Jones Lang LaSalle says New Zealand hot for hotel investment.

Jones Lang LaSalle Hotels in its 2007 edition of Hotel Investment Outlook,says that with the restricted supply of hotel assets in Australia and favourable investment and trading conditions, hotel investors will increasingly look to New Zealand for new opportunities, with transaction volume reaching NZ$339 million in New Zealand during 2006, with 2007 set to remain strong with similar volumes transacted as seen in 2006.

Six major hotel transactions were recorded in New Zealand during 2006 to a value of NZ$339 million.  “We expect there to be a similar level of transaction activity, if not more, during 2007,” said Mr Mike Batchelor, Executive Vice President, Jones Lang LaSalle Hotels.

Already, new players such as Abacus Funds Management, Eureka Funds Management and Toga Group of Companies have entered the New Zealand market, adding, “Transparency, combined with the lack of capital gains tax or stamp duty, means that investors continue to seek New Zealand out as an investment location” said  Dean Humphries, Advisory Director, Jones Lang LaSalle.

Whilst markets in New Zealand are considered some of the most advanced in the cycle in the Asia Pacific region, investors can still purchase hotels at a discounted cost when compared to the cost of replacement and whilst yields have compressed, the outlook for income growth continues to drive interest. “There is new supply in some markets, however it is largely contained and room rates in New Zealand are considered low by international standards,” said Mr Batchelor.

In the current rate tightening cycle, it is now the norm for hotel investment yields to trade in the 7% range Mr Bachelor saying, “Investors are clearly factoring in strong growth in trading performance that is not considered achievable in other property assets” .

“The weight of available capital in the Australian marketplace in particular continues to impact the hotel investment market,” said Mr Humphries, with the Reserve Bank of New Zealand (RBNZ) resisting the urge to raise interest rates, investors remain concerned by inflationary pressures.

In relation to the Pacific Islands, tourism in the Pacific Islands is growing, albeit from a very small base and over recent years, some markets have experienced significant increases in new supply.

During 2006, one major hotel transaction was recorded following foreclosure on a bank loan on a property in Vanuatu and as problems in the region persist, they expect hotel investment activity to remain constrained in the short term.  “However, ideal destinations such as Tahiti and Cook Islands continue to perform well amid more stable political environments and developments to key infrastructure projects,” said Mr Batchelor.

Australia
The final tally for 2006 hotel sales in Australia fell just short of the level of hotels transacted in 2005 at around A$1.2 billion with several large transactions being completed in early 2007. 

“This is a considerable result given that only A$230 million traded in the first half of 2006,” said Mr Batchelor.

He added, “Active players during the year included investment funds Eureka, Abacus, MFS and Mirvac, taking advantage of their knowledge of the sector and acting quickly within the competitive hotel investment market.”

Asia
During 2006, Singapore, Hong Kong and Japan emerged as the most favoured investment destinations, with high levels of transaction volume also recorded in China, Thailand and Taiwan. 

Many markets in Asia still present as good value with opportunity for capital growth.  “We expect to see another increase in transaction activity throughout Asia during 2007 as investor interest spreads into new markets especially China, Vietnam and India, although Singapore, Hong Kong and Tokyo are likely to remain investor hot spots,” said Mr Batchelor.

Report by The Mole