Investors check in to hotels as tourism trade picks up

The proposed sale of the InterContinental Hotel in Sydney’s Double Bay didn’t go ahead.

Hotel investment performed strongly last year, driven by improved investor sentiment, continued trading recovery and several big-ticket transactions – including the Laundy Hotels-led purchase of the Grand Sheraton Mirage on the Gold Coast for nearly $200m.

This year also started with a bang, as the New York Stock Exchange-listed Travel & Leisure Co paid out $US48.4m ($73.86m) for Accor’s vacation ownership business. The deal is expected to reshape the timeshare ownership industry, given the club represents 24 resorts and nearly 30,000 members.

The listed MA Financial has also snapped up Vibe Docklands from Singapore’s Hiap Hoe for $96m, to seed a new accommodation hotel fund.

However, a number of large hotel sales did not proceed. The proposed sale of the InterContinental Hotel in Sydney’s Double Bay did not eventuate and the $400m offer of the Ritz Carlton Hotels in Perth and Melbourne was withdrawn.

But hotel investment volumes of more than $5m topped out at $2.43bn, showcasing a year-on-year increase of 26 per cent, surpassing the 10-year long-term average of $2.14bn.

“Queensland was arguably the standout performer of any state over 2023, recording its largest annual transaction volume since 2015 of $742m,” JLL Hotels executive vice president Adam Bury said.

“This was driven by both strong domestic and offshore interest, a market-leading trading recovery over the past two years, and the significant investment going into the state’s southeast in the lead-up to the Olympic Games.” Mr Bury said there were significant transactions in Sydney, Melbourne, Brisbane, the Gold Coast and Adelaide, with 53 deals involving about 5500 rooms settling over the year, exceeding the previous year’s 51 sales of 4100 rooms. This was the highest number of transactions reported annually since 2015 when there were 57 deals encompassing 10,600 rooms.

Deal volumes were largely concentrated in the three eastern seaboard states, which represented nearly three-quarters of the overall volumes.

NSW accounted for 32 per cent of total volumes or $779m, primarily due to the forward-funding of the Waldorf Astoria Sydney development project at Circular Quay, which is part of One Circular Quay now being built by Lendlease and its joint venture partner Mitsubishi Estate Asia.

Queensland accounted for 23 per cent or $564m of transactions and Victoria 19 per cent or $461m of activity, with most city markets witnessing positive year-on-year increases in investment volumes.

Domestic buyers continued to dominate capital flows, constituting 79 per cent of total investment volumes of about $1.93bn, but many of these investors have offshore limited partners.

Direct offshore investment contributed 21 per cent of total investment volumes (about $500m), primarily from Singaporean groups such as Invictus Developments, City Developments, and Worldwide Hotels Group.

The first half of the year recorded a large proportion of total transactional activity, which was largely attributed to a busy end to 2022 and higher levels of investor activity before the cash rate increases. About $1.77bn worth of deals were settled and exchanged in this period, 73 per cent of the annual volumes, including several trophy transactions that ended up being finalised in the fourth quarter.

In a strong sign of investor appetite for suitable opportunities, JLL settled five of the market’s final deals for 2023. These included the Sheraton Grand Mirage at $192m, followed by Vali Byron Bay at $29.1m and Angourie Resort at $25m in NSW, Mercure Kawana Waters at $21.3m in Queensland and the Seasons of Perth at $22.5m in Western Australia.

Other notable transactions across the country included Melbourne’s Adelphi Hotel at $25m and Fraser Place at $32.4m, and portfolio sales such as Spicers Retreats at $130m and Escarpment Group $115m.

“The Australian hotel market continues to showcase immense resilience and attractiveness to investors, supported by improved liquidity and robust trading growth,” JLL Hotels managing director Peter Harper said.

“Importantly, the market continues to attract significant interest from global investors, particularly Asian groups … Anticipating the upcoming year, there is a prevailing cautious optimism that a more certain underwriting environment and favourable trading conditions will sustain investor interest throughout 2024. The strongest interest will remain in … properties that offer genuine upside through refurbishment.”