The hotel real estate industry is big business, reportedly netting $4b in sales in 2016 alone. According Leon Alaban, Senior Executive – Investment Sales from Ray White Hotels, this trend will continue with regional and coastal Australia tipped to be the major benefactors of this upwards swing.
“The market in regional areas should benefit more greatly than their metropolitan counterparts,” Alaban reveals. “The trend we are expecting is the regional Queensland market will improve in parallel as the regional economies improve. In particular, for Queensland, some mining communities are starting to see an uplift and we’re starting to see some good news stories coming out of the coal seam gas areas and the coal industry.”
Coastal towns also look set to benefit in 2017, with an influx of tourism activity in the hotel real estate sector likely, according to Alaban. This is possibly in line with the pullback of the Australian Dollar with locals looking to stay and travel interstate as opposed abroad due to the higher costs.
“Coastal towns which have previously had slow economic growth but appear to have a lot of economic growth to occur over the next two years, for example, Townsville, Mackay, Gladstone as well as the likes of Coffs Harbour and Port Macquarie and the larger towns of NSW, will benefit,” says Alaban, adding this market boost will be on the back of hoteliers looking for a sea change or family owned metropolitan based hotels looking to sell down and diversify the location of their assets. “They are looking for something regional that brings stronger returns.”
Alaban admits the past two years has been tough on the regional hotel sector, in particular the mining regions in real estate with a slow improvement in the tourism areas, with markets held back as a result of slow economic growth, and subsequent price readjustments made. However, the tide has turned and regional Australia is now touted as a far more affordable option for those looking to add a hotel to their property portfolio.
“I think we’ve arrived at the stage where people are looking at those regional and coastal communities and towns now for yield return and everything they are doing for their metropolitan counterparts but are a more attractive option because of price points and returns. People are seeing regional Australia, whether it be coastal or western, as definitely offering value.”
And while the days of the ‘husband and wife type’ hotel investors are almost extinct in the cities; the good news is the dream is still alive for those humble investors who’ve harboured the Aussie dream of owning their own pub. “As that market continues to improve, there’s going to be mum and dad operators looking for that strategic opportunity,” Alaban confirms, however they’d need to act fast as the big business’s in the hotel real estate industry have also sniffed out the return on investment.
“Corporate groups are going to start looking for strategic acquisitions which are going to offer a little bit stronger returns than what metropolitan cities are,” he says. “We’ve already started to see some strategic groups dabble their toes in that water and look for those sorts of investments at the end of last year. It’s going to be a ripple effect that is going to continue throughout this year and gain more momentum towards the end of the year.”
As for the metropolitan investors, Alaban advises there will be excellent opportunities present in 2017.
“I think the Sydney market is going to continue with higher prices, based on the liquidity of stock. If the stock dries up, those prices will stay high as it is apparent there is a lot of trading between second and third tier groups which almost have a stranglehold on the Sydney market,” he reveals. “South-East-Queensland is a very tightly held market, similar to Melbourne, and if liquidity picks up there I think the southern buyers are going to drive prices up which will result in higher prices fetched for assets.”