26 Sep 2024
Words Jacqueline Featherby Informer

Market Outlook: NSW Central Coast

Jacqueline Featherby, our broker on NSW’s Central Coast, on why buyer demand in her zone remains sky high.

Jacqueline’s sales zone extends north of her base on the Central Coast to Newcastle and the Hunter Region (as far as Gloucester), inland as far as Murrurundi and Scone and west of Sydney to the Blue Mountains. Here, she explains the opportunities and challenges in her region, where she has more than capably represented ResortBrokers since 2019.

HOW’S THE MARKET LOOKING IN YOUR ZONE AT THE MOMENT?

We’re still in a good market. While there’s apprehension because of the economic environment, buyers remain hungry for properties in my zone. I’ve never had a problem with demand. It’s lack of stock that’s the issue because it’s a very tightly held market. On the Central Coast, Newcastle, the Blue Mountains and Hunter Valley, accommodation owners and operators tend to hold on to their stock. Some assets have been in the family for generations. I get phone calls from buyers all the time about certain properties. Then I’ll visit the property, and the owner or operator says, ‘We’re holding on for now.’

That said, I sense the market is about to change. Talking to many operators in my zone, I’m getting indications a lot are thinking of selling. It won’t surprise me at all to see a lot more stock come to market in the near future.

IF MORE STOCK DOES COME TO MARKET, WHAT’S YOUR MESSAGE TO OPERATORS THINKING OF SELLING?

Better to move sooner than later. Operators’ EOFY balance sheets are looking strong coming off a good year’s trade. That puts them in a great position to sell. But we don’t know what the next 12 months will look like and how it will impact their trade, which obviously will affect their sale price. It’s a question of timing rather than buyer demand, which is always strong in my zone. My phone rings hot with buyers interested in leaseholds, passive investments and freeholds within two to three hours’ drive of the Sydney circumference.

WHY IS THAT?

A couple of reasons. Sydney buyers want to reside in Sydney but want an asset close enough they can get to. Whenever I get a listing in my zone, whether it’s a hotel, motel or caravan park, I get inundated with enquiries from Sydney buyers. I’ve had some very disappointed Sydney buyers because they’ve missed out on opportunities because the competition is so fierce. From my clients’ perspective, it’s beneficial because it creates strong competition.

The second reason is returns. Yields in Sydney are a lot tighter. I’ve seen a lot of new buyers come into the accommodation sector from other investment sectors because they’ve caught on that accommodation delivers better returns, particularly in the regions. On top of that, the sector is stable and growing. People are always going to need accommodation. The national housing crisis has unfortunately brought that back into focus.

HOW HAS THE HOUSING CRISIS AFFECTED THE ACCOMMODATION MARKET?

There’s no doubt the housing crisis has driven occupancy and rates up. Central Coast, Newcastle and the Hunter are all suffering from the housing crisis. Some accommodation operators have signed up to the NSW Government’s Link2Home program and turned some of their rooms into social housing. As a result, some operators have gone from 70% to 90% occupancy. Higher occupancy has in turn driven up rates. But it has also posed difficulties for operators in how they manage it, as giving some of their rooms to social housing can impact their regular guests.

The housing crisis has also driven higher demand for parks. These days, many parks have permanent rentals as part of their revenue mix. Last year, I sold the freehold going concern of a mobile village / motel combination in Wyong on the Central Coast. I was inundated with buyer enquiries because the area has such a high demand for housing and not a lot of stock because large MHE corporates have already bought up many of the parks in the area.

YOU’RE ONE OF RESORTBROKERS’ QUEST APARTMENT HOTELS SPECIALISTS. AND ONE OF ITS MOST SUCCESSFUL. IN FY24 YOU SOLD A RECORD FIVE QUEST FRANCHISES AND ALREADY HAVE TWO DEALS LINED UP TO SETTLE EARLY IN FY25. WHY ARE QUEST BUSINESSES IN SUCH HUGE DEMAND?

The short answer is they follow Quest’s structured business format franchise model.

Location, obviously, is a huge factor. Quest has always had the strategic foresight to position its hotels in growth locations. All the Quest businesses I sold last year fit that mould: Quest Liverpool is in Greater Western Sydney, one of the fastest developing regions in the country. Quest Cronulla Beach is in the ever-popular Sydney seaside suburb. Quest Albury and Quest Wodonga are in Albury-Wodonga, one of Australia’s largest regional communities. For Quest Singleton, the mining and defence sectors are huge occupancy drivers. Our most recent sale, Quest Macquarie Park is in the heart of Sydney’s global economic corridor, home to many international companies.

The second key ingredient is Quest’s incredible support for its franchisees. Quest wants its franchisees to succeed so it does all it can to give them all the tools to do so. Each franchisee has a franchise relationship manager and ongoing support from Quest’s national sales and marketing division is phenomenal.

Thirdly, Quest's corporate-focused business model is a proven success. Quest hotels continue to perform exceptionally well, mostly due to their strong corporate relationships with key customer segments.

Demand for Quest properties is the strongest I’ve seen in five years. I not only have a huge demand from buyers looking at Quest leaseholds, but I also get a lot of enquiries for Quest passive investments. Quest freeholds are secured by lessees with skin in the game who look after their landlords’ properties like they were their own.

For Quest franchises, we’re also now starting to see a different buyer profile, particularly for larger Quest businesses.

WHO ARE THESE NEW BUYERS?

Some are first time buyers, not just new to Quest but also the accommodation sector. Because ResortBrokers has been Quest’s preferred supplier for over a decade, we’ve really fine-tuned our buyer list along with educating our buyers who may not know about Quest.

For some large Quest businesses, I’m seeing a lot more buyers interested in joint ventures. Previously, smaller transactions attracted hands-on operators, either a couple, associates or two friends going into business together, like Quest Bundoora, Quest Cronulla Beach and Quest Liverpool which I recently settled.

But it’s also shifted a different buyer profile around the $5 million mark based on the enquiry levels we’ve received. When someone’s considering buying a Quest business that’s selling for $5 million or higher, they may not want to be hands-on driving the business.

In the instance that a buyer may be able to fund a Quest business and is enthusiastic about the benefits of owning one and becoming part of the Quest family, but may not want to be hands on, there’s the option of a JV with someone who may not be in the financial position to own outright but can fund 20% or more.

In this scenario, the minority shareholder, will operate the business and the benefit is they have skin in the game. Sometimes, these minority shareholders are experienced hotel workers. They’ve been hands-on operators previously, so are keen to take on that role and run the business.

That’s where ResortBrokers is connecting a lot of people and helping to put these deals together through Quest head office. We’ll make the introduction through Quest who’ll then decide whether to green light it or not. ResortBrokers is really embracing that kind of change brought about by an evolving buyer profile and helping to drive it too. END