Motel Market wrap up: 2015

This year has been one many have enjoyed and on the other hand many are glad to see the back of.

In similar fashion to the year before, 2015 has been a mixed bag of emotions and prosperity, largely dependent on where one is located.

As 2014 was a tough year for many 2015 followed suit. For others it created great buying opportunities. Again, certain areas of the state performed extremely well and others have struggled with reduced demand for accommodation and increased competition coming online. Much of this being a lag of construction from a more buoyant time.

Thankfully, this seems to have largely cleared from the system and those affected markets can now gain a greater traction as a rebuilding phase commences.

One notable change in the market has been within the tourism sector. The Australian dollar hovering around the 70₵ mark for much of the second half of the year has been a welcome relief. Overseas tourist numbers have been increasing and many in the accommodation industry have reported increasing occupancy rates as a result. This has been positive as it had been a difficult time prior for the sector. Overall, reports are that occupancy rates and room rates have been slowly increasing in the tourism-dominated areas.

The continued contraction of the mining industry that has affected much of regional Queensland appears to have levelled out in recent months. We have even witnessed increased demand and trading in some areas. Hopefully this situation can begin to steadily improve. The highs that the resources sector boom delivered will not be seen again. However, any improvements in the industry will be welcomed by all who have experienced the highs and lows.

Discounting of room rates to attract guests through the doors by new complexes (and old in some cases) has continued to create bigger issues for all battling for increased market share. Many have seen this as the easiest option to try and increase guest numbers through the door. Those long-term operators who have seen the highs and lows know this is an unsustainable short-term situation. Growth is impossible while high levels of discounting are being utilised as a recovery strategy.

In respect to sale transactions, the lower end of the market largely dominated by leasehold motels has continued to see the lowest amount of sales activity. This market is predominantly comprised of first-time entrants to the motel industry. There is, however, always a market for a well-presented motel business that has good fundamentals, a good client base and is priced correctly. Those who have been able to provide this product to the market have achieved a good result, even in tough times.

The leasehold market has seen large and small motels changing hands when priced to meet the market. Cashed-up buyers have taken up good motel opportunities when presented to them. Many have had to sit on the market without much activity when there has been an unresolved issue regarding for example, rent being too high, or the term of the lease being too low, in relation to the price being asked.

The supply of freehold motels has continued to be subdued. In the same situation as leasehold motels, any good quality properties with up-to-date trading data, that are priced correctly are selling well. Many vendors have not been ready to meet the market over the past year and good to strong offers have often been rejected.

Many in recent times, whose trading levels had declined in some way, who have wanted to sell, have decided that their price expectation may be too high in the current market. Therefore, they are looking to increase the trading of the businesses prior to going to the market with genuine intentions.

The ongoing lure of very attractive interest rates for investors has again not really been fully taken advantage of in my opinion. We have noticed in the latter part of 2015 that this is changing as many investors who have been quiet are now actively seeking good quality motels as their preferred investment choice.

As one chapter ends another begins and 2016 is shaping up to be a strong year for motel and accommodation business sales. It should provide a good opportunity for many potential sellers and open the door for an active buying market.

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