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Sunshine Coast Coastal Motels - Investment Insights and Market Dynamics

Coastal motels are thinly traded, particularly on the Sunshine Coast where demand remains strong. The typical buyer profile remains experienced hands-on owner-operators, often a two-person management team seeking a semi-retirement or lifestyle change.

Sunshine Coast’s coastal motels offer higher yields compared to regional areas. This is due to the appeal of a better lifestyle for owner-operators, ease of employing staff, and the expectation of superior growth in average daily rates and overall revenue.

Development Potential

Many coastal motels boast higher land content and strategic positioning in high-density zones, making them attractive for buyers eyeing future development opportunities. Tight yields on specific properties reflect this potential.

Analysed yields of freehold going concern motels on the Sunshine Coast over recent years reveal a range from approximately 6.5% to 12.5% (typically between 8% to 12.5%). On a per-room basis, values vary from around $80,000/room to $350,000/room. The market value typically ranges between $1.5 to $4 million on a whole dollar value for these types of assets.

Leasehold Opportunities

In the current market, motels are more easily disposed of by separating the leasehold (business) and freehold interests, driven by strong demand for passive investments and the relative affordability of leasehold (business) interests. Leasehold interests continue to attract reasonably strong interest from first-time industry participants who are attracted by perceived lifestyle opportunities and the lower entry cost.

The freehold Lessors Interest motel market is relatively strong, with purchasers seeking good quality motels leased to reputable operators. These investments typically offer long-term leases, annual rent increases, and secure tenants who have invested substantially into the premises and in acquiring or setting up the business. The availability of a reversionary interest in the business is also considered attractive to some investors. Our analysis of Lessor interest yields typically reflects a premium over traditional forms of commercial property investments.

Unique Stays & Transformations

Coastal motels cater to a diverse range of clientele, including budget-conscious guests.  However, there’s a growing demand for boutique motels and accommodation options offering a unique stay experience, ‘bougie’, or fulfilling guests ‘charm and character’ or environmentally conscious needs on a budget.

Recent examples of older motel transformations on the Sunshine Coast include the Insta-worthy Loea Boutique Hotel Maroochydore and Maleny Lodge for its charm and character. Even more recently, is the transformation of Motel Caloundra with a fresh new look that aims to be the first ‘net-zero’ energy motel with reported state-of-the-art energy sustainability technology appealing to the environmentally conscious traveler.

Competitive Landscape

Coastal motels face competition from various accommodation options. Including the majority of accommodation on the Sunshine Coast which is provided by resort-style or apartment-style management rights businesses. Motels typically compete with the lower quality management right complexes, upgraded caravan parks with cabins, and the rise in ‘Airbnb’ accommodation.

Occupancy Rates and Performance

Occupancy rates for coastal motels 5-10 years ago would typically range between 45% to 70%, however, recent years have seen an upward trend with average occupancy rates between 70% to 80%, with stays typically lasting between 2 to 4 nights.

The Queensland Accommodation Report, published monthly by Tourism and Events Queensland provides an overview of the performance of the Queensland Accommodation Sector. The report covers occupancy rates, revenue per available room (RevPAR), and average daily rates (ADR) for accommodation establishments with 10 or more rooms. The most recent report from August 2023 highlights a positive trend;

  • Occupancy rates increased to 74% in Aug 2023 (2.6% increase from Aug 22)
  • Average Daily Rates (ADR) rose to $242.49 ($11.23 increase from Aug 22)
  • Revenue Per Available Room (RevPAR) saw a significant increase to $179.42 (increase by $14.24 from Aug 22)

Comparing the current period to the pre-COVID-19 performance in August 2019, both ADR and RevPAR indicators showed improvement. However, occupancy rates remained 1.2 percentage points below the August 2019 level.

Several regions, including Brisbane, Fraser Coast, Gold Coast, Mackay, Southern Great Barrier Reef, Southern Queensland Country, Sunshine Coast, Townsville, and Tropical North Queensland, reported stable or stronger performance in terms of Occupancy Rate, ADR, and RevPAR compared to August 2022.

Key Considerations

Purchasers and valuers consider various factors regarding the quality and quantity of historical performance of the net income stream of an asset. Other important factors considered include location, exposure, competition, building quality, manager's residence condition, seasonality, growth potential, and future development opportunities when assessing motel properties. These factors guide property selection and valuation.

Wayne Airey
Associate Director
— Sunshine Coast Property Valuers
CPV
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