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2017 Motel Market Wrap Up

Andrew Morgan - Tuesday, December 19, 2017

Written by Andrew Morgan, Specialist Motel & Accommodation Broker

As opposed to my 2016 end of year wrap up last year, in which the motel market had witnessed many changes, surprisingly 2017 has overall been very similar to 2016 in many aspects.

Again, 2017 has been an improvement activity wise over the previous year with demand for motels increasing, the volume of sales improving and the total sales value growing.

A quick summary shows the first quarter starting out in a quiet way which was the same as 2016.  The second quarter showed very good promise but did not reach expectations in the end.  The third quarter activity started to build and again the same as last year has continued to improve since then, ultimately finishing off the year very strongly with increased activity across the board however very strongly dominated by the freehold sector.

In contrast to 2016, prosperity has not been largely dependent on where one is located.  Some areas of the state that had struggled were able to make solid gains particularly in the 2nd and 3rd quarters of the year.  Additional supply of competition has ceased and there has been a reduction in supply in some areas with the redevelopment of sites (and future redevelopment) predominantly improved with older neglected properties where the highest and best use of the site was no longer the existing motel property.

The tourism sector has again continued to grow with Far North Queensland showing good signs of improvement.  The tourism market may have its highs and lows over time but continues to power on as one of Queensland’s driving forces in attracting guests requiring accommodation throughout the state.  Hamilton Island in the Whitsundays has again reported extremely high occupancy rates (albeit it with a shock to the system from Cyclone Debbie earlier in the year) for the last couple of years.  Many accommodation properties in the Whitsundays are either still off line or are open and operating with building works renovations ongoing.  The Australian Dollar has increased slightly however still seems to be maintaining that mid 70’s percentage mark.

The contraction of the Mining Industry that has received so much continued media coverage and has affected much of regional Queensland is largely behind us although some smaller towns are still struggling.  Again in many areas spending and confidence in the regions and industry has been continuing to build.  Some of the larger retailers in the regional areas have experienced excellent growth since January and reportedly even stronger improvement in the last quarter of 2017.

Again in similar fashion to last year motel sale transactions have been increasing as the year draws closer to an end.  The first half of the year was very quiet however as mentioned activity has increased in the second half compared to the first.  Some prices that have been achieved are very strong and can offer a lot of confidence to the market going forward.  Contracts being settled and new one’s being entered into, shows a very promising lead into early 2018.

Leasehold motel transactions have continued to be limited with the lowest amount of sales activity.  This market is predominantly comprised of first time entrants to the motel industry who have not been confident enough to take the step.  The old principles apply and short term lease terms and high rents will deter any buyer and put extreme downward pressure on the sale value achievable.

There is always a market for a well presented motel business that has good fundamentals, a good client base and is priced correctly.  We have noted some improvement however in the level of demand for motel leases in the last couple of months.  The sub $1m price range has seen a good spike in demand, which has been against the trend of the last two years.

Investors have sought the comfort that freehold motels offer with many freehold sales being recorded in the latter half of the year.  Any good quality freehold properties with up to date trading data, that are priced correctly, and presenting well are selling.  Experienced motel owners looking to invest in the industry have acquired some excellent buying opportunities in the current market and will no doubt do very well overtime from these motel investments.  Although finance for many investors may have been more difficult to achieve, the very attractive interest rates for investors has urged many to persevere until they were able to find a financier who would facilitate their funding requirements.

An interesting point to note is that often in times of fluctuating markets buyer demand and confidence can be hit and miss.  2016 and 2017 were similar in that many properties went to Contract only to see it not reach settlement due to a buyer getting cold feet, changing their minds, being unable to source finance, etc, etc.  This year was different in one aspect in that when those Contracts did not complete, in many cases another buyer has almost immediately seized the opportunity and gone to contract on the business, and completed.  This has been another very positive sign of the market strengthening.

The year ahead will continue to see many excellent buying opportunities become available however we see this buying window of opportunity being squeezed as time goes on.  Last year we mentioned cheap finance being available.  This is still the case however many have not been able to access this finance on the back of some financiers having a blanket policy of not wanting to offer finance in certain regions.  Many good financing opportunities have therefore been lost even when the downside risk was minimal.

2018 looks to be very positive moving forward for the motel industry and we expect demand to increase with an improvement in values.