Motel market wrap up: 2014
There are always two sides to every story. 2014 has been a tough year for many and for others it has created opportunities.
Throughout Queensland there have been some pockets that have performed very well, and in other areas the situation has been, to put it nicely, “very difficult”.
Occupancy rates and room rates have been under pressure throughout much of the state as a result of a number of factors including the high Australian dollar (for much of the year) affecting many industries including tourism, the continued contraction of the mining industry that has affected much of regional Queensland. Other factors such as increased competition coming online being the lag of developments commencing just as (and after) the market started to decline.
Many of the larger centres throughout the state have all experienced high levels of increased competition at some stage, Toowoomba approximately 10 years ago, Townsville, Mackay, and Gladstone more recently. The situation has occurred in the past where more than 300 additional short term accommodation units have come to the market in these areas within a short time frame. Added pressure comes in the form of the lag time in construction for new accommodation complexes that were conceived during stronger times, however only ended up coming on line whilst occupancy rates had been falling, thereby compounding the decline. Discounting to attract guests through the doors by new complexes then creates a bigger issue for all battling for market share.
The extremely strong trading performances achieved in the sector during the 2011/12 financial year have however continued to be tempered during 2014. One must say that having been up against the wall for the last 18 months to two years the motel industry and its operators are resilient. It is too easy to focus on the negative rather than looking for other opportunities to enhance and grow a business (in any industry). Moving with changing times and adapting is not easy but many operators have knuckled down and worked hard to combat a decline when the situation demanded it.
In respect to sale transactions the lower end of the market that is largely dominated by leasehold motels has seen the lowest amount of activity. This market is predominantly comprised of first time entrants to the motel industry. A lack of confidence based on wider economic and global concerns does play a role in the decision making of this market, probably more than others.
Marketing periods of motels have extended due to buyer hesitation to enter the market while being bombarded with negativity. Again though, which was the case back in 2013, there has also been an active and genuine market throughout the year that has been quietly buying the right motel opportunity when it has presented itself. Those with confidence in themselves to increase the trading of a complex taking it to the next level are benefiting from opportunities that have been presented to them.
The supply of freehold motels has appeared subdued with many being marketed by way of “off market transactions” rather than a comprehensive marketing campaign. Many who have wanted to sell recently have decided that their price expectation may be too high in the current market and would therefore look to increase the trading of the business prior to selling via a formal marketing campaign.
The leasehold market has seen many new listings become available since mid 2014. There have been a few that have listed for sale on the back of pressure to sell and others who have been producing excellent trading results, however, have for various reasons decided it is time to move on.
The mid to latter part of 2014 has seen the hard work from earlier in the year produce some excellent sales results recently. The buying opportunities that have been created on the back of a year of lower than normal occupancy rates and trading results in general are many and this has been recognised by cashed up buyers. A steady stream of enquiries has continued to build hope of improved conditions for those vendors genuinely wanting to sell.
The ongoing lure of very attractive interest rates for investors has not really been fully taken advantage of in my opinion (due to some of the reasons mentioned above) and the carrot being dangled should continue to entice the market further as time goes on.
The current market indicators all point towards opportunity, and now is the time to get in while the lift is at ground level.
