Shakespeare Property Group $830,769 $54,000,000 Aurora Melbourne Central Melbourne 5 252 Ascendas Hospitality $476,190 $120,000,000 Pullman Sydney Airport Mascot 5 229 Nanshan Group $366,812 $84,000,000 Sheraton Mirage Resort Port Douglas Port Douglas 5 294 Fullshare Holdings $204,761 $60,200,000 Novotel Langley Perth 4 253 M&L Hospitality $316,205 $80,000,000 Four Points by Sheraton (Turn-key development) Hilton Melbourne Convention Centre InterContinental Sydney Double Bay Broadway 4.5 297 Schwartz Family Company $525,252 $156,000,000 Melbourne 4.5 364 UOL Pan Pacific $631,868 $230,000,000 Sydney 5 140 Shanghai United $966,429 $135,300,000 Quality Hotel CKS Mascot 4.5 121 Australia Ao Bo Assets Management $264,462 $32,000,000 W Hotel, 447 Collins St, Melbourne Melbourne 5.0 294 Daisho Group $748,299 $220,000,000 Crowne Plaza East Perth East Perth 4.5 189 Asian investor (Sentosa) $264,550 $50,000,000 Sheraton Grand Mirage Resort Novotel Melbourne Glen Waverley Gold Coast 5 294 Star Entertainment $476,190 $140,000,000 Glen Waverley 4 200 iprosperity Group $368,333 $73,666,667 ipg Q1 2018 Hotel Market Analysis - 9 -
Developments: Tight Sydney supply, Melbourne market active Sydney remains the most significant location for investors and developers, and a lack of available hotel stock continues to drive demand in a tightly-held market. As a consequence, buyers have sought forward purchase agreements on hotel developments, with the Four Points by Sheraton Central transaction an example. The following table highlights the lag in Australia s hotel development pipeline for Accommodation room supply 4 : City Rooms Sydney CBD 23,057 Melbourne had the highest number of transactions as developers look to capitalise on completed projects, demonstrated by the Sheraton Melbourne sale and the forward purchase sale of the W Hotel by Marriott International on Collins Street development. An emerging trend in Sydney and Melbourne is developments converting from residential to hotels 3 as the housing market cools. This should help the hotel market meet burgeoning demand for accommodation. Fears of an oversupply in Melbourne have been downplayed by industry analysts, as in the past the city has demonstrated a stellar track record absorbing new hotels with its robust events and sporting calendar. Melbourne Brisbane Hong Kong Singapore London New York 19,819 18,804 73,000 67,000 150,000 115,000 Capitalisation Rates Hotel Yields (2017/2018) Student Accommodation Yields (2016/2017) 6-7% 6-7% 7-7.5% 7-7.5% 6.5-7% 6.75-7.25% 7.25-8.25% 4-5% 4.5-5.5% Sydney Melbourne Brisbane Gold Coast Perth Adelaide Sydney Melbourne Brisbane Source: Savills Source: Savills Office Yields (Qtr 1 2018) Industrial Yields (Qtr 1 2018) 5.5% 5.5% 6.88% 7.2% 6.38% 5.37% 6.18% 6.44% 6.75% Sydney Melbourne Brisbane Perth Adelaide Sydney Melbourne Brisbane Perth Source: Colliers International Source: Colliers International 3 Property Council of Australia 4 STR Global ipg Q1 2018 Hotel Market Analysis - 10 -
Company Profiles Raymond Tran Hotel Investment & Asset Manager Sydney, Australia Raymond, an experienced hotelier and real estate executive has over 20 years of hotel accommodation operations and real estate experience, serving five of those years in the capacity of General Manager followed by Executive Management roles. Raymond s career span included tenures with major international hotel groups which included Starwood, Fairmont & Raffles, Delta, Stamford, Choice, Seasons, Oaks and Accor. In his time with Colliers International, Raymond specialised in hotel brokerage, asset management and advisory and had achieved approx. $307m of transaction sales across Australia, including a variety of high profile operator selections. James Weaver Head of Property Melbourne, Australia James is Head of Property for ipg, where he applies more than 25 years cross-disciplinary experience in the property sector which included tenures with institutional groups including Charter Hall, Macquarie Bank and Freehills. James versatility stems from his proficiency as a property lawyer, with his tenure extending into asset management, property capital transactions and funds management. In his time with Macquarie Bank, James total portfolio was in excess of $1 billion in capital value under his management. CONCLUSION Expect continued buoyancy in the hotel real estate sector for the remainder of 2018. Sydney and Melbourne are likely to continue to be the markets with the highest activity levels and strongest ADRs, while Brisbane will also experience improving market conditions. Overall, a positive environment for assets and investors in the sector. ipg Q1 2018 Hotel Market Analysis - 11 -
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