As the falling Australian currency offers cheaper stays for tourists hitting its shores, it’s also creating bargains for the foreign investors snapping up hotel properties at a record pace.
Australian hotel real estate could attract A$4 billion ($2.9 billion) of overseas investment this year, after an unprecedented A$3 billion in 2015, according to Jones Lang LaSalle Inc. Hotels that could change hands include the Four Points by Sheraton with views of Sydney’s Darling Harbour, as well as a Hilton hotel overlooking the Yarra River next to Melbourne’s convention center, according to people with knowledge of the matter.
The roughly 19 percent decline in the Australian dollar in the past two years allows foreign buyers to shrug off local concerns about looming overcapacity as hotel construction adds thousands of rooms in the coming three years.
“The currency weakness, supported by favorable financing markets, is creating a perfect match for willing buyers and willing sellers,” Martin Siah, head of Asia real estate, gaming and leisure at Bank of America Corp., said in an interview in Hong Kong. “There could be significant changes of ownership in Australian hotels this year.”
The weakening Australian currency last year triggered foreign interest in assets across industries. Foreign takeovers of Australian companies rose 75 percent in 2015 to $38 billion, data compiled by Bloomberg show.
Singapore investment firm Bright Ruby Resources Pte agreed in May to buy the 579-room Hilton Sydney hotel, located in the heart of the central business district, for A$442 million. A group including Hong Kong’s Sino Land Co. spent A$445 million last year to buy the Westin Sydney hotel, whose facade was originally part of the General Post Office built in the 19th century.
The number of foreign visitors to Australia rose 8.2 percent last year to 7.4 million, driven by a jump in Chinese travelers, according to Tourism Australia. Hotel occupancy at luxury hotels in Sydney and Melbourne averaged 89 percent last year, beating Hong Kong and Tokyo to become the best-performing cities in the Asia-Pacific region, a February report from JLL shows.
More properties are coming on the market. M&L Hospitality Trusts is seeking a buyer for a portfolio of six hotels in Australia and New Zealand, which could be valued at as much as $1.5 billion, people with knowledge of the matter said.
The hotels being sold include the Four Points by Sheraton Sydney, Darling Harbour and the DoubleTree by Hilton Melbourne, as well as a Swissotel property in Sydney and a Hilton hotel in Auckland, two of the people said, asking not to be identified as the information is private. U.S.-based Host Hotels & Resorts Inc. is also selling the Hilton Melbourne South Wharf, which could fetch about $250 million, according to people with knowledge of the matter.
An external spokeswoman for M&L Hospitality, controlled by Singapore’s Kum family, couldn’t immediately comment when contacted by e-mail. Gee Lingberg, a spokeswoman for Host Hotels, didn’t immediately return calls seeking comment.
“It’s a good time for owners to consider selling given relatively high transacted prices and as they may see further downside of the Australian dollar,” Bank of America’s Siah said. “Buyers, on the other hand, may see current Australian dollar as a low point for entry.”
There is little room for further improvement in Australian hotels’ operations, given the high occupancy rates, and their business performance is nearing a cyclical peak, according to JLL’s Frank Sorgiovanni. More than 2,500 new hotel rooms are due to be completed in the Sydney city center over the next three years, which will further depress prices, Sorgiovanni, who is senior vice president and head of Asia-Pacific research at JLL’s hotel and hospitality group, said by phone.
For now, Australian hotels have become more profitable as strong demand boosts room rates, said Wayne Bunz, a senior director at property broker CBRE Group Inc. Sydney hotels’ average daily rate rose 6.6 percent last year to A$243, according to JLL data.
“New owners are still being drawn to Australian hotel assets,” Bunz said by phone. “The hotel market in Australia has proved to be the most resilient of all asset classes.”
–With assistance from Pooja Thakur and Hui-yong Yu.
This article was written by Vinicy Chan and Brett Foley from Bloomberg and was legally licensed through the NewsCred publisher network.