Hotels in high demand

Investment in the hotel sector is tipped to breach the $2 billion level in the coming few months as buyers get a foothold before the next growth phase.

The planned Crown Hotel at Barangaroo and the recent sale of the Four Seasons Hotel in Sydney has triggered another round of interest in the sector by Australian and overseas investors.

To keep ahead of the competition, a new round of renovations and redevelopments are about to start across Sydney.

One suggestion is the pending sale of the Department of Lands building in central Sydney, which is said to be earmarked for development into a five-star hotel.

According to Colliers International, total hotel sales activity (above $7.5 million per transaction) for the year to date is more than $1.6 billion (including the recent sale of the Tourism Asset Holdings Ltd properties and the Four Seasons), showing an increase of 20 per cent on the total value for 2012. Transaction activity during 2013 has been the strongest since back in 2007, reflecting interest from sovereign wealth funds and global institution investors. Colliers' director of research, Nora Farren, said Australia's appeal for offshore institutions included the availability of scalable investments, reasonable initial yields, a stable economy, attractive trust structures and a transparent legal system.

"All of these attractions are still prevailing and we can expect to see further offshore interest in Australian hotels," Ms Farren said.

Agents said in an increasingly competitive market and with new state-of-the-art accommodation projects on the horizon, existing hotel owners and operators need to actively consider their future asset and customer requirements.

Ross Beardsell, the senior vice-president of asset management at Jones Lang LaSalle's Hotels & Hospitality Group, said the next phase for the sector would entail significant refurbishment.

"Hotel refurbishment is not appropriate all of the time, but rather when it will deliver the greatest returns or is required to protect the current cash flow.

"The frequency of hotel refurbishment is largely dependent on the age of buildings, standard of construction and current fit-out, level of ongoing maintenance and strength or competitiveness of the operating market, along with changes in consumer preferences.

"Typically, operators and investors work on seven-year cycles for room refurbishments and five-year cycles for food, beverage and public areas, but this can be extended with a well-designed, high-quality fit-out and rolling maintenance programs," Mr Beardsell said.

Craig Collins, the chief executive Australasia of the Jones Lang LaSalle's Hotels & Hospitality Group, said the Four Seasons Hotel, which recently sold for $340 million, had undergone significant upgrades to be competitive.

The sale was the largest since the Shangri-La Hotel Sydney was sold last year for $330 million.

The Singapore-based M&L Hospitality's plan to transform the Four Points by Sheraton in Sydney's Darling Harbour is another big redevelopment program boosting activity in the hotel sector.

The new development includes 4810 square metres of pillar-less convention, exhibition and function space designed by architecture firm Bates Smart.

According to the M&L directors, the redevelopment will help address the shortage of event space during the remake of Sydney's International Convention, Exhibition and Entertainment Precinct.

Along with the new hotel rooms, the new tower will also incorporate a spectacular A-grade boutique office component, as part of the project's 5000-square metre commercial development. The seven-floor office development will have views that cannot be built out.

The chairman of M&L Hospitality Michael Kum said the investment was a result of "the level of confidence we have in both Sydney and the Australian hospitality market".