Perth's construction pipeline increases as overseas developers invest across the city

Perth, Australia(Image: Pedro Szekely / CC by SA-2.0)

A range of international developers are claiming a stake in the property sector of Perth, Australia. Despite the city's current economic downturn, many international groups have proposed plans to develop up to $5 billion worth of hotels, apartments and office space. 

Many of these developments will be large-scale projects, which have rarely been proposed for the city. Large-scale projects, however, are much more typical of overseas developers who intend these projects to be long-term investments.

Perth's Boom

Just five years ago, the Western Australian government said that Perth needed 1,900 rooms to open by 2020 if the city was to keep pace with corporate and leisure demand. Since then, according to the Australian Hotels Association, Perth has seen 19 new hotels and serviced apartments open for a total of 1,832 rooms…and there are three more years to go until the deadline. 

“Cities such as Perth, Brisbane and Adelaide have been transformed by a substantial number of new hotel openings in the past few years,” TAA CEO Carol Giuseppi said in March. “Investor confidence is being supported by Federal and State governments’ commitment to major tourism and urban infrastructure projects including new convention centers, airport facilities and tourism precincts.” In total, the country has 228 hotels with 34,702 rooms under construction, approved for development or in advanced planning stages across the country’s capital cities.

But demand is high in other cities as well, and as JLL noted in its recent Hotel Investment Outlook report, "new stock" across Australia is "certain to place pressure on room rates in Brisbane and Perth." In other words, while Perth is seeing a development boom, profits may take a while. 

Even more worrisome, Tourism Western Australia figures from March reported that 17.6 percent of hotel rooms in Perth were vacant, the most since 2010 and a decrease of 3.1 percent over March 2016. 

Australian Hotels Association CEO Bradley Woods credited both the boom and the downturn to the state's mining industry. "What we saw as a result of the mining peak in Western Australia was that there was huge demand from the corporate resources sector for accommodation in Perth," Woods told ABC. That drove up accommodation demand and price. There was a lot of additional business that came off that, and now we're settling into more of a normal period of a mixture of greater tourism, corporate meetings, conferences and business tourism." 

Who's Building

That doesn't seem to be stopping developers from planning projects in Perth, which has an estimated 2,000 to 2,500 new rooms expected to come on the market in the next few years.

The Metropolitan Redevelopment Authority granted approval to Hong Kong-based Far East Consortium to develop four of Perth City Link's vacant lots. The company already plans to spend $200 million to develop the Dorsett Hotel and retail mall on two of the project's lots. The investors will also hold an international design competition for a 350-apartment development on Perth City Link land. 

As the MRA sets construction plans for the City Link site, the World Trade Centers Association has added Perth in its development pipeline. The group proposed to invest $1.85 billion to construct a 75-story property at the Megamart site. The proposal is still in the early planning stages, but if it proceeds as planned, it will be Perth's tallest building. 

Singapaore's Fragrance Group has proposed three projects worth up to $1.5 billion. Fragrance Group will begin their first project, the $500-million NV Apartments, next month. The developers also proposed a hotel and apartment project on Milligan Street and a 62-floor hotel at the St.Andrew's Church site with 480 guestrooms. Fragrance Group has approximately 850 apartments and 1,3750 hotel rooms in its current pipeline.

Malaysian developers also intend to develop in Perth, especially AAIG. The group's Capital Square office development is already underway while the group teams up with FJM Property for two joint ventures in Elizabeth Quay. The two groups applied to construct the $38-million EQ West. The development has two towers: one has 45 floors with 300 apartments while the other has 20 floors with serviced apartments and hotel rooms. The developers intend to construct a multi-use tower with a short-stay hotel and post-graduate education facilities. 

As AAIG and FJM's project plans are finalized, another Malaysian developer, SKS Group, currently has four Hilton-branded proposals in its pipeline for more than $300 million. Two DoubleTree by Hiltons in Northbridge and Barrack Square are underway. The group is still devising their plans for its third DoubleTree in Fremantle and its Hampton Inn by Hilton in Cockburn Central.

SKS Group also has two apartment projects in development. It has invested $9.2 million in the apartment project Hawthorne Green in Burswood, which was stalled in Oct. 2015. The other is a $10.8 million-site in West Perth that the group acquired from Subiaco's Devwest Group in 2014.

International developers have started using non-traditional means of financing their projects. For example, according to Business News, China's 3 Oceans Property proposed a $400-million and 40-story development in Scarborough. For the group's project, there would be no pre-sales requirement for its 300-apartment property. This is quite different from the 75- to 80-percent pre-sales thresholds that Australian financiers force on developers. 3 Oceans has also proposed plans to build a major development on the $36-million Matilda Bay Brewery site in North Fremantle