Asian buyers snap up Australian hotels as mining boom fills rooms
Sales of Australian hotels to offshore buyers set a record in the first half as Asian companies including Shangri-La Asia Ltd. (69), Starhill Real Estate Investment Trust (STRH) and Langham Hospitality Group were lured by rising occupancy and room rates.
Companies outside of Australia accounted for AU$990 million ($1 billion) of the purchases, or 90 percent, through June 30, according to Jones Lang LaSalle Inc.
That’s the highest first- half volume and percentage of the total since the Chicago-based broker began compiling comparable data in 2002. Hong Kong and Malaysian companies were the most active buyers.
The biggest resources boom in a century is boosting mining- related business travel to the biggest cities, where companies such as BHP Billiton Ltd. (BHP) are based, while the Chinese are leading a pickup in tourism.
Investors are preferring to buy rather than build as construction costs rise, said Craig Collins, chief executive officer for Australasia at Jones Lang LaSalle’s hotel unit. That’s limiting the supply of new rooms.
“There are generally very few opportunities to gain a foothold in capital-city markets, so when they come up, the buyers pounce,” Collins said in an interview in Sydney. “When the cost to build is higher than the cost to buy, it’s a good barometer for the buyers.”
Sellers include companies seeking to divest noncore assets, such as Mirvac Group (MGR), which in December agreed to offload its hotel business, and real estate funds exiting properties as their investment terms end, including Colonial First State Global Asset Management.
Shangri-La on June 22 said it bought the five-star Shangri- La Hotel in Sydney for AU$330 million, following the same week with the acquisition of the Holiday Inn in Brisbane for AU$48 million. The purchase of the 563-room Sydney property overlooking the city’s Opera House and Harbour Bridge gave the Hong Kong-based group ownership of the hotel it already managed for the Government of Singapore Investment Corp.
The 191-room central Brisbane hotel, which Shangri-La will begin operating this month, allows it to introduce the four-star Traders Hotel brand in Australia, it said on June 27.
Shangri-La, which already holds a majority stake in the Marina Hotel in Cairns in northern Queensland, will expand in Australia following the Sydney and Brisbane purchases, spokeswoman Vivienne Gan said in an e-mailed response to questions. The nation is the company’s third-largest market following China and the U.S., she said.
“We’re very optimistic about the hotel industry in Australia,” said Gan. “The economy is strong, and there is an upward trend in domestic and international travel.”
The number of overseas visitors to Australia rose a seasonally-adjusted 8.1 percent in June to 515,100 from a year ago, statistics bureau data show. Visitors from China and Japan were among groups leading the increase in the six months to June 30, according to Tourism Australia.
The proportion of visitors from China may rise to 13.3 percent of tourist arrivals by 2014 from 6.4 percent in 2011, according to a report in May by Deloitte Access Economics.
Australia, which avoided the 2009 global contraction after the government boosted spending and the central bank lowered interest rates, is in its third decade without a recession.
Reserve Bank of Australia Governor Glenn Stevens lowered the benchmark interest rate by a combined 75 basis points in May and June to help insulate the economy from the European debt crisis, before pausing in July citing stronger domestic growth.
The nation expanded at the fastest annual pace in the developed world in the first quarter and has some AU$500 billion of resource investment projects in the pipeline, according to government estimates.
Sydney had the highest hotel occupancy rate among major Australian cities this year through June 30, at 84.5 percent, according to Jones Lang LaSalle. Melbourne and Perth had occupancy rates of 80.4 percent, with Brisbane at 78.5 percent.
The rates compared with 80 percent in New York, 78.9 percent in London and 73.3 percent in Tokyo, according to Jones Lang LaSalle. The average daily room rate in Sydney was $213, compared with $231 in New York, $210 in London and $261 in Tokyo, according to conversions of Jones Lang LaSalle figures to U.S. dollars as of June 30 exchange rates.
Procuring materials, equipment and workers is becoming more difficult for builders as the resources industry pushes costs higher, the Australian Industry Group, which represents businesses, said in its Construction Outlook report in May.
Source: Bloomberg Business Week, to read more click here