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Investors look for alternate accommodation investments in Australia

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The weak Australian dollar has made the land down under attractive to the budget traveller, and property investors are ready to cash in on the trend.  

According to the latest research by Colliers International, major cities in the country are inviting a large volume of international capital to the accommodation space, however there are limited opportunities in the hotel market. This shortage is diverting investors to include non-traditional accommodation asset classes in their property development plans

Director of Valuations at Colliers Christopher Milou says boarding houses, backpacker establishments, student accommodation and tourist parks offer a competitive risk return factor.

"While these alternate accommodation assets are targeting a different end user, many of the operating fundamentals can be transferred across, enabling investors to diversify their portfolios while still operating in a space they are familiar with," he said. 

This comes at a time when demand for beachside and inner city budget accommodation is peaking, with the low Australian dollar making it affordable for tourists looking for a bargain.

The research reveals owners of backpacker assets are holding on to their coveted possessions, with only a limited number of transactions taking place over the past few years.

Despite a surge in demand, only a few such properties were sold in the smaller fringe CBD or beach-side backpackers, for an average of  around $5 million.

The return from budget accommodation is between 8.5 per cent to 12 per cent, depending on site and location and the quality of accommodation. 

Interestingly, a quick investment appraisal shows, profitability as a percentage of total revenue, is greater for backpacker assets than that of full service hotels. This is because the latter provide limited services and have low staffing costs.

Nonetheless the general hotel market continues to be relatively more competitive. International buyers are not yet acquainted with the idea of a backpacker establishment - on the rare occasion when overseas investors do purchase such outfits, it is with a view to convert the site into a hotel. 

Date Published: 07 Apr 2015
Category: General News

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