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Colliers: buyers seeking alternate investments

Surfers at Surfers Paradise Gold Coast - EDITED

With the large weight of offshore capital entering the accommodation space within the major capital cities of Australia, and limited investment opportunities for hotels, the latest hotels research from Colliers International reveals an increased level of interest in alternate accommodation asset classes.

These include boarding houses, backpacker establishments, student accommodation and tourist parks.

“Domestic investors who have had an interest in the traditional hotel market are now also looking at alternate accommodation assets that offer a competitive risk return factor,” said Colliers International Director of Valuations – Hotels, Christopher Milou.

“While these alternate accommodation assets are targeting a different end user, many of the operating fundamentals can be transferred across, enabling investors to diversify their portfolios while still operating in a space they are familiar with.”

He said demand for budget accommodation, such as backpacker establishments, remains solid, particularly in beachside and inner city locations.

Milou said the weak performance of the Australian Dollar in recent times is making Australia more affordable for backpacker travel.

In terms of investment demand, backpacker assets, he said, are generally tightly held as evidenced by the limited transactions over the past few years. Most recent transactions have been smaller fringe CBD or beachside backpackers, typically in the sub $5 million range. Yields for backpacker assets range from 8.5% to 12%, depending on location, quality of accommodation and offering.

Profitability, Milou said, as a percentage of total revenue, is greater than that of full service hotels given the budget nature of the offering, limited services provided and reduced staffing costs.

He added recent evidence has shown that the level of competition for such assets is typically lower than that of the general hotel market. Offshore investors are yet to familiarise themselves with the concept of the backpacker establishment, with any interest in these properties from offshore being mostly for hotel conversions in the current market.

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