Australia poised for record-setting transactions year


Something unusual is happening in Australia. The first quarter of the year usually starts out quietly as most of the investment world there goes on summer holiday. This year, however, there has been no down time.

“We have transacted AU$180 million in hotels and it’s only February,” CBRE Hotels Director Wayne Bunz told Hotel Management. “We’ve got another AU$80 million in due diligence—these numbers are just incredible for this time of year.”

All but one of the deals CBRE has been involved in this year have been done off-market on a confidential basis, Bunz said.

With regard to buyers, “There’s still a mix, but it’s still driven primarily by Asian capital looking to come to Australia,” he said. Australian private equity and the recent entry of Middle Eastern capital have also been part of that mix.

Australia's Attraction
Last year was a record for hotel transactions in Australia, with CBRE reporting a total of AU$3.87 billion, much of it coming from Asian investments in high-profile luxury hotels. A new record this year seems highly likely. Bunz said the two portfolios attracting the most interest right now—the M&L Hospitality and Ascendas portfolios—should come close to the 2015 total if acquired this year.

The M&L Hospitality portfolio has more than 1,750 rooms and is offered by M&L Hospitality, while Ascendas Hospitality Trust’s portfolio has nearly 2,000 rooms. Other assets on offer include the 396-room Hilton Melbourne South Wharf, 280-room Docklands Hotel project and the 269-room 435 Collins Street project, all located in Melbourne.

Australia’s current tourism boom is a result of record tourist inflows from Asia, especially China, plus rising domestic tourism. Both phenomena are being driven by a weaker Australian dollar that makes the country appealing to Asian tourists with stronger currencies while also making international travel more expensive for Aussies, many of whom are choosing to explore their own country rather than travel overseas.

Bunz said that demand for corporate and leisure hotels should stay strong for the foreseeable future, barring shock wave events such as another financial crisis.

“I think that hotels have proven since the global financial crisis that they are among the most resilient assets,” he said.

In addition to hotels in traditional markets, such as Sydney and Melbourne, new investments are picking up in the Gold Coast and Cairns, Bunz added.

In addition to a transparent legal and political system, China’s ongoing economic slowdown and expectations that the renminbi will weaken this year are enhancing the Australian hospitality industry’s appeal. 

“A lot of Asian capital that comes to Australia takes a mid- to long-term view on those asset classes,” Bunz said. “Our land is free-hold, which is very appealing to the Chinese.”

With another record-breaking year in the making, Bunz says the main challenge in the Australian market is supply.

“The challenge we have is stock,” he said. “For every quality hotel, there are at least half a dozen genuine buyers who will bid for that hotel.”