THE PROPERTY DEVELOPMENT REVIEW
Deal flow and ultimately overall transaction volumes have been impacted given there has been a slowdown in the supply of realistic saleable assets over the year-to-date. We note further, that much of YTD volume could be classified as ‘last year deals’. A bid-ask spread has been frequent, particularly at an institutional level, where buyers are finding it difficult to hit internal target returns, owing to the current cost of debt vs income of the asset, whereas many owners have had the luxury of holding firm on pricing. Deals are also taking increasingly longer than historical norms, with buyers requiring more DD and stringent approval processes. Mid-market opportunities (below $40m) remain highly active and continue to attract solid interest, given the lower cost of capital amongst investors (HNWI, owner-operators, etc). The majority of mid-marker deals getting done are at yields which show a positive spread. Also, we’re witnessing just how crucial strong underlying real estate fundamentals and in-place cashflows are when it comes to desirability amongst investors and resultant pricing. Assets with strong historical and current trading, those that are land rich, or have some form of genuine value-add or repositioning potential (brand or use), have proven to be key in the majority of completed sale campaigns over the past 12 months. Additionally, pricing versus replacement cost is also key. In addition to this, investors are leveraging the potential for vacant possession (VP) by taking advantage of the competitive landscape in which operators now find themselves in, following the recent new construction wave. 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 in the trading performance of assets. The hotel trading recovery continues to progress across the board, with all key markets having reached a full RevPAR recovery over 2023. Occupancy in most markets remains slightly down on pre-pandemic levels, but continues to improve year-on- year, owing to considerable room night supply increases over the past four years. However ADR’s continue to sit at significant premiums. Moving forward, the growth in topline revenues are more likely to be occupancy and inflationary led. Demand has largely been domestic leisure led, however the return of major events and the steady recovery in corporate/MICE demand and international air capacity has resulted in strong recent demand growth. Whilst this overall trading growth has been exceptionally strong, it must be noted that we haven’t seen a complete wash through to the bottom line, with operating costs and also taxes in some states also increasing over this period.
October / November 2024 – 53
Powered by FlippingBook