24 Oct 2024
Words

Market Outlook: Victoria

In this Q&A, our local Victorian brokers Chris Boschetti, East Victoria, and Hugh Thomas, West Victoria, talk about high buyer demand, the diverse occupancy drivers for their zones, stamp duty concessions for regional assets and the benefit to traditional accommodation businesses the upcoming Airbnb surcharge is likely to have.

Let’s begin with a friendly turf war, gents. What’s better: east or west Victoria?

Hugh: Generally, those who live in the east refuse to drive through the tunnel to go to the west. They’re a bit snootier in the east. [laughs]. Seriously, I wouldn’t say one’s more favourable than the other. Both are great for accommodation owners and operators for different reasons.

Chris: Agree. Each side has its own tourist appeal and industries. For tourism, Hugh has the Surf Coast, from Torquay at the start of the Great Ocean Road through to Apollo Bay. I’ve got Phillip Island, the Mornington Peninsula and Gippsland. Hugh’s got farmland. I’ve got energy and Defence: the RAAF Base East Sale, HMAS Cerberus on the Mornington Peninsula and Puckapunyal, the army base near Seymour, north of Melbourne.

Hugh: There’s more of a Defence focus in the east. But we’ve got more agriculture in the west. All the way up to the Mallee in the northwest of the state is classic regional farmland. Then you’ve got those key regional towns that are very busy with mid-week corporate trade. For me, it’s places like Warrnambool, Horsham and Bendigo. For Chris, it’s Sale and Bairnsdale. Then you’ve got the Hume Highway, the main corridor between Melbourne and Sydney, which has key towns and cities as well.

Chris: And energy right around the state. We now have six designated Renewable Energy Zones in Victoria. Gippsland and Ovens Murray in the east. In Hugh’s zone, there’s Murray River, Western Victoria and South West. And one in Central North. All are driving corporate occupancy.

Hugh: Wind turbines everywhere. A couple on the southwest coast. A whole bunch on the way to Ballarat.

Plenty of strong occupancy drivers, clearly …

Hugh: We’re seeing it reflected in strong buyer demand. Buyers have a healthy appetite for all types of accommodation businesses. I think buyer interest holds true right across the state. How are you seeing it, Chris?

Chris: Same. I’ve got people already in the industry who want to add to their portfolios. I’ve also got first-time buyers. Many are working in the F&B sector and want to enter the accommodation market because it’s more stable and yields better returns. Increased costs of doing business in F&B and the buying public’s reduction in discretional spend has taken its toll. That makes accommodation businesses so much more attractive.

A new development that’s going to be beneficial for the hotel/motel sector is the introduction of the 7.5% surcharge on Airbnbs from 1 January 2025. It’s going to protect traditional accommodation owners. There was a lot of people investing in Airbnb properties. Now, they’ve been hit with a 7.5% tax on their bookings.

Another benefit is stamp duty concessions for regional Victoria. The state government has implemented a 50% concession on stamp duty for the sale of commercial properties in certain municipalities in regional Victoria. This is a huge positive for buyers.

Regional Victoria is already doing well, especially compared to metropolitan Melbourne. In my zone, occupancy is up 4.7% for Gippsland and Phillip Island for the year to August 2024. Gippsland and Phillip Island also recorded 9.5% growth in RevPAR, outpacing central Melbourne at 3.3%. ADR is also growing, whereas Melbourne has actually gone back two points.

Hugh: These are very positive signs in what is a challenging economic period in Victoria with our growing state debt. We’re not supported by the mining industry, so we’ve had a bevy of new taxes, particularly the land tax which is putting pressure on investment owners. That’s impacting investment across various asset classes or investors wanting to offload second, third or fourth assets.

Buyer demand isn’t the issue. It’s that demand continues to outweigh supply. While buyers are hungry for quality stock, they’re also not prepared to pay overs. They’re crunching their numbers to chase yields. The challenge for us as brokers is bridging that gap between vendors’ and buyers’ expectations.

Why do you think vendors continue to have different expectations in this current market?

Hugh: Some do, some don’t. For those who do, I think it’s a hangover from the highs of 2022, 2023 when we emerged from Covid. Melbourne had the worst lockdown in Australia and one of the worst in the world. After those restrictions lifted, regional travel went gangbusters. Accommodation operators rode this wave. Then the market corrected and has come back to a more normal trading pattern. Some vendors are still trying to dine out on their post-Covid surge numbers. They’re seeing buyer demand is still very strong, so they think a tight yield is still achievable. But the market has shifted.

When did the shift happen?

Hugh: Once we ticked over into this new financial year and had a full 12 months of trading from 2023–2024. Anything listed earlier in the 2024 calendar year, whether February, March or April, were still dining out on the 2022–2023 financial year. It’s been a real education piece with some buyers. Some will say, ‘Old mate tells me you don’t get more than a 3.2 multiplier’ for certain properties. But we’re seeing four times in the market for those same properties. Those buyers who continue to search for those illusory multipliers will continue to miss out. You’ve got to meet the market where it’s at.

Let’s talk buyers. Where’s the interest coming from?

Chris: All over. Local, interstate, international. I’ve had Korean buyers look at some of my listings through their business manager in Australia. For interstate, buyers in New South Wales and South Australia are looking to enter the Victorian market.

Victoria is a small state, so holiday destinations are not far for people who live in Melbourne to travel to. You’re only three, four hours from Melbourne. That provides opportunity for travellers to holiday within the state but not too far from home. Melbourne is now Australia’s largest city, so you’ve got a large and ready market of travellers wanting leisure and corporate accommodation. That’s very attractive to buyers.

Hugh: The two businesses I’ve settled so far were local buyers. One was a luxury rent roll in Johanna on the Great Ocean Road. The other was a freehold passive investment in Apollo Bay. But I’m also seeing buyers from everywhere. I’m getting a lot of enquiries from buyers from the subcontinent. They’re extremely active in the market. A lot of their money is cash, meaning there’s no bank finance required. 

You seem to know each other’s zones pretty well. How often do you guys speak and share intel?

Hugh: Pretty much daily or at least every second day. I get a bit sad if Chris doesn’t call me or return my calls!

Chris: Vice versa!

Hugh: We pick each other’s brains. ‘Hey, this is what I’m thinking for this property. What do you think?’ Bouncing ideas off each other is really important. It helps frame our days and weeks. 

Chris: That’s the ResortBrokers way. We’ve all talk to each other. Hugh and I don’t only talk to each other but ResortBrokers’ entire cohort of 30 brokers across the country. The accommodation property industry is now a national, if not international, marketplace. We’ve got the best buyer network in the country because it’s brokers like me and Hugh building great relationships with buyers and sellers to get deals done. END