Why Asian investors are buying Australia's hotels

Australia's hotel market has emerged a key investment hotspot in Asia Pacific, with more than $2.5 billion in transactions completed in the first half of 2015—the second largest transaction pipeline across the region, according to CBRE.

CBRE's 2015 Asia Pacific Hotel MarketView report shows a hearty appetite for hotel property across the country, with Australia ranking second behind Hong Kong in terms of transaction activity.

CBRE Hotels Senior Director Wayne Bunz said offshore capital continued to target Australian hotel assets, with investors seeking quality assets in both primary and secondary locations.

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"Foreign investors continue to inject capital into Australia's hotel market, seeking out quality assets in major locations such as Melbourne and Sydney, as well as other capital cities that offer attractive and less-competitive opportunities," Bunz said. "The Four Points by Sheraton sale in Perth for $91.5 million is testament to the growing strength of the Australian market and its continuing appeal as a sought after destination for hotel investors."

In further evidence of Chinese capital targeting Australian hotel assets, an offshore buyer purchased the Pensione Hotel in Melbourne for around $26 million.

"Asian investors are continuing to look abroad for attractive investments that offer favourable returns," CBRE's Rob Cross said. "Chinese are looking for long-term generational wealth creation when acquiring substantial freehold land banking opportunities like Crown Plaza Terrigal, which comprises nearly 11,000sqm of the beachfront in Terrigal. As highlighted by the recent flurry of activity, Australia remains a sought after market, with investors attracted to its relative economic stability and high growth returns."

The report shows in terms of outbound capital within the Asia Pacific region, Chinese capital was the most active during the first half of 2015, with all offshore investment activity from China injected into Australia during this period.

The largest offshore transaction undertaken by Chinese capital was the Hilton Sydney, which was acquired by Bright Ruby Resources for $442 million.

Australia and New Zealand reportedly experienced the largest growth in tourism numbers over the first six months of the year, with an 8% lift year-on-year – the largest increase in the Asia Pacific region. This translated to a 7.3-percent increase for Australia and 9.7-percent spike for New Zealand.

Bunz said the upward momentum in Australia's hotel sector would continue to underpin strong appetite levels for well-positioned assets in the nation's gateway cities.

"This wave of offshore capital is showing no signs of abating, with investors continuing to focus on large mature markers, which offer secure investment opportunities, as well as the smaller, regional markets, which also offer attractive returns," he said.

In the first six months of 2015, Sydney and Melbourne achieved the highest hotel occupancy rates in Asia Pacific alongside Singapore, Hong Kong, Tokyo and Osaka.

CBRE's Robert McIntosh said the performance outlook for Australia remained positive for the rest of 2015.

"Strong operational trading will continue to be underpinned by the continued economic growth of almost 3 percent per annum on average, the economic transition from mining investment to export production, the weaker Australian dollar, the increase surge of Chinese tourists and the dominant domestic tourists," McIntosh said.

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