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market report Q3/2015 savills.com.au Savills Hotels
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market reportQ3/2015
savills.com.au
Savills Hotels
02 Introduction
04 Tourism & KPI trends
08 Hotel transactions
12 Cruise ships docking at a hotel near you
16 Savills hotels agency and advisory track record
20 Savills key contacts
Contents1
Michael Simpson Managing Director Hotels, Australia & New Zealand
Another year of major deal activity totalling $3.7 billion for the 12 months ended September 2015, confirms Australian hotels are keenly sought after by both domestic and international investors.
The investment activity and compressing yields are further supported by strong market trading fundamentals in Australia’s key cities, despite a softening in resource dependent markets such as Perth and Brisbane.
There remains an eagerness to invest in Australia generally and Australian real estate despite numerous headwinds as noted below:
Geopolitical events
China Stock market route and softening economic growth
The financial impact of America potentially increasing interest rates for the first time since 2006
Sluggish Eurozone economic activity which seemingly remains dependent on Quantitative Easing
Australia’s geographic isolation has previously been regarded as a negative. However, in the face of uncertain and
tumultuous times, Australia’s long haul island destination status has become a positive attribute contributing to our perception as a safe haven investment market.
The combination of a low Australian dollar and relatively safe haven status is resulting in increased inbound tourism, a reduction in Australian outbound travel and therefore increased domestic tourism activity, which is stimulating Australian hotel trading performance. The decision to invest in Australia is therefore well supported by very real and positive fundamentals.
In summary, Australia is a wonderful place to live, holiday, do business and invest.
The Savills Hotels team wishes all of our supporters a happy festive season and New Year. We look forward to your continued support in 2016.
Introduction2
3
Vasso Zographou Director Hotels, NSW
RevPAR for the Australia wide market continues to hover around $137, showing growth of 3.4 percent compared to the previous year.
However, there is mixed performance when individual cities are considered.
Performing Markets
Primary reasons for improved performance:
Sydney & Melbourne Construction activity Economic activity Increased leisure from domestic and
international markets stimulated by a lower Australian dollar
Hobart/Gold Coast/Cairns Increased leisure demand from
domestic and international markets stimulated by a lower Australian dollar
Canberra Following the Liberal government’s
cost cutting exercise of government departments, the subsequent and expected resumption of government and associated business activity has occurred to restimulate the market
Tourism & KPI trends As we approach the end of 2015, Australia’s key accommodation markets are depicting a dichotomy of high and poor performing markets.
Table 1 – Overall Hotel Performance KPI’s YTD October 2015
Location Occupancy ADR YTD Growth RevPAR RevPAR growth
vs 2014*
Australia 75.5% $181.30 2.0% $136.83 3.4%
Sydney 85.3% $206.62 5.9% $176.21 8.4%
Perth 82.0% $196.60 -1.8% $161.51 -3.4%
Melbourne 82.4% $186.31 1.3% $153.48 3.3%
Brisbane 74.0% $174.01 -3.7% $128.82 -7.8%
Hobart 79.9% $159.36 3.2% $127.37 9.1%
Darwin 69.8% $178.87 -7.7% $124.91 -14.8%
Canberra 74.5% $164.73 1.4% $122.79 6.4%
Gold Coast 71.8% $170.37 4.4% $122.30 8.0%
Adelaide 76.5% $148.34 -0.4% $113.43 -3.6%
Cairns 79.0% $129.94 1.9% $102.68 9.3%
Source: STR Global * YTD growth for October 2015 versus YTD 2014.
Under Performing Markets
Primary reasons for a decline in performance:
Perth/Brisbane The curtailment to resource
investment activity following the end of Australia’s resource boom
New hotel supply in a softening market
Darwin Slowdown in referral business
and leisure activity fuelled by the conclusion of the resources boom
Reduced government and business activity following the implementation of the government's policy to process asylum seekers offshore
Conversely, the stationing of American naval vessels in Darwin, as part of the United States military strategic plan in the South Pacific region, will see an estimated 5,000 service personnel based in Darwin which will help stimulate the local market
International Arrivals & Spending at Record Levels for 12 months to June 2015
Australia received 7.1 million international visitors (up 7 percent) and 251 million international visitor nights (up 8.2 percent) for the year ended 30 June 2015. Leisure arrivals (Holiday + VFR) continued to drive international arrivals growth, with an increase of 4.2 percent over the 12 month period.
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Tourism & KPI trends (cont.)
On the basis that China continues its visitation growth rate trend (up 13.1 percent in 2015), China will exceed one million visitors in the next year and will continue its dominance as the highest contributor of room nights and visitor expenditure in Australia.
International visitors spend totalled AU$33.4 billion (up 10 percent) for the year ended 30 June 2015. China is the highest spending visitor market (circa AU$7,500 per visitor), followed by Hong Kong, Germany, UK and USA which fall within a range of circa AU$5,200 – AU$5,300 per visitor. New Zealanders, who represent the most visitors to Australia, are the lowest spenders (circa AU$1,970 per visitor).
Top 10 International Visitor Markets 2015/2016
Share of total visitors
Share of total visitor nights
Total visitors ‘000
Visitor nights annual growth
Source: Tourism Research Australia & Savills.
577
8.1%
5.4%
9.1%
14.7%
USA
3725.2%
2.4%
1.8%
11.4%
Singapore
3284.6%
3.1%
4.9%
11.1%
Malaysia
1,26717.8%
6.9%
3.6%
10.3%
New Zealand
2042.9%
3.3%
3%
9.8%
Hong Kong
92813.1%
15.4%
21.9%
18.5%
China
666
9.4%
10.9%
0.1%
2.1%
UK
188
2.6%
3.4%
4.8%
7.5%
Germany
220
3.1%
5.5%
19.3%
37.4%
India
539
7.6%
7.9%
0.3%
5.3%
Japan (60%) & Korea (40%)
Visitors annual growth YOY
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Graph 1 details projected visitor nights for both international and domestic visitor nights for the period 2016 through 2025, as forecasted by Tourism Research Australia. Total inbound visitors are forecast to grow at a Compound Annual Growth Average (CAAG) of 4.1 percent whilst total international visitor nights are forecast to grow at a CAAG of 4.9 percent for the next ten years. Similarly, domestic visitor nights are forecast to grow at a CAAG of 2.8 percent for the next ten years. Accordingly, the future for Australian tourism is on a growth trajectory, albeit the recent events in Paris highlight how extraneous events can change travel attitudes overnight. Nonetheless, Australia is seen as a relatively safe haven tourist destination which should support continued tourism activity.
0%1%2%3%4%5%6%7%8%9%
0 50
100 150 200 250 300 350 400 450
Visitor Nights‘000
(A)
(A)
YOY
InternationalVisitor Nights
Domestic Visitor Nights
DomesticChange %
InternationalChange %
Graph 1 – Australian Domestic and International Visitor Nights Forecast 2016-2025
Source: Tourism Research Australia & Savills.
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Adrian Archer Director Valuation & Advisory – Hotels, Australia
In the 12 months to September 2015, Savills recorded 69 hotel transactions over $5m, up 112 percent on the previous year, totalling $3.7bn of which nearly 50 percent were in NSW. Foreign investors are still the leading net buyer at nearly 60 percent of all transactions with domestic owners calling the market and being the net sellers.
Hotel transactionsHotel transaction volumes continue to trend upwards, and although 2016 is likely to experience high profile sales, we believe the pace of growth may not continue at the same rate.
NSW $1,800m 24 sales
QLD $976m
18 sales
VIC $336m 10 sales
WA $221m 8 sales
NT $141m 2 sales
SA $18m 1 sale
ACT $138m 4 sales
TAS $70m
2 sales
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Hotel transactions (cont.)
The passing yield continues to fall, now at 6.9% for the nine months to September 2015 compared to 7.5% for the same period in 2014.
The capital placement requirements for investment into Australian hotels has put pressure on funds to acquire assets and seek higher yielding opportunities outside major key cities.
As existing hotel assets are highly sought after, new hotel development opportunities are considered. For example, the Lend Lease Melbourne hotel, Goodman's Pullman Sydney Airport and the Grocon Ribbon (rumoured to be a W hotel) on Sydney’s Darling Harbour are available as forward commitments.
However, debt finance for hotel development is becoming harder with banks reducing LVRs resulting in increased equity requirements for developers. A forward sale is therefore particularly appealing in the current strong market.
Table 2 – Sample of recent hotel transactions
Hotel Date Price per Room Passing Yield
Quest Macquarie Park Oct 2015 $303,604 7.25%
Penisone Hotel, Melbourne Sept 2015 $288,070 5.0%
Rendezvous Central Sydney Aug 2015 $327,586 5.26%
Four Points by Sheraton Perth Aug 2015 $329,137 6.9%
Crowne Plaza Gold Coast June 2015 $260,223 4.1%
Seagulls Resort, Townsville June 2015 $89,855 7.6%
Adina Fortitude Valley, Brisbane May 2015 $314,465 5.6%
Source: Savills Research.
4%
5%
6%
7%
8%
9%
10%
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
Avg. $/room Median Yield
Australian HotelsAverage $ per Room and Median Yields
Jan 09 to Sept -15
Graph 2 – Australian HotelsAverage $ per Room and Median Yields Jan 2009 to Sept 2015
Source: Real Capital Analytics/Savills Research.
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Iris Liu Assistant Valuer Valuation & Advisory – Hotels, NSW
Melbourne’s hotel market has long been bolstered by major sporting events such as the Australian Open, the Australian Formula One Grand Prix, AFL Grand Final, Melbourne Spring Racing Carnival and Boxing Day Test Match. But, as Sydney continues to grow as a major international cruise destination, Sydney’s inner CBD hotels will clearly reap the benefits.
Sydney remains the main port for embarkation and disembarkation in Australia and continues to grow as a major international cruise destination. Furthermore, Sydney is the only port in Australia which has two dedicated cruise facilities, the Overseas Passenger Terminal and White Bay, which can accommodate three cruise ships simultaneously. More recently the Overseas Passenger Terminal underwent a major upgrade and can now accommodate the ‘megaliners’,
such as Cunard’s QE2. It has also recently been reported that Ovation of the Seas, a US$1 billion (AU$1.39 billion) 5,000 passenger cruise ship, will be arriving into Sydney waters in 2017.
As the majority of passengers on cruise ships either start or finish their cruise in Sydney the impact will be felt by the hotels nearest Circular Quay, including Park Hyatt Sydney, Four Seasons, Shangrila, Pullman Quay Grand, Sydney Harbour Marriott, Intercontinental, Holiday Inn Old Sydney and then rippling out towards Sydney’s remaining southern CBD hotels.
Cruise ship guests are taking the opportunity to explore Sydney and staying additional nights in Sydney’s hotels. Moreover, international guests are capitalising on the falling Australian dollar and staying at Sydney 5-star hotels which have become more affordable.
Cruise ships docking at a hotel near youAs Sydney welcomed the five-ship P&O Ship program in November, Savills examines the impact of the cruise ship industry on the Sydney hotel market.
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Cruise ships (cont.)
Sydney is a ‘bucket list’ destination and will receive maiden voyages throughout 2015/2016 from cruise ships including: Costa Luminosa, Golden Princess, Pacific Aria, Pacific Eden, Explorer of the Seas, Superstar Virgo, Azamara Quest and Pacific Venus. In 2013-2014 there was a reported 256 cruise ship visits, with passenger days exceeding one million, up from 240 visits and 0.97 million passenger days in 2012-2013 (source: Destination NSW). Additionally, Destination NSW reported that in 2013-14 around 84% of international passengers stayed up to three nights in Sydney, which is a typical embarkation/disembarkation travel pattern displayed in other global port cities.
According to the Port Authority of New South Wales, more than 346 cruise ships are expected to enter Sydney’s ports between 25 November 2015 and 24 November 2016, with passenger days expected to surpass 1.35 million, contributing to demand for Sydney hotel rooms, adding further pressure on existing high occupancy levels which are currently sitting at 85% YTD October 2015.
Graph 4 plots the monthly number of cruise ship arrivals/departures in Sydney harbour and the performance of the Sydney market for Luxury and Upper upscale hotels for the FY 2014/15 during which 293 cruise ships visited Sydney.
0
10
20
30
40
50
60
70
Dec
-15
Jan-
16
Feb-
16
Dec
-16
Mar
-16
Apr
-16
May
-16
Jun-
16
Jul-1
6
Aug
-16
Sep
-16
Oct
-16
Nov
-16
Jan-
17
Feb-
17
Dec
-17
Mar
-17
Apr
-17
May
-17
Jun-
17
Jul-1
7
Aug
-17
Sep
-17
Oct
-17
Nov
-17
Total
Cruise Ship Schedule
Dec 2015 - Nov 2017
1. Summer 1. Summer 2. Autumn 4. Spring 1. Summer 2. Autumn 3. Winter 4. Spring
2015 2016 2017
3. Winter
Graph 3 – Cruise Ship ScheduleDec 2015 to Nov 2017
Source: Port Authority of New South Wales & Savills.
12 10 20 29 35 36 35 37 30 23 14 11
80%
82%
84%
86%
88%
90%
92%
94%
$0
$50
$100
$150
$200
$250
$300
$350
Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15
ADR RevPAR Occupancy No. of Ships
Hotel Performance (Luxury and Upper Upscale) and Cruise Ships
Graph 4 – Hotel Performance (Luxury and Upper Upscale) and Cruise ShipsJul 2011 to Jun 2015
Source: STR Global/Savills Hotels.
Sydney Luxury and Upper upscale occupancies have remained strong, in the range of 82% through 93%, throughout this period with ADR above $200 in all months, culminating in an annual RevPAR of $236.5 (up 4% YOY).
Whilst there is no doubt cruise ship related hotel occupancy has an accretive impact, occupancy patterns continue to reflect the ebb and flow of the corporate market, market seasonality and holiday periods.
As Sydney’s occupancy rates creep above 85% and hotel Operators continue to yield room rates, the knock on effect will be increased RevPAR and higher profitability. The resultant improvement in Sydney’s trading fundamentals will continue to entice investment in this sector.
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Savills hotels agency and advisory track recordSavills Hotels is a truly global platform; we work collaboratively on a daily basis with our teams around the globe to bring owners to the market and buyers to the right opportunity.Through our international team and more specifically our Sydney, Melbourne, Brisbane, Singapore, Hong Kong, Shenzhen, Guangzhou, Shanghai, Beijing, Tokyo, Seoul, London and New York offices, we have the ability to leverage off our global presence and immediately draw attention to an opportunity with both national and international buyers.
Sofitel, Sydney Darling Harbour
Client Lend Lease
Rooms 600 approx.
Price Above AU$340m
Agent Michael Simpson
Date 2014
333 Kent Street, Sydney
Client Mayville Bay Pty Ltd
Rooms N/A
Role Market Demand & Feasibility Advisory
Agent Michael Simpson
Date 2015
Seagulls Resort, Townsville
Client Tarnow Pty Ltd
Rooms 69
Price AU$6.2m
Agent Nic Simarro & Michael Simpson
Date 2015
16
Hotels track record (cont.)
Valued AU$6.5 billion and nearly 20,000 hotel rooms.
W, Brisbane
Client Shayher Leisure Holdings Pty Ltd
Rooms 305
Role Operator Selection & Hotel Advisory
Agent Michael Simpson
Date 2014
Rendezvous Clocktower, Sydney
Valuation of 4.5 star serviced apartment complex in The Rocks for acquisition and loan security purposes.
Date 2015
NEXT Hotel, Brisbane
Valuation of 304 room 4.5 star hotel and Forever 21 retail unit for acquisition purposes.
Date 2014
Sofitel Wentworth, Sydney
Valuation of 436 room 5 star hotel for transfer into a hospitality REIT.
Date 2014 & 2015
Ascendas Hotel Portfolio, Australia
Valuation of Portfolio of seven managed hotels with 2,024 rooms in Sydney, Melbourne, Brisbane & Cairns for Asset Reporting & first mortgage security purposes.
Date 2014 & 2015
Marriott Hotel Portfolio, Australia
Portfolio valuation of 5 star hotels with over 1,000 rooms across Sydney, Melbourne and Brisbane for asset reporting purposes.
Date 2014 & 2015
17
Kingsway Hall Hotel, London
Client Cola HoldingsRooms 170
Price Undisclosed – guide £95m (approx. AU$198m)
Agent Rob Stapleton
Date 2015
Four Seasons Hotel Prague, Prague
Client Avestus Capital Partners
Rooms 161
Price Undisclosed – guide €80m (approx. AU$117m)
Agent Rob Stapleton
Date 2014
Hilton Newcastle, GatesheadClient Aviva Investors
Rooms 254
Price Undisclosed – guide £36m (approx. AU$75m)
Agent Rob Stapleton
Date 2015
Radisson Blu Oslo Airport Hotel
Client Avinor – Norwegian
Ministry of Transport and Communications
Rooms 500
Price €172m (approx. AU$252m)
Agent Rob Stapleton
Date 2015
Radisson Blu, Amsterdam
Client Hibernia Worldwide Hotels Investment Fund
Rooms 252
Price Undisclosed
Agent Rob Stapleton
Date 2015
Quest Serviced Apartments Portfolio, Australia
Valuation of a portfolio of branded serviced apartment complexes for acquisition purposes.
Date 2015
Four ANA Crowne Plaza Hotels, Japan
The largest hotel portfolio transaction in Asia for 2015, price not disclosed.
Client Morgan Stanley
Rooms 1,229
Price Undisclosed
Agent Raymond Clement and Christian Mancini
Date 2015
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Savills key contacts
Adrian ArcherDirector Valuation & Advisory – Hotels, Australia +61 (0) 7 3002 [email protected]
Raymond ClementManaging Director Hotels, Asia Pacific +65 6415 7570 [email protected]
Iris Liu Assistant Valuer Valuation & Advisory – Hotels, NSW +61 (0) 2 8913 4810 [email protected]
Sara McDonough Team Administrator Hotels, NSW +61 (0) 2 8215 8825 [email protected]
Michael SimpsonManaging Director Hotels,Australia & New Zealand+61 (0) 2 8215 [email protected]
Australia International
George NicholasGlobal Head of Hotels+44 (0) 20 7409 [email protected]
Vasso Zographou Director Hotels, NSW +61 (0) 2 8215 [email protected]
Nic Simarro Senior Sales Executive Hotels, NSW +61 (0) 2 8215 [email protected]
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