Savills Hotels

market report
March 2017

savills.com.au
Contents
02 Introduction

04 Performance snapshot

07 Australian cities overview

12 Sales trends

22 Savills key contacts

02   Introduction

04   Performance snapshot

07   Australian cities overview

12  Sales trends

22   Savills key contacts

Introduction 2
3

Hotels – the highest returning real estate

asset class

The eastern seaboard As a result, the hotel property class is

currently outperforming other property
In a very positive sign for the depth
of the market, the stellar international
markets of Sydney classes in the Australian market. inbound growth has been experienced
across a wide range of markets, with
With International and Domestic
and Melbourne are the visitors growing 11.5% and 5%
inbound visitor growth from most
established Asian markets, as well as
standout performers respectively in CY 2016, the hotel
industry has not seen growth at this
the US, above 15%.

in 2016 with the level since the Sydney 2000 Olympics.
Chinese visitor growth of 22% is the
continued achievement dominant contributor to this stellar
performance, which is being driven
of strong market KPI’s by a growing Chinese middle class
having access to increased air
against a backdrop of capacity between China and Australia,
compressing yields. as well as the relatively low Australian
dollar making the country a more
affordable destination.
Tourism Research Australia’s 10 year
forecast provides a positive outlook
for continued growth with International
visitor nights and Domestic visitor
nights expected to grow at 5.6% and
3.1% annually respectively. Australia
can expect to see increased room
night demand nationally for the
foreseeable future.
 4

Forecast world GDP growth of 3.5% Graph 1 – Hotels outperforming other property classes in Australia
underpinned by China’s “steady as
she goes” 6.5% GDP forecast and
USA’s expected GDP improvement of
2% - 3% under Trump's “Make America 20%
Hotel
Great Again” mantra, augurs well for Improving Healthcare
Australia’s economic outlook. In this 18%
regard the high level of corporate
movement between Sydney and 16%
12-month return

Melbourne and the unprecedented

infrastructure projects underway in 14%
those states is also driving healthy Office

GSP growth. 12%

All Property
Forecasts from Deloitte Access Industrial

Economics point towards potential 10%

Retail Slipping
interest rate rises in USA, strengthening
the US Dollar against the Australian 8%
dollar to a forecast range of between 8% 10% 12% 14% 16% 18% 20%
US65c and US70c. Should this occur, Five-year annualised return
Australia will become more affordable, Source: MSCI

promoting further tourism growth and

increased foreign direct investment.
Hotel capital markets have once again
been dominated by eastern seaboard
transactions, not surprisingly given
Sydney and Melbourne are among the
strongest performing hotel markets
with the largest populations in Australia.
The scarcity of hotel product for
sale, particularly in the CBD markets,
matched against a wall of foreign and
local capital searching for opportunities,
continues to drive yields firmer within
a highly competitive transaction
environment. Should inflation and
interest rates remain low, capitalisation
rates will continue on their downward
trend for at least the next 12 months.
Conversely the mining dependent cities We hope you enjoy the latest addition
of Perth, Brisbane and Darwin have not of our hotel research and find it
fared so well following the cessation of insightful. Please feel free to contact
the resources boom which drove capital any member of our expanding team
investment, with market KPI’s also being whose details can be found at the
negatively impacted by new supply. back of this research.
CY 2016 ended with one group of
key markets performing strongly
against a backdrop of positive
economic indicators and strong trading
fundamentals, as compared to the
Michael Simpson
mining dependent cities which have
Managing Director
seen falling market KPI’s.
Savills Hotels
The following market report provides
further detailed analysis on both trading
and capital market performance.
Performance
snapshot
 6

Australia & City Hotel Market

Operating Performance

The Australia wide market achieved
a RevPAR for CY 2016 of $139, which
represented YOY growth of 2.2%.
All Australian cities posted RevPAR
growth except Perth, Brisbane and
Darwin with RevPAR declining 9.3%,
8.7% and 9.6% respectively1. The
decline in performance of these markets
is primarily a result of the curtailment of
resource investment activity following
the end of Australia’s resource boom,
and increases in room supply. For the
remaining performing markets, growth
in market KPI’s can be attributed to
an increase in leisure demand from
domestic and international markets,
stimulated by a lower Australian
dollar and stronger economic activity
underpinned by construction and
infrastructure projects.

Graph 1 – Australia and City Market KPI's

Year Ending December 2016

250.00 90.0%
ADR CY 2016
RevPAR CY 2016 85.0%
Occupancy CY 2016
200.00 80.0%

75.0%

150.00 70.0%

65.0%

100.00 60.0%

55.0%

50.00 50.0%
Sydney Melbourne Perth Australia Hobart Gold Coast Canberra Cairns Adelaide Brisbane Darwin
and ACT
Source: STR

Canberra/
Sydney Melbourne Perth Australia Hobart Gold Coast Cairns Adelaide Brisbane Darwin
ACT
Occ Occ Occ Occ Occ Occ Occ Occ Occ Occ Occ
85.1% -0.1% 83.4% 1.1% 79.0% -2.8% 75.7% 0.9% 82.6% 2.5% 72.9% 1.0% 74.5% 1.6% 83.4% 3.8% 77.1% 2.4% 71.9% -2.0% 67.2% -0.4%
ADR ADR ADR ADR ADR ADR ADR ADR ADR ADR ADR
220.50 4.5% 184.94 -0.4% 183.34 -6.7% 184.65 1.3% 168.29 2.3% 185.64 6.0% 166.17 2.0% 139.95 7.8% 149.80 0.5% 160.15 -6.8% 154.82 -9.3%
RevPAR RevPAR RevPAR RevPAR RevPAR RevPAR RevPAR RevPAR RevPAR RevPAR RevPAR
187.55 4.4% 154.20 0.8% 144.90 -9.3% 139.84 2.2% 139.06 4.8% 135.29 7.0% 123.79 3.7% 116.65 11.8% 115.56 2.9% 115.07 -8.7% 104.10 -9.6%

1 Source: STR
 International
7
Visitors
Australia received over 7.4 million
international visitors (up 11.5%)
and 251 million international visitor
nights (up 3.8%) for the year ended
30 September 2016 (refer to top 10
international visitor markets chart).
Tourism Research Australia has recently
released International visitor numbers
for CY 2016 which totalled 8.3 million
representing a healthy YOY growth
of 11%. The New Zealand market
continues to contribute the highest
number of visitors to Australia however,
the China visitor market recorded YOY
growth of 21.9% enabling it to exceed
1 million visitors, who more importantly,
spend an average of 40 nights in
Australia when touring down under. As a
result, China produced 43 million room
nights representing almost three times
the volume produced by New Zealand1.
Tourism Australia have attributed
growth in Chinese tourists to the
following factors:
„„ Streamlining visa application
processes
„„ Aggressively targeting China’s
rapidly emerging middle class
„„ Increase in air capacity from
secondary cities in China. For the
year ending September 2016, direct
capacity to Australia from China
increased by 37%, with eight airlines
operating 25 direct routes to Australia
China visitation growth is expected to
continue, following the China-Australia
open skies air services agreement
signed in December 2016, which
will add new routes together with
the removal of capacity restrictions
thereby increasing further the reciprocal
visitation between both countries.
Save for UK, European countries were
absent from the top 10 international
visitor markets, with most notably limited
growth in arrivals from France and Italy.

Graph 2 – Top 10 International Visitor Markets

Year Ending September 2016

New Zealand China UK USA Singapore

TV '000 1 215 TV '000 1 093 TV '000 667 TV '000 648 TV '000 383
STV 16.3% STV 14.7% STV 9.0% STV 8.7% STV 5.1%
VAG 3.3% VAG 21.9% VAG 5.1% VAG 17.6% VAG 14.7%
TVN '000 15 313 TVN '000 43 241 TVN '000 24 026 TVN '000 14 572 TVN '000 6 205
STVN 6.1% STVN 17.2% STVN 9.6% STVN 5.8% STVN 2.5%
VNAG -4.4% VNAG 10.2% VNAG -7.6% VNAG 14.3% VNAG 7.1%

Japan Malaysia Korea India Hong Kong

TV '000 365 TV '000 338 TV '000 255 TV '000 235 TV '000 220
STV 4.9% STV 4.5% STV 3.4% STV 3.2% STV 3.0%
VAG 21.9% VAG 13.2% VAG 29.3% VAG 10.1% VAG 13.7%
TVN '000 9 158 TVN '000 7 774 TVN '000 13 777 TVN '000 14 323 TVN '000 7 490
STVN 3.6% STVN 3.1% STVN 5.5% STVN 5.7% STVN 3.0%
VNAG 4.7% VNAG 2.8% VNAG 33.6% VNAG 7.2% VNAG -2.0%

Total Visitors ('TV '000') Share of Total Visitors ('STV') Visitors Annual Growth YOY ('VAG')
Total Visitor Nights ('TVN '000) Share of Total Visitor Nights ('STVN') Visitor Nights Annual Growth YOY ('VNAG')

1 Source: Tourism Research Australia


International Visitors –
Who Goes Where?
Of the 7.4 million international visitors to
Australia to 30 September 2016, over
50% of those visited New South Wales,
with Victoria and Queensland following
at 35% and 34% respectively. Apart
from Western Australia (12%) all other
Australian states have a single digit
share of visitors.
International visitors to Tasmania
increased by 14.8%, albeit Tasmania
represents the second least visited state
(3%), marginally ahead of the ACT.
International visitors stay the longest
in Western Australia with an average
of 31 visitor nights, which compares
to the Australian average of circa 23
visitor nights.
Domestic
8
Visitors
Of the 89.4 million domestic visitors to
Australian states, over 32% of those
visited New South Wales, with Victoria
and Queensland following at 24% and
22% respectively.2
YOY growth was largest in the
Northern Territory at 27.4% which also
boasts the highest average length of
stay of circa 5.8 visitor nights which
compares to the Australian average
of circa 3.5 visitor nights.2

Graph 3 – International & Domestic Visitors – Who Goes Where?

Year Ending September 2016

NSW VIC QLD WA

Int'l Domestic Int'l Domestic Int'l Domestic Int'l Domestic
TV '000 3 760 29 069 TV '000 2 630 21 671 TV '000 2 551 20 091 TV '000 921 9 406
STV 50.5% 32.5% STV 35.3% 24.2% STV 34.3% 22.5% STV 12.4% 10.5%
VAG 12.6% 4.5% VAG 13.3% 2.3% VAG 13.1% 1.6% VAG 8.2% 15.0%
TVN '000 87 071 94 129 TVN '000 59 927 64 031 TVN '000 53 087 79 489 TVN '000 28 804 44 048
STVN 34.7% 28.5% STVN 23.9% 19.4% STVN 21.2% 24.1% STVN 11.5% 13.3%
VNAG 5.6% 4.4% VNAG 3.9% 1.9% VNAG 5.0% -1.4% VNAG 0.6% 12.0%

SA NT TAS ACT
Int'l Domestic Int'l Domestic Int'l Domestic Int'l Domestic
TV '000 430 6 248 TV '000 293 1 531 TV '000 229 2 500 TV '000 207 2 351
STV 5.8% 7.0% STV 3.9% 1.7% STV 3.1% 2.8% STV 2.8% 2.6%
VAG 9.6% 9.8% VAG 4.6% 27.4% VAG 14.8% 2.5% VAG 11.2% 10.5%
TVN '000 9 864 22 898 TVN '000 3 847 8 875 TVN '000 3 383 10 488 TVN '000 4 419 6 116
STVN 3.9% 6.9% STVN 1.5% 2.7% STVN 1.3% 3.2% STVN 1.8% 1.9%
VNAG 7.0% 11.0% VNAG -12.6% 10.9% VNAG 3.0% 1.8% VNAG -13.2% -3.1%

Total Visitors ('TV '000') Share of Total Visitors ('STV') Visitors Annual Growth YOY ('VAG')
Total Visitor Nights ('TVN '000) Share of Total Visitor Nights ('STVN') Visitor Nights Annual Growth YOY ('VNAG')

Share of total visitors for both International and Domestic Visitors exceeds 100% due to multiple state visits.
2 Source: Tourism Research Australia
Australian cities
overview
Sydney: Occupancies to remain strong despite
10
new supply
The following analysis in descending Graph 4 – Sydney Market KPI’s
order of CY 2016 RevPAR achieved CY 2013 to CY 2016

in a particular market, considers the City Occupancy % ADR $ RevPAR $

economic and market fundamentals
Sydney CY16 85.1% 220.5 187.55
influencing current and future hotel
YOY Change -0.1% 4.5% 4.4%
performance.
Sydney’s strong performance is set to 250
86%
continue with occupancies reaching 225 84%
82%
capacity during peak holiday and 200
80%
175
corporate activity periods, providing the 78%
150 76%
opportunity for hoteliers to grow ADR. 125 74%
Sydney’s Luxury segment capitalised 100
72%

on the strength of the market achieving 75

70%
68%
an occupancy of 85.9%, and ADR of 50 66%
CY13 CY14 CY15 CY16
$339 (up 7%), delivering a RevPAR
ADR $ RevPAR $ Occ %
of $291 (up 5.7%), which exceeded Source: STR
Melbourne’s Luxury segment RevPAR
of $2711. The key factors underpinning Room Inventory Supply Pipeline
Sydney’s current and expected future
Inventory 2017 Opening Construction Approved/Planning Proposed
performance are a combination of
15,776 600 242 2,858 300
buoyant economic metrics, strength
3.8% 1.5% 18.1% 1.9%
in banking, finance, insurance,
Source: ABS/Cordell/Savills
professional services and construction/
infrastructure projects, which are
collectively fuelling a tsunami of activity
in Sydney. State of the Nation

The improvement in trading „„ Gross State Product A2016: „„ Infrastructure projects of circa
performance in a climate of $537bn (Growth 3.2%) $20bn:
compressing yields has ignited a new „„ Gross State Product F2017 – –– Sydney Light rail
hotel development boom in Sydney, 2019: 2.4% –– Sydney metro rail
not seen since the Japanese inspired –– Barangaroo development
hotel boom of the 1980s/1990s. „„ Low unemployment rate A2016: 5.1%
–– West Connex road connections
„„ Low unemployment rate F2017 –
The following table provides an overview –– Darling Harbour Live
of Sydney CBD’s current supply and 2019: 5.5%
hotel pipeline which indicates that „„ Sydney CBD Office Vacancy rates „„ Residential construction boom
an additional 4,000 rooms are under (absolute numbers as at 31/12/16): fuelled by a surge in Sydney’s
construction, approved and/or in  6.2% (lowest compared to all housing prices.
planning and proposed, which would capital cities) „„ Low interest rates & low AU$
represent a 25% increase to supply. –– Premium:  12.3% are stimulating financing and
Sydney will welcome the Sofitel at transaction activities which
–– A:  4.2%
Darling Harbour in Q3/2017.2 represent a significant contributor
–– B:  4.0%
Notwithstanding, the anticipated to NSW’s GSP
–– C:  6.6%
increases to Sydney’s hotel room „„ Growing international tourists and
–– D:  2.9%
supply, with Sydney room night demand foreign students (fuelled by low
having grown an average of 2.8% in „„ Office Construction Pipeline: AU$) of which Sydney receives
the last three years, our medium term –– 2017: 84,000sq m circa 50% of International Visitors
forecast is that Sydney occupancies will
–– 2019+: 128,000sq m „„ An increase in international visitor
continue to punch above 80% which will
continue to provide an environment for „„ Sydney House growth nights (CY 2016 YOY):  5.6%
room rate growth. (CY 2016 YOY):  16.8% „„ An increase in domestic visitor
nights (CY 2016 YOY):  4.4%3

1 Source: STR
2 Source: ABS/Cordell/Savills
3 Source: Australian Property Council/Tourism Research Australia/Savills
 Melbourne: KPI’s to falter with new supply
11

Melbourne is the second highest Graph 5 – Melbourne Market KPI’s

CY 2013 to CY 2016
performing market in CY 2016 with an
increase in occupancy for the fourth City Occupancy % ADR $ RevPAR $
consecutive year. Conversely, ADR Melbourne CY16 83.4% 184.94 154.2
declined marginally suggesting that YOY Change 1.1% -0.4% 0.8%
whilst occupancy remained strong,
hoteliers were unable to grow rate 200 84%

during non-peak periods. As a result 175

82%
80%
RevPAR remained relatively stable in 150 78%
CY 2016, when compared to CY 2015. 76%
125
The inability to significantly grow ADR 74%
100 72%
in CY 2016 is also demonstrated by 70%
Melbourne’s Luxury segment which 75
68%

reflected steady YOY market KPI’s, 50

CY13 CY14 CY15 CY16
66%

achieving an occupancy of 89.5%, ADR $ RevPAR $ Occ %

ADR of $302 and delivering a static Source: STR

RevPAR of $2711.
Melbourne’s construction boom of Room Inventory Supply Pipeline
Residential apartments, commercial Inventory 2017 Opening Construction Approved/Planning Proposed
space and continuing development 15,610 554 1,073 4,339 2,596
of Docklands, has also encompassed 3.5% 6.9% 27.8% 16.6%
new hotel development. The following Source: ABS/Cordell/Savills
table provides an overview of Melbourne
CBD’s/Docklands current supply and
hotel pipeline, which indicates that
State of the Nation
an additional 8,562 rooms are under
construction, approved and/or in „„ Gross State Product A2016: „„ Office Construction Pipeline:
planning and proposed, which would $378bn (Growth 3.0%) –– 2017: 40,200sq m
represent a 55% increase to supply2. „„ Gross State Product –– 2018: 51,400sq m
Of course not all projects will proceed F2017 -  2019: 2.6%
and the typical market dynamic of “first –– 2019: 165,000sq m
to market” entrants will quash plans for „„ Relatively Low unemployment rate
„„ Melbourne House growth
projects which have missed the market A2016: 5.8%
(CY 2016 YOY):  13.1%
opportunity due to the inability to obtain „„ Relatively Low unemployment rate
„„ Infrastructure projects:
bank funding. F2017 -  2019: 6.1%
–– Western Distributor
Despite the strength and enduring „„ Melbourne CBD Office Vacancy rates
(absolute numbers as at 31/12/16): –– Monash Freeway upgrade
nature of Melbourne’s events calendar
and symbiotic corporate activity  6.4% (second lowest compared to –– City-link Tullamarine widening
Melbourne enjoys with Sydney, we all capital cities) –– Melbourne Metro rail project
anticipate that Melbourne market –– Eastern Core: 3.1% –– Level crossing removal project
KPI’s will be under pressure to match
–– Docklands: 3.3% „„ An increase in international visitor
RevPAR’s of recent years as new
supply enters the market. –– Flagstaff: 3.7% nights (CY 2016 YOY):  3.9%
–– Civic Precinct: 5.4% „„ An increase in domestic visitor
–– Western Core: 2.9% nights (CY 2016 YOY):  1.9%3

1 Source: STR
2 Source: ABS/Cordell/Savills
3 Source: Australian Property Council/Tourism Research Australia/Savills
Perth: Declining KPI’s amidst a supply tsunami
12

Perth’s RevPAR declined for the fourth Graph 6 – Perth Market KPI’s
CY 2013 to CY 2016
consecutive year, which follows the end
of the “resources capital investment City Occupancy % ADR $ RevPAR $
boom”. The decline in Perth’s overall Perth CY16 79.0% 183.34 144.9
economy is clearly evident in anaemic YOY Change -2.8% -6.7% -9.3%
GSP figures and a forecast increase
in unemployment. Perth experienced 225 86%
a decline in ‘room nights sold’ of 200
84%
82%
0.5% for both CY 2015 and CY 2016 175 80%
as compared to an increase in room 150 78%

supply of 3.5% over the same period1. 125

76%
74%
Compounding an already softening 100 72%
hotel market is the construction of five 75
70%
68%
new hotels, totally 1,128 rooms, over 50 66%
the next three years. Despite significant CY13 CY14 CY15 CY16

infrastructure projects, the arrival of new ADR $ RevPAR $ Occ %

hotel supply will result in a continuing Source: STR

deterioration in market KPI’s until
demand is able to absorb new supply. Room Inventory Supply Pipeline

Inventory 2017 Opening Construction Approved/Planning Proposed

The following table provides an overview
6,269 407 778 3,357 1,256
of Perth CBD’s current supply and
6.5% 12.4% 53.5% 20.0%
hotel pipeline, which indicates that
Source: ABS/Cordell/Savills
an additional 5,798 rooms are under
construction, approved and/or in
planning and proposed, which would
represent a 92% increase to supply2. State of the Nation

Not all projects will proceed and „„ Gross State Product A2016:
accordingly we expect a number of $255bn (Growth 0.8%)
planned or proposed projects will „„ Gross State Product
not materialise. F2017 -  2019: 1.8%
„„ Relatively high unemployment rate
A2016: 6.2%
„„ Relatively high unemployment rate
F2017 -  2019: 6.4%
„„ Perth CBD Office Vacancy rates
(absolute numbers as at 31/12/16):
 22.5% (equal highest (with Darwin)
compared to all capital cities)
–– Premium:  16.0%
–– A:  20.6%
–– B:  30.3%
–– C:  21.3%
–– D:  37.5%
„„ Office Construction/Pipeline:
55,000sq m
„„ Perth House growth (CY 2016 YOY):
 0.6%
„„ Private & Public Infrastructure
projects of circa $10bn:
–– Elizabeth Quay renewal – $2.2bn
–– New Perth Stadium & transport
connectivity – $1.2bn
–– Perth City Link – $5.3bn
–– WA Museum – $0.5bn
–– Perth airport & Freight Access –
$1bn
„„ A decrease in international visitor
nights (CY 2016 YOY):  0.6%
„„ An increase in domestic visitor
nights (CY 2016 YOY):  12.0%3

1 Source: STR
2 Source: ABS/Cordell/Savills
3 Source: Australian Property Council/Tourism Research Australia/Savills
 Hobart: Can the Apple Isle maintain its bite
13

Hobart’s strong performance Graph 7 – Hobart Market KPI’s

CY 2013 to CY 2016
stems from increasing popularity
as an international and domestic City Occupancy% ADR $ RevPAR$
tourist destination which recognises
Hobart CY16 82.6% 168.29 139.06
Tasmania’s pristine environment and YOY Change 2.5% 2.3% 4.8%
notoriety for quality produce and food.
Whilst these attributes will continue 175
82%
to attract leisure visitors, which is the
80%
main occupancy market segment, 150

confirmed additions to hotel supply in 78%

125
the short term (circa 600 rooms) will 76%

place downward pressure on Hobart’s 100

74%

market KPI’s. 72%

70%
75
68%

50 66%
CY13 CY14 CY15 CY16

ADR $ RevPAR $ Occ %

Source: STR

State of the Nation

„„ Gross State Product A2016: „„ Hobart House growth

$26bn (Growth 0.9%) (CY 2016 YOY):  0.3%
„„ Gross State Product „„ Infrastructure projects of circa
F2017 -  2019: 1.4% $1.8bn:
„„ Relatively High unemployment rate –– Road and bridge improvements:
A2016: 6.7% $0.65bn
„„ Relatively High unemployment rate –– Upgrade Education facilities:
F2017 -  2019: 6.3% $0.1bn

„„ Hobart CBD Office Vacancy rates –– Royal Hobart Hospital

(absolute numbers as at 31/12/16): Redevelopment: $0.5bn
steady at 8.2% „„ An increase in international visitor
–– A:  5.7% nights (CY 2016 YOY):  3%
–– B:  13.3% „„ An increase in domestic visitor
–– C:  11.0% nights (CY 2016 YOY):  1.8%1
–– D:  6.0%

1 Source: Australian Property Council/Tourism Research Australia/Savills

Gold Coast: Growing up
14

Four years of continued growth has Graph 8 – Gold Coast Market KPI’s
CY 2013 to CY 2016
elevated the Gold Coast to the 5th
highest performing RevPAR market City Occupancy% ADR $ RevPAR$
in Australia. Market KPI’s are being
Gold Coast CY16 72.9% 185.64 135.29
primarily driven by International visitors YOY Change 1.0% 6.0% 7.0%
which grew by 16.2% (YOY Sep 2016)
and exceeded one million for the first 200
time; with China (295K) leading the 74%
175
charge followed by New Zealand (195K).
Occupancies which are now in the low 150 72%

70s, confirms that there are periods of 125

70%
surplus room capacity all year round,
100
highlighting Gold Coast’s dominant 68%
reliance on the leisure holiday market. 75

We anticipate that continued growth 50 66%

CY13 CY14 CY15 CY16
from China/Asian markets will drive
demand and therefore market KPI’s. ADR $ RevPAR $ Occ %

Source: STR
Savills is aware of 14 projects with
a total of 2,250 rooms either under
construction, approved or proposed.
State of the Nation
This includes a new 700 room
casino hotel planned in 2020. Post „„ Gross Regional Product A „„ Major Infrastructure projects:
Commonwealth Games will be a good FY 2015: -0.7% –– Gold Coast Health & Knowledge
test for the Gold Coast to see whether Precinct (PDA) which includes
„„ Low unemployment rate
the infrastructure projects continue to Gold Coast Commonwealth
A2016: 5.5%
boost investment in the area. Games Village and Sporting
„„ Low unemployment rate
Venues (under construction)
F2017 -  2019: 5.5%
–– Gold Coast Light Rail Stage 2
„„ Gold Coast Office Vacancy rates (under construction)
(absolute numbers as at 31/12/16):
 12.2% –– Gold Coast M1 Upgrade
(planning)
–– A:  12.9%
–– B:  11.2% „„ An increase in international visitor
nights (CY 2016 YOY):  26.7%
–– C:  5.8%
„„ A decrease in domestic visitor
„„ Office Construction Pipeline: nights (CY 2016 YOY):  1.5%1
–– 2017 – nil
–– 2018 – nil
–– 2019+ – 4,000sq m, mooted
‘The Base’ by Robina Land
Corporation

1 Source: Australian Property Council/Tourism Research Australia/Savills

 Canberra: Steady improvement
15

Canberra’s resumption of ‘business Graph 9 – Canberra Market KPI’s

CY 2013 to CY 2016
as usual’ (following the Abbott
Government’s cost cutting measures), City Occupancy % ADR $ RevPAR $
has seen a return of government and
Canberra & ACT CY16 74.5% 166.17 123.79
associated business which has resulted YOY Change 1.6% 2.0% 3.7%
in continuing improved performance
in all market KPI’s. Whilst rolling down 175
the lawns of Parliament house is now 74%
150
a banned activity, the nation’s capital
72%
will continue to draw international and 125

domestic leisure tourists. Add to this a 70%

100
pipeline of infrastructure projects and
the scene is set for improving market 75 68%

performance against a backdrop of

50 66%
limited new supply. CY13 CY14 CY15 CY16

ADR $ RevPAR $ Occ %

Source: STR

State of the Nation

„„ Gross State Product A2016: „„ Office Construction/Pipeline:
$36bn (Growth 3.6%) 9,000sq m
„„ Gross State Product „„ Canberra House growth
F2017 -  2019: 1.7% (CY 2016 YOY):  0.7%
„„ Low unemployment rate A2016: 3.8% „„ Infrastructure projects of circa $2bn:
„„ Low unemployment rate –– Urban Renewal Program: $0.5bn
F2017 -  2019: 4.0% –– Road Infrastructure: $0.25bn
„„ Canberra CBD Office Vacancy rates –– Education and Health Care
(absolute numbers as at 31/12/16): infrastructure/facilities $0.53bn
 12.6% –– Light Rail – Stage 1 & ACT Law
–– Civic Precinct:  9.4% Courts Facilities $.76bn
–– A:  9.8% „„ A decrease in international visitor
–– B:  8.7% nights (CY 2016 YOY):  13.2%
–– C:  18.7% „„ A decrease in domestic visitor
–– D:  23.1% nights (CY 2016 YOY):  3.1%1

1 Source: Australian Property Council/Tourism Research Australia/Savills

Cairns: China is the new Japan
16

Cairns market KPI’s have continued Graph 10 – Cairns Market KPI’s

CY 2013 to CY 2016
to grow for the fourth consecutive year,
driven by an increase in international City Occupancy % ADR $ RevPAR $
and domestic visitors, with China
Cairns CY16 83.4% 139.95 116.65
remaining as the largest market (24.9% YOY Change 3.8% 7.8% 11.8%
of all international travellers to the
region). An increase in ADR has resulted 150 84%
in Cairns achieving the highest RevPAR 82%
80%
growth rate in CY 2016 (11.8%) in 125
78%
comparison to the top ten markets1. 76%
100
74%
The GA Group have closed the 72%
Rydges Tradewinds for a major 75 70%
68%
renovation of 256 bedrooms and 50 66%
announced plans to build an adjoining CY13 CY14 CY15 CY16

new tower with 55 new bedrooms. ADR $ RevPAR $ Occ %

Source: STR
The group have also announced plans
for two new hotel towers next to the
Novotel Oasis Report on Abbott Street
for 220 hotel rooms and 110 resort
apartments. In addition, Merecliffe Pty State of the Nation
Ltd have lodged plans to build a new
161 room hotel over the existing Bellview „„ Gross State Product A2015: 2.69%
motel on the Esplanade. If approved, „„ High unemployment rate A2016: 7.8%
the projects are due to open in 2019
„„ Infrastructure projects of circa $2.8bn:
adding 546 rooms to Cairns. The
projects are the first major hotel –– $1bn redevelopment of Cairns Airport
additions to Cairns for 20 years. –– $500m Mount Emerald Wind Farm on
However, the forecast for a continual the Atherton Tablelands
increase in international visitors, Cairns –– $456m Cairns Hospital Redevelopment
market KPI’s will continue to remain
–– $250m Sheraton Mirage redevelopment
strong in the short term.
at Port Douglas
–– $616m Bruce Highway upgrade
at Cairns

1 Source: STR
 Adelaide: Steady as she goes, awaits a flurry
17
of new supply
Adelaide’s performance has shown Graph 11 – Adelaide Market KPI’s
CY 2013 to CY 2016
modest improvement in CY 2016
with RevPAR growth being driven by City Occupancy % ADR $ RevPAR $
increasing occupancy. A program of
Adelaide CY16 77.1% 149.8 115.56
State and Federal spending will see YOY Change 2.4% 0.5% 2.9%
an improvement in GSP, which should
translate into increased room night 175 82%

demand associated with these projects, 80%

150
from both a national and international 78%

perspective. Conversely corporate 125 76%

74%
demand is weak as evidenced by high 100 72%
office vacancy rates. Head winds from
70%
expected new supply will inevitably 75
68%
outweigh increasing room night 50 66%
CY13 CY14 CY15 CY16
demand, which will constrain growth
in market KPI’s. This market dynamic Source: STR
ADR $ RevPAR $ Occ %

will not correct until new supply is fully

absorbed. Notwithstanding, an initial Room Inventory Supply Pipeline
adjustment period, the revitalisation
Inventory 2017 Opening Construction Approved/Planning Proposed
of Adelaide’s hotel room stock is
5,565 – 245 2,047 610
necessary, in order for the Adelaide
– 4.4% 36.8% 11.0%
market to compete with its rival
Source: ABS/Cordell/Savills
Australian cities.
The following table provides an overview
of Adelaide CBD’s current supply and State of the Nation
hotel pipeline, which indicates that „„ Gross State Product A2016: „„ Transport Infrastructure and Public
an additional 2,902 rooms are under $101bn (Growth 0.8%) Facilities projects of circa $2.2bn+
construction, approved and/or in in 2017-2018:
„„ Gross State Product
planning and proposed, which would –– North-South road Corridor
F2017 -  2019: 1.8%
represent a 52% increase to supply1.
–– Northern road Connector
„„ Relatively high unemployment rate
Not all projects will proceed and –– Expansion of Adelaide’s
A2016: 7.0%
accordingly we expect a number of tram network
planned or proposed projects will „„ Relatively high unemployment rate –– CBD revitalisation project ($15m)
not materialise. F2017 -  2019: 7.0%
–– Royal Adelaide Hospital
„„ Adelaide CBD Office Vacancy rates Development
(absolute numbers as at 31/12/16):
 16.2% „„ Techport Defence Precinct –
Australia’s $50B future
–– Premium:  8.3%
Submarine project
–– A:  15.4%
–– B:  15.6% „„ Lower AU$ has benefited SA
non-mining export industries:
–– C:  18.1%
–– Agribusiness
–– D:  20.2%
–– International education
„„ Office Construction Pipeline: –– Tourism
–– 2017: 10,000sq m
„„ An increase in international visitor
–– 2018: Nil nights (CY 2016 YOY):  3.9%
–– 2019: 24,000sq m „„ An increase in domestic visitor
„„ Adelaide House growth (CY 2016 nights (CY 2016 YOY):  6.9%2
YOY):  0.8%

1 Source: ABS/Cordell/Savills
2 Australian Property Council/Tourism Research Australia/Savills
Brisbane: Declining KPI’s and increasing supply
18

Brisbane’s performance KPI’s have Graph 12 – Brisbane Market KPI’s

CY 2013 to CY 2016
continued to decline over the past two
years as a result of the following: City Occupancy % ADR $ RevPAR $
„„ Wind down of the resources capital Brisbane CY16 71.9% 160.15 115.07
investment boom YOY Change -2.0% -6.8% -8.7%
„„ Corporate activity declined which 200 80%
gave rise to high office vacancies, 78%
175
which is only beginning to correct, 76%
150
now that the influx of new 74%
commercial space has ended 125
72%
100
„„ Hotel oversupply as new rooms 70%

entering the market exceeded 75 68%

demand. 50
CY13 CY14 CY15 CY16
66%

In CY 2016 “Room nights sold” Source: STR

ADR $ RevPAR $ Occ %

increased by 3.5% however this was

more than offset by an increase in Room Inventory Supply Pipeline
“Rooms available” of 5.6% over the Inventory 2017 Opening
same period1. Brisbane’s economic 8,043 750
performance is forecast to improve 9.3%
which is positive however, with the
Source: ABS/Cordell/Savills
introduction over the next few years
of further hotel supply, we anticipate
a further decline in market RevPAR State of the Nation
over the next two years before seeing
a recovery thereafter as demand „„ Gross State Product A2016:
catches up with supply2. The familiar $317bn (Growth 2.0%)
downward spiral of falling occupancy „„ Gross State Product
and reactionary softening of room rate F2017 -  2019: 3.4%
to attract business will present as a „„ Low unemployment rate A2016: 6.1%
key feature of the Brisbane market.
„„ Low unemployment rate
The following table provides an overview F2017 -  2019: 5.9%
of Brisbane CBD’s current supply and
„„ Brisbane CBD Office Vacancy rates
hotel pipeline, which indicates that
(YOY movement & absolute number
an additional 4,534 rooms are under
as at 31/12/16):  15.3%
construction, approved and/or in
–– Premium:  12.2%
planning and proposed, which would
represent a 56% increase to supply2. –– A:  11.9%
Not all projects will proceed and –– B:  19.5%
accordingly we expect a number of –– C:  19.5%
planned or proposed projects will –– D:  15.3%
not materialise.
„„ Office Construction/Pipeline:
–– 2017: circa 19,300
–– 2018+: Minimal
„„ Brisbane House growth
(CY 2016 YOY): steady
Construction Approved/Planning Proposed
982 1,777 1,025
12.2% 22.1% 12.7%
„„ Major QLD Infrastructure projects
(underway/to commence in 2017):
–– Brisbane Airport Expansion
–– Toowoomba Second Range
Crossing
–– Gateway Motorway North
Upgrade
–– Kingsford Smith Drive Upgrade
–– Brisbane Central Station upgrade
–– Logan Enhancement Project
(2017 commencement)
„„ Potential projects in planning:
–– Brisbane Metro Subway
–– Brisbane Mega Cruise
Ship Terminal
–– Gold Coast M1 Upgrade
–– Cross River Rail
„„ An increase in international visitor
nights (CY 2016 YOY):  5.0%
„„ A decrease in domestic visitor
nights (CY 2016 YOY):  1.4%2

1 Source: STR
2 Source: Australian Property Council/Tourism Research Australia/Savills
 Darwin: Falling KPI’s to be arrested
19

The Darwin economy is highly Graph 13 – Darwin Market KPI’s

CY 2013 to CY 2016
dependent on the government sector,
mining and mining support sectors City Occupancy% ADR $ RevPAR $
such as construction and transport.
Darwin CY16 67.2% 154.82 104.1
During the resources boom, Darwin YOY Change -0.4% -9.3% -9.6%
experienced a period of strong
economic growth, propelled by 200 82%
significant business investment in 80%
175
the Ichthys LNG project. Since the 78%
completion of this LNG project, which 150
76%
has transitioned to production phase,
125 74%
the Darwin economy has weakened,
compounded further by slowing 100
72%

demand in household consumption 70%

75
and dwelling investment. As a result, 68%

Darwin’s RevPAR has declined, most 50 66%

CY13 CY14 CY15 CY16
notably in CY 2015 and CY 2016,
and currently represents the lowest Source: STR
ADR $ RevPAR $ Occ %

RevPAR market across Australia’s

main cities. In CY 2016 ‘Room nights
sold’ increased by 5.8% however this
State of the Nation
was more than offset by an increase
in “Rooms available” of 6.2% over the „„ Gross State Product A2016: „„ Darwin House growth
same period1. On a more positive note, $23bn (Growth 1.6%) (CY 2016 YOY):  1.5%
a stronger forecast GSP should assist „„ Gross State Product „„ A decrease in international visitor
with improving market conditions, F2017 -  2019: 2.7% nights (CY 2016 YOY):  12.6%
against a backdrop of limited „„ An increase in domestic visitor
new supply. „„ Low unemployment rate A2016: 3.8%
nights (CY 2016 YOY):  10.9%2
„„ Low unemployment rate
F2017 -  2019: 4.1%
„„ Darwin CBD Office Vacancy rates
(absolute numbers as at 31/12/16):
 22.5% (equal highest (with Perth)
compared to all capital cities)
–– A:  15%+
–– B:  15%+
–– C:  49.3%
–– D:  15%+

1 Source: STR
2 Source: Australian Property Council/Tourism Research Australia/Savills
Sales trends
21

2016 continued where 2015 left off, with Graph 14 – Average $ per Room and Median Yields
Jan 2009 to Dec 2016
investor appetite for Australian hotels
remaining high. Our research shows that $400,000 10%

investors are continuing to look outside

$350,000
of major city CBD locations for value 9%

add opportunities in comparison to $300,000

tightly held CBD assets. The increased $250,000

8%

volume of lower value transactions has

resulted in a reduction of the average $200,000 7%

price per room, although passing yields $150,000

have continued to fall. Passing yields 6%

$100,000
in 2016 finished at 6.76% compared to
5%
7.05% in 2015 and below the long term $50,000

average of 7.96%.
$0 4%
2009 2010 2011 2012 2013 2014 2015 2016
In comparison to other asset classes,
Avg. $/room Median Yield
post GFC, hotels have provided yield
stability comparable to traditional Source: Real Capital Analytics/Savills Research
forms of property investment class.
In recent years hotel sales volumes
have increased with hotel investment Graph 15 – Passing Yield Trends
Hotels Vs Other Asset Classes
now an established asset class trending
in line with core sectors. 9%

Between 2009 and 2016 A Grade

Sydney CBD Office yields have fallen 8%
166 basis points, compared to a 174bps
fall for All Hotels, 188bps for Melbourne
Passing Yield

Prime Industrial and 91bps for Regional 7%

Shopping Centres.
The chart below provides hotel yields in
comparison to a selection of key asset 6%

classes across certain markets.

For CY 2016 MSCI reported that the 5%

Hotel Property Index recorded a total

annualised return of 19.5% ahead 2012 2013 2014 2015 2016
of core asset classes (Office 13.4%, All Hotels (Australia wide) 8.30% 8.00% 7.83% 7.05% 6.76%
Industrial 11.2% and Retail 9.5%). Sydney CBD A Grade Office 7.03% 6.94% 6.66% 6.31% 5.56%
Melbourne Prime Industrial 8.13% 8.06% 7.66% 7.13% 6.78%
Regional Shopping Centre 6.31% 6.25% 6.25% 6.09% 5.53%
Source: Savills Research
 22

Overseas investors continue to be a Graph 16 – National Hotel Sales ($m and No)
Dec-06 to Dec-16
major source of capital, but interestingly
domestic based investment has
$4,000 90
increased market share. Known
80
overseas investment represented 53% $3,500

of transactions in the last 12 months $3,000

70

compared to 61% in the previous 60

$2,500
12 months. 50
$2,000
The profile of transactions altered 40

in 2016 with hotel sales less than $1,500

30
$10 million and between $50 million $1,000
20
and $100 million increasing compared
$500 10
to 2015. However, with less 5 star
CBD hotel sales the volume of $0
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16
0

$100 million+ sales declined.

Sales >$5m (LHS) Sales No (RHS)

The volume of sales in 2016 were

Source: Real Capital Analytics/Savills Research
down 28% on 2015, totalling just over
$2.5 billion, although this is not due to
a lack of demand but a lack of stock
with investors reluctant to sell. Owners
of hotels in Sydney and Melbourne
continue to enjoy record trading
performance hence it is no surprise
there is a scarcity in the number of
high value transactions.
As Australia enjoys a pipeline of new
hotel openings, developers have taken
advantage of increased hotel demand
and rising values with 2016 experiencing
a selection of forward commitments and
funds through, such as the W hotels in
Darling Harbour (Grocon to Zhengtang)
and Melbourne (CBUS to Daisho) and
Quest Docklands (MAB to Ascott).
After a few years of relatively few
hotel sales, Melbourne was the
focus of investors in 2016 with sales
of the Novotel on Collins (Frasers),
Travelodge Docklands (Sing Holdings),
Tune (Aligned), Novotel Glen Waverley
(Cornerstone) and W Hotel (Daisho).
However Sydney remains the top of
many investors shopping list as forecast
new supply is not likely to satisfy
demand for overnight accommodation.
23

A selection of hotel transactions for the year to December 2016:

Month Hotel Price Per Room Passing Yield

Dec W Hotel, 435 Collins St Melbourne VIC $792,517 4.5%* (yr 1)
Dec Ibis Portfolio (Nationwide) $126,342 N/A
Dec Novotel Glen Waverley VIC $368,500 5.12%
Nov Novotel Langley Perth WA $316,206 N/A
Nov Jephson Hotel Toowong QLD $309,804 6.92%
Oct Travelodge Docklands Melbourne VIC $367,698 5.76%
Sept Metro on Pitt Sydney NSW $388,235 5.56%
Sept Novotel on Collins Melbourne VIC $623,684 5.24%
Sept Rydges Esplanade Cairns QLD $165,289 6.84%
Aug Park Regis City Centre Sydney NSW $377,049 6.52%
July Quest NewQuay Docklands Melbourne VIC $321,267 6.85%* (yr 1)
Jun W Ribbon Hotel Sydney NSW $850,000 6.3%* (yr 3)
Jun Mercure Parramatta NSW $243,902 5.83%
May Grand Chancellor Surfers Paradise QLD $196,078 4.6%
April Vibe Hotel & Helm Bar Surfers Paradise QLD $231,156 5.19%
April Quest Adelaide Terrace Perth WA $323,077 8.1%* (yr 1)
Mar Tune Hotel Melbourne VIC $229,778 5.7%
Mar Best Western Port Macquarie NSW $212,500 9.01%
Mar Best Western Tall Trees Canberra ACT $179,747 8.21%
Mar Parklands Resort Mudgee NSW $167,647 9.5%
Mar Mantra Pavilion Wagga Wagga NSW $255,556 10.6%
Mar Quest Mawson Lakes SA $272,727 8.0%
Feb Rydges Tradewinds Cairns QLD $138,211 5.56%
Feb Adina Norwest NSW $286,491 6.67%
Source: Savills Hotels
*  Initial yield based upon forecast net income

Savills forecasts that the reluctance of

owners to sell will continue in 2017 only
intensifying demand and driving up pricing
for those assets that do become available,
especially in CBD locations. We anticipate
2017 will see sales volumes on a par with
2016 and yields continuing to tighten.
 24

Savills key
contacts
Michael Simpson Nic Simarro
Managing Director Senior Sales Executive
+61 (0) 431 649 724 +61 (0) 481 036 095
msimpson@savills.com.au nsimarro@savills.com.au

Vasso Zographou Tom Shadbolt

Director Senior Sales Executive
+61 (0) 449 979 039 +61 (0) 423 381 563
vzographou@savills.com.au tshadbolt@savills.com.au

Adrian Archer Iris Liu

Director Valuer
+61 (0) 481 037 429 +61 (0) 410 060 669
aarcher@savills.com.au iliu@savills.com.au

James Cassidy Sheriden Bacon

Associate Director Analyst
+61 (0) 478 333 858 +61 (0) 414 572 141
jcassidy@savills.com.au sbacon@savills.com.au

Rob Williamson
Director
+61 (0) 412 803 482
rwilliamson@savills.com.au
Savills advises corporate, institutional
and private clients, seeking to acquire,
lease, develop or realise the value of prime
residential and commercial property across
the world’s key markets.

With a rich heritage and a reputation for excellence that dates Savills is expert in delivering results across all key
back to 1855, Savills is a leading global real estate provider listed commercial, retail, industrial and residential sectors
on the London Stock Exchange. in the following areas:
Savills is a company that leads rather than follows with more than   Sales
700 owned and associate offices throughout the UK, Europe,
  Leasing
Americas, Asia Pacific, Africa and the Middle East. With more than
30,000 staff, we seek out people who possess that rare mix of   Valuations
entrepreneurial flair and rock solid integrity, and are focused on
  Asset Management
delivering clients with advice and expertise of the highest calibre.
  Project Management
A powerful combination of global connections and deep local
knowledge provides Savills with an almost unparalleled ability   Worldwide Occupier Services
to connect people and property.
  Property Accounting
Savills extensive Asia Pacific network spans 50 offices throughout
  Facilities Management
Australia, New Zealand, China, Hong Kong, India, Indonesia,
Japan, Korea, Macao, Malaysia, Myanmar, Philippines, Singapore,   Residential Sales
Taiwan, Thailand and Vietnam.
  Residential Projects
In Australia, we offer the full spectrum of services from providing
  Research
strategic advice to managing assets and projects and transacting
deals. With a firmly embedded corporate culture that values
For advice that gives advantage, contact Savills.
initiative, innovation and integrity, clients receive outstanding
service and can be assured of the utmost professionalism.

Adelaide +61 (0) 8 8237 5000

Brisbane +61 (0) 7 3221 8355
Canberra +61 (0) 2 6221 8200
Gold Coast +61 (0) 7 5509 1700
Melbourne +61 (0) 3 8686 8000
Notting Hill +61 (0) 3 9947 5100
Parramatta +61 (0) 2 9761 1333
Perth +61 (0) 8 9488 4111
Sunshine Coast +61 (0) 7 5313 7500
Sydney +61 (0) 2 8215 8888

savills.com.au