In the first half of 2018, there were more hotel transactions in Brisbane than the whole of 2017.
We believe this is due to a combination of improving room night demand (7.5% in 2017), the hotel construction boom in Brisbane reaching a close, lack of investment opportunities in other key cities and significant infrastructure in the city over the next 6 years.
But another of the leading reasons is affordability. Significant discounts to the estimated replacement cost of hotels in South East Queensland is partly resulting in historically low passing yields across recent hotel sales between 1.11% and 5.28%.
We estimate that the average sale price discount to replacement cost in Brisbane and the Gold Coast is in the region of 34%. Below is the comparison to Perth, Sydney and Melbourne.
Brisbane an attractive proposition for investors
Recent hotel sales in Melbourne have been at a premium to replacement cost of approximately 28%, which may partly explain the significant new hotel supply experienced and forecast in Melbourne. We estimate there are 15,000 new hotel rooms mooted, planned and under construction in Melbourne, of which we estimate 43% are likely to open, which could slow future RevPAR growth in the city.
Conversely in Brisbane there are 1,435 rooms due to open this year plus just over 2,000 in the foreseeable future, which includes 1,100 rooms at Queens Wharf. As the growth of new supply in Brisbane slows and demand continues to pick up, the long term prospects in Brisbane are attractive.
The Sunshine State is finally having its day in the sun.