Chinese tourism will be the strongest growth market for Australian hotels in 2012

The strongest growth market for Australia in 2012 will be Chinese tourism. The latest figures from Australian Bureau of Statistics show that during the year to September 2011, Chinese visitors increased by 23%. Tourism Australia identified that the China in-bound market was worth $3.26 billion to the Australian economy in 2010.

The strength in the in-bound Asian market is expected to offset the decline in travellers from Europe and the US. The number of visitors from the US is expected to be below historic average levels in 2012 due to the increased cost of long-haul flights due to oil price inflation, and the decline in the value of the greenback against the Australian dollar.

During 2012 our tourism markets will be driven by the relatively robust performance of the domestic economy, solid demand from Asian leisure travellers and a strong corporate and conference market.

While previously Australia relied heavily on tourist numbers from Japan, the focus has now firmly shifted to visitors from China and India. This is particularly important for our leisure based destinations, which have suffered from a decline in domestic visitors due to the high Australia dollar. Australians have shown an increasing preference for overseas travel over the past 12 months, and we expect this trend to continue into 2012.

Off shore buyers will dominate Australian hotel purchases in 2012. Domestic institutions are now showing a reduced appetite for hotel investment due to the perceived higher risk profile, and the cost and conditions attached to raising debt. This is despite the recently launched IPD Hotel Index showing that hotels were the best performing commercial property asset class in Australia in 2010, with a total return of 14.6%. During the year-to-date 2011, nearly 70% of total hotel purchases have been made by off shore investors. Large transactions have been made by Asian and North American parties, following an active year in 2010 when Australian hotels saw the largest inflow of foreign capital since 2002.

Asian investors remain the most active buying group and are expected to dominate investment in 2012. The strong fundamentals of the Australian hotel market will also see increased interest from global and sovereign wealth funds looking for core opportunities.

With few new hotels under construction and scarce investment product, demand for prime CBD Australian hotels is likely to see increased competition for assets brought to the market over the coming year.

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Michael Thomson is national director of hotesl and leisure for Colliers International.