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Annual Motel Market Wrap Up 2018

Andrew Morgan - Thursday, December 27, 2018

Written by Andrew Morgan, Specialist Resort & Motel Broker

What a difference a year can make. In the 2017 wrap up I commented that 2017 was similar in many aspects to 2016. This time I am happy to say that 2018 could not have been more different to its predecessor.

In summary, 2018 has shot the lights out compared to 2017. Sales volumes are up significantly and 2019 is looking strong going forward. Sale values are improving along with occupancy rates and slowly but surely, room rates throughout the state.

The first quarter started out strongly with activity that had been building late in 2017 and the rest of the year continued to follow. The second quarter showed a very strong period of sales and enquiry. The third quarter activity continued with impressive sales numbers that confirmed an appetite for good quality accommodation businesses. The final quarter of 2018 has seen enquiry levels drop slightly however genuine buyers are still active with many accommodation businesses across Queensland under contract. Again, as was the case last year, freehold sales have dominated the transactions settled.

Solid gains in economic prosperity for areas of the state that had been down have been welcomed. Increasing occupancy rates have resulted and room rates are now under pressure to increase. The redevelopment of sites (and pending future redevelopment) predominantly improved with older neglected properties where the highest and best use of the site was no longer the existing motel property has been occurring. There are no doubt more to follow where the lack of capital injection for maintenance on some of these properties will result in redevelopment of the sites.

The tourism sector has again continued to grow with Far North Queensland showing good signs of improvement. Last month’s issue of Resort News spotlighted the North Queensland region which showcased some very positive commentary on how the region’s accommodation sector has been faring. The Australian Dollar has been holding around the 70 – 72 cent mark which at the same time last year it was noted that it was “maintaining that mid 70’s percentage mark”.

The contraction of the resources sector seems to be largely behind the state. Companies have been reporting strong growth and demand for labour has seen regional towns that were struggling now having a spring in their step. A clear example of this is Mackay, where the residential rental vacancy rate reached 10.5% in 2015/16. It is now down to 1.7% which is as low as it has been for the last 10 years. Again it confirms that everything is cyclical. What goes down will go up!

Leasehold motel transactions have been subdued witnessing the lowest amount of sales activity. There is however 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 in the level of demand for motel leases in the last couple of months.

Investors have continued to seek the comfort that freehold motels offer with freehold sales being recorded at all stages throughout the year. Any good quality freehold properties with up to date trading data, priced correctly, and presenting well are selling.

An interesting point to note is that often in times of fluctuating markets buyer demand and confidence can be hit and miss. In contrast to 2016 and to a lesser extent 2017, this year has seen most properties that have gone to Contract have reached settlement. Pressure on those buyers from under bidders has ensured that special conditions were met on time, or that Contracts were entered into on an “unconditional” basis. Cold feet has not been an option. Again, this has been another very positive sign of the market continuing to strengthen.

2019 looks to be very positive moving forward for the Queensland accommodation sector.