Market Report Freehold July 09
2009 has begun with conflicting reports from the Hotel Industry. Some "experts" telling all that the hotel industry continues to experience growth. Others are advising caution, predicting record numbers of Receivership Sales and a collapse in hotel values.
It is our opinion that the hotel market has moved close (but not quite all the way yet) to "traditional" levels of return.
Freehold Provincial City
|
|
Capitalisation Rate |
Value for $100,000 net |
Dollar value increase |
Percentage value increase from previous |
|
1998 |
20% |
$500,000 |
|
|
|
2000 |
18% |
$555,000 |
$ 55,000 |
10% |
|
2002 |
17% |
$588,000 |
$ 33,000 |
6% |
|
2004 |
16% |
$625,000 |
$ 37,000 |
6% |
|
2006 |
14% |
$667,000 |
$ 42,000 |
6% |
|
2007 |
12% |
$830,000 |
$163,000 |
20% |
|
2009 |
17% |
$588,000 |
-$242,000 |
-21% |
This value correction (returns approx. 18% are "traditional") combined with a return to "traditional" lending ratios by lenders will place stress on a number of properties that have transacted in recent years.
The asset value of Poker machine entitlements now underpins many hotel values; however these today are also under threat with PME prices having declined over 50% in 18 months (future improvement appears likely).
It is difficult to accurately judge hotel values in the dynamic market of today.
The Freehold Hotel market place has broken into a number of sub-markets with each having their own determinants of price.
These markets can be roughly described as follows:
a)Hotels without gaming machines
b)Freehold hotels to $2.5m with Poker Machine entitlements underpinning the value. (property = asset value NOT business value)
c)Freehold Hotels to $4.5m where value is directly related to Business Profitability. (Gaming machine numbers are still important yet price is determined by overall hotel profitability)
d)Premium freehold properties (generally in excess of $5m) sought after by corporate style purchasers.
During the last 18 months there have been a number of properties placed on the market at levels above their achievable price. The market place is rejecting these properties and in fact damaging the perception of these properties even when a price reduction has occurred.
Demand for hotels in the (b) and (c) markets has slowed. Most of the potential purchasers are experienced hoteliers who sold their properties during the last few years and believe that opportunities will exist to purchase hotels at returns close to "bargain" prices.
Genuine vendors need to carefully select the method of sale and the price portrayed to potential purchasers.
