Hotel sales have reached close to $2 billion in the past five months, with The Westin in Sydney and the Heritage Retail space, last week being the latest to be snapped up by overseas investors the Far East Land and Sino (members of Far East Organization and its Hong Kong-based sister company, Sino Group).
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According to agents, Sydney is one of the most active hotel investment markets globally and every five-star hotel is owned by Asian-based funds and insurance groups.
The demand comes from the expectation of strong tourism growth from China, India and Japan in coming years, as well as domestic visitors, as the weaker Australian dollar sees more people staying in the country.
There is also a shortage of properties, until Jerry Schwartz's Sofitel opens at Darling Harbour in the next few years and James Packer's Crown resort at Barangaroo South.
On Wednesday, Lend Lease announced that following the lodgement of Modification 8 in March 2015 (the revised Concept Plan for Barangaroo), it has finalised commercial documentation with Crown Resorts Limited for the proposed development of a "world-class integrated resort at Barangaroo South".
Lend Lease has also entered into an estimated $1 billion construction management contract with Crown Resorts Limited to deliver the integrated resort. However, the final contract sum will be subject to finalisation of the scope.
Craig Collins, chief executive Australasia, and Peter Harper, senior vice president investment sales, at JLL, who negotiated the major hotel sales, said the Westin Sydney transaction reaffirms the strong demand for Australian CBD trophy hotel assets.
"As one of Sydney's most prestigious luxury hotels it was strongly contested by parties from Singapore, Hong Kong, China, US and Korea," Mr Collins said. "When meeting hotel investors around the world, buyers now include Sydney in the discussion of key global hotel markets they wish to invest in along with London, New York, Tokyo and Paris.
"Every large five-star hotel in Sydney is now owned by a foreign group, mainly from Asia. Asian investors love Australian hotels."
With very limited supply coming into the Sydney market, the trading fundamentals are exceptional. In 2013 there was about $2.1 billion of hotel transactions undertaken across Australia. This grew to a 15-year record of $2.7 billion in 2014, representing 30 per cent of transaction volume in Asia Pacific. However, for the first five months of 2015 we have already gone over $1.9 billion.
"A new record of sales volume for Australian hotels could absolutely be broken in 2015, potentially making Australia the strongest hotel investment destination across Asia Pacific, ahead of the traditionally sought markets of Singapore, Thailand and Malaysia" Mr Collins said.
Given the unprecedented competition for hotel investment opportunities in the CBD, some investors have decided to change their focus towards the metropolitan and regional markets in an effort to secure acquisitions.
We've seen a high volume of hotel transactions take place in sub-markets that have historically been less liquid. Markets such as the Airport precinct, Western Sydney, Wollongong and Newcastle are highly sought at present.
This level of transaction volume has been driven by a number of high profile deals including the Sheraton on the Park which was sold in November 2014 for $463 million to China-based Sunshine Insurance Group and the Hilton Sydney which was sold a couple of weeks ago to a group associated with Singapore-based Bright Ruby for $442 million.
