Australia’s accommodation management rights industry is worth around $8 billion, according to a new report by specialist real estate firm ResortBrokers.
That figure is 67 per cent higher than the $4.8 billion ResortBrokers valued the industry at a year ago when it published its inaugural Management Rights Report.
The much higher figure follows a comprehensive survey of more than 400 industry participants and after ResortBrokers included data provided by two specialist valuation firms to complement its own sales figures. ResortBrokers negotiates about 45 per cent of all management rights sales nationally.
“Thanks to our three new data partners, the Australian Resident Accommodation Managers Association (ARAMAS), AccomValuers and Australian Valuers, we now have a more statistically reliable sample size than that used for our inaugural report,” explained ResortBrokers head of research, Josh Mangleson,
According to the 2023 Management Rights Report, there are 4027 property management rights schemes in operation across the country, up 9 per cent from the 3679 identified a year ago.
These 4027 schemes represent 286,000 strata-titled apartments, villas and townhouses where caretaking and letting services are undertaken by an operator that has purchased the management rights. Collectively, the total value of these assets under management is $164 billion.
Alongside the growth in the number of management rights schemes, strong competition for the larger, more profitable offerings has increased the average prices paid for these rights.
Management rights are usually sold based on a multiple of net profit.
According to the ResortBrokers report, average earnings multiples have increased to 4.89 times net profit, up from 4.58 times a year ago for short-term management rights (typically holiday apartments or serviced apartments) and to 5.26 times net profit, up from 5.07 times for permanent management rights (owner occupiers or long-term renters)
“As quality assets come to market, people are paying higher multipliers for these assets,” said Alex Cook, a director at ResortBrokers.
Around 35 per cent of management rights schemes are short-term with the remainder being permanent management rights. Management rights are typically 10 years for buildings where the majority of units are owner-occupied and 25 years for those offered as short-term accommodation.
Highlighting how well the management rights model is performing, 85 per cent of schemes surveyed by ResortBrokers had been topped up. A top-up is when apartment owners agree to extend an operator’s tenure after the initial term has expired. A further 9 per cent were schemes less than five years old (thus not requiring a top-up) indicating that only about 6 per cent of schemes are not extended when their initial term ends.
“The high top-up rate suggests there’s widespread satisfaction with managers’ performance and the management rights business model,” said Mr Mangleson.
“If lot owners were unsatisfied with their caretakers, we wouldn’t be seeing the top-up rate so high.”
The management rights industry began on the Gold Coast in the 1960s following the growth of strata titled properties, and remains heavily centred around Queensland, which accounts for almost 90 per cent of all national schemes.
However, and partly in response to the growth of short-term letting in high-rise buildings, management rights schemes are growing in other states including in NSW and Victoria.
As an example, management rights to the 565-unit Aspire tower in the Melbourne CBD, were sold for $3 million recently.
In Sydney, management rights to the 100-unit Park Regis apartment hotel in Cremorne, on Sydney’s Lower North Shore sold for $5.2 million on a multiple of five times net profit while management rights to the 94-room Flynns Beach Resort at Port Macquarie sold for $1.9 million on a multiple of 3.5.
By region, the most valuable management rights are on the Gold Coast where short-term rights sell at an average multiple of 5.6 and permanent rights at average of 5.4.
However, multiples vary widely depending on the location, quality of the building, number of units and profit level.
Management rights to the 168-unit Peninsula Apartments at Kangaroo Point in Brisbane sold for just under $3 million on a 6.7 profit multiple while rights to the 25-room Pottsville Motel in regional NSW sold for $1.3 million on a 3.7 multiple
Whilst accommodation groups like Quest, Meriton, Wyndham and Minor Hotels are some of the bigger corporate players in the sector, around 90 per cent of the industry is made up of small mum-and-dad operators as well as syndicates.
Article source: www.afr.com