CBRE HOTELS
SUPPLIER
REAL ESTATE VERDICT FOR 2019 LEADING REALTORS HAND DOWN THEIR VERDICT FOR WHAT TO EXPECT FOR PROPERTY VALUES IN 2019 AND THE REGIONS LEADING THE CHARGE
T
he banking sector is under increased pressure through the royal commission. The knock on effect has been tightening on lending parameters, which has a direct effect on the market’s ability to easily source debt. The result of this in the market is that compared to 2016 and 2017 transactions can be more challenging for interested parties who do not have substantial balance sheets. We saw in 2016/17 lending was less complex than it is now.
THREE KEY TRENDS Transaction volumes have decreased from the peak of 2016/17. This is due to the overall timing, availability of stock and the stricter lending parameters set by lending institutions. There is a continued strong demand for pubs nationally, however the lack of available stock is limiting transactions. Market consolidated from major players including; Laundy Hotels, Merivale and Solotel have continued as bigger groups seek economies of scale and ‘bolt -on operations’.
Paul Fraser Directors CBRE
IN-DEMAND PROPERTIES We are still seeing top tier, A-grade performing gaming hotels as the most in demand property on the eastern seaboard. Solid performing hotels lying outside key metropolitan areas with sound fundamentals are also still attracting strong interest from discerning buyers priced out of economic centres such as Sydney, NSW. Coastal and key regional centres will continue to attract interest from hoteliers and commercial property investors in 2019. An additional example are those hotels located in Queensland specifically, we are still seeing the South-East QLD corridor as the most in demand sector.
STATE-BY-STATE NSW and VIC will continue to dominate transactional headlines in 2019 with the tightest yields nationally. QLD will remain a stable market with intrinsic value garnished from gaming authorities. In QLD we tend to see the hospitality sector mirror the residential housing market. There is a very little real movement in
“We are still seeing the South-East QLD corridor as the most in demand sector”
Limes Hotel Rooftop Bar, Fortitude Valley
24 | FEBRUARY 2019 AUSTRALIAN HOTELIER
Ben McDonald Directors CBRE
cap rates for freehold going concerns – we see capital values increase in line with EBITDA growth. Queensland does not generally see massive compression or expansions in yields like we see in markets such as NSW. Western Australia pub values have suffered over the last few years, which has been directly linked to the resource sector. With pubs unable to have gaming income, operators must rely on food and beverage to drive profit. As such (and linked with its relative isolation geographically) demand for these pubs from larger scale national operators continues to be subdued and demand is generally pushed through local operators already familiar with the hospitality landscape. We do however believe that WA is on the rise as the resource sector bounces back and we see this state as having some real value and a counter cyclical opportunity for astute buyers.
NOVEL DEAL STRUCTURES A number of purchasers are structuring acquisitions differently to traditional purchasing methods. With strains on the availability of capital, as a firm, CBRE has been at the forefront of structuring deals that entail a more structured approach over a period of time, so there are fewer equity requirements upfront. This is, for example, taking place in the form of a structured lease with a put and call on the freehold. This allows an operator to deploy capital to reposition the business, in turn driving up their equity position and their ability to leverage and activate the put and call option on the freehold within a predetermined time frame. Pending the Australian Venue Co and Coles joint venture currently sitting before OLGR, we may see this open the door to similar nontraditional transactions where joint ventures are created for mutual benefit of sitting partners.