SYDNEY and the Gold Coast have dominated hotel sales over the past two years, but Melbourne is seen as the next hotspot over the next 12 months.

While a research report by Colliers International identifies Brisbane as the CBD market most affected by the rush of new supply, it says major transactions will continue to ramp up in Queensland due to the lack of stock meeting broader investor demand.

"Looking at hotel property sales over the last two years we have witnessed record levels of transactions, but Sydney, and to a lesser extent the Gold Coast, have attracted the bulk of the action," says Stephen Burt, Colliers' managing director of hotels.

"Sydney has the best supply and demand dynamics of any hotel market in Australia. There are certainly new rooms coming into the market but there will also be some 1000 rooms taken out of city inventory over the next 18 months due to redevelopment of older hotels to commercial or residential usage."

Burt says investor demand for hotels and resorts on the Gold Coast has 'dramatically ramped up' due to improved infrastructure, including the city's light rail system, and the destination's growing profile among Chinese tourists.

"Certainly Dalian Wanda and Ridong Group are assisting this process with their massive Jewel development," Burt says.

However, he says Melbourne will be the main target for investors over the next 12 months.

"Despite Sydney being the larger city, Melbourne now has equal number of short-term accommodation rooms but its average room rate growth has been superior to Sydney year to date.

"The city has good occupancy, but the big factor for its room rate performance relative to Sydney is the opportunity to push rates over so many days during a packed events calendar.

"Hotel values have certainly increased in Melbourne, but unlike Sydney there has been very little sale evidence of major CBD hotels to specifically underwrite the new level of values.

"This will all change over the next 12 months with a number of major properties confirmed and potentially coming to the market."

Sydney remains Australia's most lucrative hotel market, with REVPAR (revenue per average room rate) sitting at $196.33 at the end of June this year. This compares with Melbourne at $174.91 and Pert at $161.83.

Brisbane saw REVPAR fall 5.6 per cent to $126.36 while Gold Coast jumped 8 per cent to $118.72.

According to MSCI Investment Property Databank, Australian hotels delivered an average 14.2 per cent return in FY15, up from 9.9 per cent a year earlier and the highest since 2012.

Colliers says interest in the Australian hotels market is largely coming from Asia, particularly China.

The domestic market has been buoyed by a flattening in the number of Aussies choosing to holiday overseas in FY15. This compares with 130 per cent growth in outbound tourism between 2006 and 2014.

According to Colliers, once opportunities become tougher to find in Sydney and Melbourne, Queensland will be the next big market to take off.

Domestic leisure travel is on the rebound, with Colliers identifying Cairns as the most improved trading market in Australia.

"There is strong anecdotal evidence that all of the major Queensland markets (tropical North Queensland, Brisbane and Gold Coast) will continue to see transactional activity on the back of a lack of stock to meet investor demand that cannot be satisfied in the two preferred markets of Sydney and Melbourne," says the Colliers report.

Meanwhile, Colliers also identifies Hobart as the dark horse in the hotels sector.

"In terms of future prospects a lot depends on the proposed extension of Hobart Airport's runway in order to support more direct flights of larger planes from both mainland Australia and Asia," says Burt.

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