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June 30, 2016

Chinese investment into the Australian hotel property sector has been prolific over the past three years and, based on recent activity, its likely investors from China will continue to play an increasingly important role in the tourism real estate industry Down Under.

“The latest tourism figures released by the Australian Bureau of Statistics paint a remarkably positive picture of Chinese tourism to Australia,” says Peter Harper from Investment Sales in JLL’s Hotels & Hospitality Group.

“Not only did the Chinese inbound figures pass the ‘magic million’ mark in the past year – an increase of over 19 percent on the year to April 2016 – but Chinese tourists now account for 23 percent of total expenditure (over AU$7 billion) by overseas visitors.”

In 2009, Chinese tourism to Australia numbered less than 350,000, and tourists could only fly from five Chinese cities. Today, they can fly direct from ten cities, and the prospects for further expansion in the future were highlighted by last month’s announcement by China’s biggest private airline operator, HNA Aviation Group, to take a 13 percent (AUD$159 million) stake in Virgin Australia.

This was followed shortly by China’s Nanshan Group’s announcement that they would buy Air New Zealand’s 19.9 percent stake in Virgin for AU$260 million.

“China’s interest in the Australian tourism sector over the past five years has been intense,“ says Harper. “But it wasn’t too long ago that the Australian hotel sector was unsure about the China market, and the role it would play compared to the traditional inbound markets such as the United States, Europe and Japan which were all decimated by the GFC.“

Chinese investors have picked up some of the cream of Australia’s hotel crop in the past few years, including Sunshine Insurance agency’s AU$463 million purchase of Sydney’s Sheraton on the Park, followed closely by an entity associated with Bright Ruby’s purchase of Hilton Sydney for AU$442 million. Chinese investors also acquired the Park Hyatt Melbourne and transformed the former Sydney Metropolitan Water Sewerage and Drainage Board headquarters in Pitt Street, Sydney into the five-star Primus Hotel.

While these acquisitions demonstrated the Chinese appetite for buying premium ‘trophy’ assets in CBD locations, the purchase of the Adina Mascot, Clarion on Canterbury Melbourne, Esplanade River Suites Perth and Il Mondo Boutique Hotel Brisbane also reflects a willingness to invest in a range of hotel assets across emerging commercial districts or fringe precincts.

While the Chinese economy has undoubtedly cooled in recent times, and Australian governments have become more restrictive about Chinese investment into some real estate sectors, the flow of funds into tourism continues.
“Clearly, the Chinese are taking a wide ranging and long term view when it comes to the Australian tourism market and this has been reflected in a series of astute and strategic purchases of Australian assets and business,’ explains Harper.

“Australia’s reputation for economic stability, the record breaking performance of the hotel sector in cities such as Sydney and Melbourne, and ever-increasing air links have fuelled the interest in Australian hotel assets by Chinese investors.”

Just as importantly has been the evolution of Australia’s attitude towards Asia in the twenty five years since the end of the Japanese investment boom with increased business and educational visits highlighting the deeper relationship and interaction between the two countries.

The tourism and hotel industry will always be cyclical, and the past decade has shown that there can be surprises along the way, but the experience over the past three years suggests that, while the Chinese hotel investment boom in Australia might not continue to grow at the rate it has in recent years, their future ‘down under’ should be long-term and sustainable.

Peter Harper
Investment Sales, JLL’s Hotels & Hospitality Group, Australia

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