THE PROPERTY DEVELOPMENT REVIEW
From there, let’s talk about sentiment—presumably the level of interest rate stability that we’ve seen in 2024 has had a net positive impact on demand. How have you & the team witnessed this affect the trading performance of assets? Looking ahead, with interest rates expected to reduce through 2025, greater levels of investment activity are expected, from both domestic and overseas investors. Current rate levels, give or take a few bps, are settling in as the new status quo, and as a result, sellers who have been waiting for a better rate environment are concluding that now is as good a time as any to sell, and the same is increasingly true for buyers. Where a particular asset meets all the investment criteria, we have seen certain buyers willing to pay full prices for these assets; however, the reset of hotel buyer and seller interest rate expectations is starting to take hold. 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 gradual resetting of the Australian hotel market is opening the door for buyers who believe that the hotel market is at a cyclical low. International groups, privates, and investment funds are the most active. More investors are considering the hospitality sector based on current market conditions, the sector’s performance versus other commercial real estate, and a perceived environment of relative stability. This will lead to increased competition for assets, but a highly fragmented ownership is likely to leave many global players seeking scale left wanting. More broadly, global players are switching strategy to the living sectors, which can include hotels, and where performance is being underpinned by strong population growth or growth in visitation (e.g., PBSA or hotels). 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. Over the past twenty years or so, offshore investors have accounted for around two-thirds of asset trades on average, with strong capital inflows from Asia predominantly Singapore and China, but also Hong Kong, Korea, Japan, Malaysia, and Thailand. Investors are attracted to the high levels of real estate transparency in Australia and the growth opportunities that the country presents, and it is one of the most highly regarded investment destinations in the Asia Pacific region, along with Japan and Singapore, both of which are becoming increasingly competitive. Having remained at a historically low level over the past 18 months, investment volumes from Asia are likely to switch up a gear, with the potential for improving economic transparency and a broadening base of demand. Foreign tax surcharges, which have been introduced or are being increased in some states, have the potential to direct capital flows.
October / November 2024 – 135
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