THE PROPERTY DEVELOPMENT REVIEW
both occupancy rates and average daily rates (ADR), signalling robust trading performance across assets. Capital city markets have performed best, with some softening in domestic leisure- based markets. As we anticipate potential interest rate reductions later in 2024 and into 2025, there is a growing sense of optimism in capital markets. This expected shift is likely to enhance investor confidence, encouraging deployment of capital that has remained on the sidelines, which could further stimulate demand for quality hospitality assets. Whether it’s global institutions, private domestic groups or other capital players, I’d be interested to get a sense as to what makes the hotel & hospitality sector an attractive investment class. The hotel sector has demonstrated remarkable resilience, especially in the Asia Pacific region, where evolving work patterns and strong travel demand enhance its appeal. Unlike retail and office spaces, which have faced challenges in recovering post-pandemic, hotels demonstrate versatility and adaptability. They are also seen as a hedge against inflation, making them more appealing to investors. Recent softening of initial weighted yields in this sector suggests improved property income, further enhancing its attractiveness in a high-interest rate environment. With investors seeking stronger returns, the hospitality sector’s ability to generate consistent revenue positions it as a compelling choice. And then with respect to the international capital piece, I understand that historically, Singapore, Japan, Hong Kong, and the US have been the most active buyer groups investing into the hotel & hospitality sectors in Australia - walk us through if you could how you’re observing interest from global players. In 2023, Queensland saw significant transactions involving international investors, exemplified by the sale of the Sofitel Brisbane Central sold by Canada’s Brookfield Asset Management to Singapore’s City Developments Limited, and The Inchcolm, sold by Hong Kong’s Ovolo to Singapore’s Invictus Developments. 2024 has seen a continued level of interest from international investors, particularly those based in Singapore. In saying this, most of CBRE’s transactions to date have been executed by domestic investors. Utilising your expertise, what are the key considerations new market entrants need to make prior to deploying capital into leisure assets. New market entrants into leisure assets must first consider their investment structure, are they seeking a passive freehold investment, freehold going concern or leasehold? If owner operated, will the hotel be self-managed or will it be run under a hotel management agreement or a franchise agreement? It is also essential to understand the complexities of the hotel and hospitality sector, including key metrics such as occupancy rates, average daily rates (ADRs), revenue per available room (RevPAR), and the various demand drivers that influence these metrics. Entrants must align their investment strategy with their specific business objectives and personal circumstances. This includes determining the target customer demographic— whether aiming to attract corporate clients, visiting friends and relatives, holidaymakers or a combination —as this will influence decisions on location, style of accommodation, and overall
offering. Evaluating the strength of the local economy is also critical, as it impacts demand stability and growth potential. Ultimately, many of our most successful clients have a deep passion for the hospitality industry, which drives their commitment to understanding the market and tailoring their strategies accordingly. This combination of knowledge and enthusiasm is vital for achieving success in the leisure asset space. Throughout the pandemic, one of the key trends was the enormous investment into regional leisure assets - is this still the case or has the balance returned to capital city / metropolitan assets. For the most part, capital city markets are currently outperforming regional leisure assets due to a recovery in international arrivals and a decline in demand for domestic leisure travel. That said, Queensland boasts some of Australia’s premier destinations, including the Great Barrier Reef, Whitsundays, Gold Coast, Sunshine Coast, and the Daintree region. These locations are poised to benefit significantly from the ongoing recovery in international arrivals. In Brisbane, the next decade will see substantial demand drivers, such as the opening of the Queens Wharf precinct, the 2027 Rugby World Cup, and the 2032 Olympic and Paralympic Games. Looking ahead to the immediate future, broadly speaking, what are some of the assets you & the team are anticipating bringing to market this year (general location, asset subtype, value etc). The CBRE Hotels team will be focusing on Southeast Queensland (SEQ) and major regional hub accommodation assets. Specifically, we anticipate bringing hotels and motels in Brisbane, the Gold Coast, and Sunshine Coast to market. These properties are tightly held and highly coveted, and it is our recommendation that vendors capitalise on the current investment climate by divesting while accommodation assets are in spotlight, particularly for alternate uses, as market cycles are not permanent. In closing, over the longer term, what makes Australia’s leisure markets so resilient & where are the opportunities for investors over the years ahead. Queensland is projected to lead economic growth in 2024-2025, bolstered by population increases and improved household consumption as cost-of-living pressures ease. Most notably for the hospitality sector will be the ongoing infrastructure developments in preparation for the 2032 Olympic Games, with over AUD 20.3 billion allocated for the 2023-2024 period, are expected to enhance transport connectivity and urban vibrancy, directly benefiting the hotel and leisure sectors. Over the next 12 months, CBRE expects that pent-up outbound travel will moderate while the recovery in inbound travel will boost demand, particularly in major capital cities and key regional destinations. This trend is likely to result in further occupancy gains by 2025. Most markets are projected to see growth in average daily rates (ADRs), with Brisbane leading the way. However, the pace of this growth may slow as achieving higher rate profiles becomes increasingly challenging, especially amid easing inflation. These dynamics present ongoing opportunities for investors looking to enter or expand within Australia’s vibrant leisure markets.
October / November 2024 – 103
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