Colliers Radar | Chinese dominate in tourism investment | February 2017 China has emerged as a dominant force in Australia’s accommodation market, driving pricing to new levels. Slowing growth in China has increased the appeal of Australian hotels on a risk-adjusted returns basis and further supported by the push for expansion overseas and the signing of China Australia Free Trade Agreement (CHAFTA) in late 2015. Australia offers unparalleled opportunities for hotel investors with a long history of foreign direct investment in sector and an open and transparent market for hotel real estate. Since making tourism a national investment priority in 2013, Australia has seen record levels of international investment in tourism infrastructure with more than $8 billion invested in the sector as offshore investors look to capitalise on the recent and projected strong growth in tourism. Chinese capital accounted for 37% of the total transactions volume in 2016, up from just 6% in 2012. Sydney has dominated transaction activity, particularly at the high-end, but Chinese investors have also been active in the key resort markets, as well as the acquisition of distressed Queensland island resorts for repositioning. More recently, we have also seen the purchase of established product in key regional locations as investors seek higher yields and as new entrants look to position themselves to capitalise on catalytic changes in aviation policy over the past few years. Chinese Investment in Australian Hotel Real Estate 2012 to 2016 Source: Colliers International A Selection of Recent Acquisitions by Chinese Capital in Australia’s State Capitals Source: Colliers International The Australia-China air services agreement was expanded in January 2015 which increased the available capacity between the major cities of China and Australia. Currently, there are seven Chinese airlines flying to Australia but this is expected to increase following the signing of the Australia-China air services agreement in late 2016. Chinese airlines will have unrestricted capacity into Australia after the federal government announced it had reached an agreement with China for an “open aviation market” between the two countries and providing greater access to China’s burgeoning middle class. Since 2009, Chinese visitor numbers have grown over 350% from 300,000 to 1.1 million, with China expected to become Australia’s leading inbound market by the end of 2017. According to Tourism Research Australia, Chinese visitors are expected to total 3 million by 2025 and with more than 80% of these visits for leisure travel. This will have a profound impact on Australia’s accommodation market. Regional Australia is also benefiting from increased demand, with 64% of domestic overnight visitors and 30% of international visitors dispersing beyond major gateways in 2015 (up 5.6% and 12% respectively). This has been further supported by Tourism Australia’s Restaurant Australia and “There’s nothing like Australia” aquatic and coastal campaigns. Demand for Australia’s distinctive and authentic experiences is therefore growing, with increased Karen Wales Director | Transaction Services Hotels Asia Pacific COLLIERS RADAR CHINESE DOMINATE IN TOURISM INVESTMENT Trends in Australian hotel real estate Asset Price Date Buyer Park Hyatt Melbourne $130 million Jan 2014 Fu Wah Melbourne Sheraton on the Park $463 million Nov 2014 Sunshine Insurance Ibis Melbourne $39.6 million Nov 2014 Well Smart Investments Holiday Inn Sydney Airport $53 million Dec 2014 Star Millennium Pty. Ltd Hilton Sydney $442 million May 2015 Bright Ruby Resources Pullman Sydney Airport $84 million Aug 2015 Nanshan Mercure Parramatta $40 million Jul 2016 Star Millennium Pty. Ltd Park Regis Sydney $46 million Aug 2016 Cornerstone Novotel Glen Waverley $73..6 million Nov 2016 i prosperity $0 $200 $400 $600 $800 $1,000 $1,200 2012 2013 2014 2015 2016 Transaction Volume ($ Millions)
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Colliers Radar | Chinese dominate in tourism investment | February 2017
China has emerged as a dominant force in Australia’s accommodation market, driving pricing to new levels. Slowing growth in China has increased the appeal of Australian hotels on a risk-adjusted returns basis and further supported by the push for expansion overseas and the signing of China Australia Free Trade Agreement (CHAFTA) in late 2015.
Australia offers unparalleled opportunities for hotel investors with a long history of foreign direct investment in sector and an open and transparent market for hotel real estate. Since making tourism a national investment priority in 2013, Australia has seen record levels of international investment in tourism infrastructure with more than $8 billion invested in the sector as offshore investors look to capitalise on the recent and projected strong growth in tourism.
Chinese capital accounted for 37% of the total transactions volume in 2016, up from just 6% in 2012. Sydney has dominated transaction activity, particularly at the high-end, but Chinese investors have also been active in the key resort markets, as well as the acquisition of distressed Queensland island resorts for repositioning. More recently, we have also seen the purchase of established product in key regional locations as investors seek higher yields and as new entrants look to position themselves to capitalise on catalytic changes in aviation policy over the past few years.
Chinese Investment in Australian Hotel Real Estate 2012 to 2016
Source: Colliers International
A Selection of Recent Acquisitions by Chinese Capital in Australia’s State Capitals
Source: Colliers International
The Australia-China air services agreement was expanded in January 2015 which increased the available capacity between the major cities of China and Australia. Currently, there are seven Chinese airlines flying to Australia but this is expected to increase following the signing of the Australia-China air services agreement in late 2016. Chinese airlines will have unrestricted capacity into Australia after the federal government announced it had reached an agreement with China for an “open aviation market” between the two countries and providing greater access to China’s burgeoning middle class.
Since 2009, Chinese visitor numbers have grown over 350% from 300,000 to 1.1 million, with China expected to become Australia’s leading inbound market by the end of 2017. According to Tourism Research Australia, Chinese visitors are expected to total 3 million by 2025 and with more than 80% of these visits for leisure travel. This will have a profound impact on Australia’s accommodation market.
Regional Australia is also benefiting from increased demand, with 64% of domestic overnight visitors and 30% of international visitors dispersing beyond major gateways in 2015 (up 5.6% and 12% respectively). This has been further supported by Tourism Australia’s Restaurant Australia and “There’s nothing like Australia” aquatic and coastal campaigns. Demand for Australia’s distinctive and authentic experiences is therefore growing, with increased
Karen Wales Director | Transaction Services Hotels Asia Pacific
COLLIERS RADAR
CHINESE DOMINATE IN TOURISM INVESTMENT Trends in Australian hotel real estate
Asset Price Date BuyerPark Hyatt Melbourne $130 million Jan 2014 Fu Wah Melbourne
Sheraton on the Park $463 million Nov 2014 Sunshine Insurance
Ibis Melbourne $39.6 million Nov 2014 Well Smart Investments
Holiday Inn Sydney Airport $53 million Dec 2014 Star Millennium Pty. Ltd
Hilton Sydney $442 million May 2015 Bright Ruby Resources
Pullman Sydney Airport $84 million Aug 2015 Nanshan
Mercure Parramatta $40 million Jul 2016 Star Millennium Pty. Ltd
Park Regis Sydney $46 million Aug 2016 Cornerstone
Novotel Glen Waverley $73..6 million Nov 2016 i prosperity
$0
$200
$400
$600
$800
$1,000
$1,200
2012 2013 2014 2015 2016
Tran
sact
ion
Volu
me
($ M
illio
ns)
Colliers Radar | Chinese dominate in tourism investment | February 2017
international visitation to wineries (up 37% in 2015), festivals and fairs (up 25%), botanical gardens and organised sporting events (both up 17%), farms up (14%) and state/national parks (up 13%).
A Selection of Acquisitions by Chinese Capital in Major Leisure & Regional Destinations
Source: Colliers International
Development deals come into focus
Whilst the preference for Chinese capital has been for the acquisition and upgrading of existing assets, we are starting to see more Chinese investors actively pursuing development deals as development feasibility has improved and groups have become more comfortable with the nuances of the local hotel market.
Strong offshore interest has placed upward pressure on pricing for Australian hotels and yields have compressed, thereby improving hotel development feasibility. Site availability, record low interest rates and the strong residential market triggering hotel/serviced apartment components in mixed use projects have all been contributing factors. After a decade low of supply increases, hotel development activity is now at record levels providing much-needed investment in infrastructure to support the anticipated growth in visitation.
A Selection of Development Deals / Projects being funded by Chinese Capital
Source: Colliers International
Sydney has been the focus for many Chinese investors as they look to secure a foothold in Asia Pacific’s strongest performing hotel market. Recent notable acquisitions include i-prosperity’s acquisition of 333 Kent Street, Greaton’s purchase of the Ribbon development and Dalian Wanda’s redevelopment of Goldfields House. Once complete, all three projects will deliver new luxury hotel rooms to the harbour city.
The sector is not without challenges, however. For long term sustainability, we cannot just rely on one geographic source of capital and must therefore continue to attract a broad international capital base to support asset pricing moving forward, particularly as new supply comes on line.
With global protectionism on the rise, real estate transparency and policy surety will be critical to supporting future investment. No clear direction on critical policy decisions - such as the future of the Australian Bureau of Statistics’ Survey of Tourist Accommodation and providing clarity around the sharing economy - may yet impede
the sector from realising its full potential.
Hotel investment outlook
Transaction volumes are expected to moderate through 2017 with few prime assets offered for sale in the major capitals. Against this backdrop, we expect development deals to feature more prominently, against an improving backdrop of tourism demand.
Competition from alternate uses – which has been high in recent years – is expected to abate with a strong forward pipeline of residential apartment supply in most cities and capital restrictions for foreign buyers becoming more complex both here and overseas. This is expected to lead more established developers, many of whom are from China, to consider hotels. This is being further supported by recent and proposed changes to planning schemes in Melbourne and Sydney.
Tight ongoing conditions in the commercial office segment in Sydney, however, will continue to restrict the development of new accommodation rooms. Total office market vacancy isn’t expected to increase until the end of 2019 as strong tenant demand, permanent withdrawal of stock and a limited supply pipeline generate ongoing rental growth. As a result lower yielding demand will continue to push out into the city fringe and these areas will remain the focus for development activity in the near term given the lower barriers to entry.
Counter cyclical investment opportunities are expected to arise in Brisbane and Perth where the supply pipeline is more advanced and while demand catches up with supply. UBS chief economist Scott Haslem is projecting international arrivals will approach 12 million by 2019 and exceed departures for the first time since 2007. This will indicate a marked turn around in performance for the hotel and tourism sector and the economy more broadly.
Asset Price Date BuyerSheraton Mirage Port Douglas $35.0 million 2010 Fullshare Holdings
Lindeman Island, Whitsundays $12 million 2012 White Horse Holdings
Chateau Elan, Hunter Valley $23 million Feb 2015 Sunshine Insurance
Daydream Island $30.5 million Mar 2015 CCIG
Sofitel Gold Coast $82 million Mar 2015 Shanxi Huaya Group
Hilton Gold Coast $51 million July 2015 Private investor
Retreat at Wisemans $8.05 million Mar 2016 Private investor
Sebel Kiama $13 million Nov 2016 Private investor
Aitken Hill Yuroke $120 million Dec 2016 HNA
Asset Status Developer/OwnerPrimus Hotel Sydney Open Greenland
Jewel Gold Coast Under construction Wanda Ridong
Ibis & Novotel Melbourne Under construction Riverside Properties
The Westin Darwin In planning Landbridge
Wanda Vista & Residences Sydney
In planning Dalian Wanda
Hope Island Hotel In planning GH Properties
South Molle Island In planning CCIG
333 Kent Street, Sydney In planning i-Prosperity
Ribbon Development In planning Greaton
Karen Wales joined Colliers International in October 2016 as Director, Transaction Services Hotels Asia Pacific. She brings an ability to drive fresh capital into Australia’s hotel markets having developed an exceptional network over the past two years across Asia and the Middle East and within government, in her capacity as Senior Investment Specialist Tourism Infrastructure at Austrade. Her knowledge of new entrants into the growing Australian tourism sector is second to none.
For a confidential discussion on current trends in the Australian hotel investment market, please contact Karen on 0405 227 152 or email [email protected]
Colliers International does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections. Colliers International will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely upon that is contained in the material. © Colliers International 2017.
www.colliers.com.au
333 Kent St, Sydney DA Approved Indicative Scheme for 117 hotel rooms and 125 residential apartments. Sold by Colliers International to i prosperity for $88,888,888.88 in November 2016
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