AUSTRALIA - Institutional investors should consider investment in Australia's business hotels, CB Richard Ellis has urged, arguing that a lack of new developments is resulting in ever-increasing investment returns across the sector.

Speaking to IP Real Estate, the company's executive director for research and consulting in Asia Pacific, Kevin Stanley, said that, as plots for development in the country's various central business districts (CBDs) were "hotly contested", it often led to hotel developers being outbid - resulting in higher demand for the established venues.

"With the exception perhaps of Melbourne, there has been very little new building of quality hotels in Australia's CBDs over the last 10-15 years," he said, arguing that institutional investors should "take note".

However, he conceded this was in stark contrast to hotels reliant on tourism, as domestic holidaymakers often chose cheaper overseas destinations.

Stanley, who is based in Sydney, added that, as a result of the comparatively higher cost of local debt, investors in most areas of property will still see their holdings outperform other traditional core sites, such as London and Frankfurt.

He said the average yield on prime office space in the country's CBDs remained at 7%, compared with rates of 3.35% and 2.7% in neighbouring Singapore and Hong Kong, respectively, while the City of London was faring better with yields of more than 5%.

As a result, he said Asian institutional investors were turning their attention to Australia, with the country reaping both the rewards of these pension funds allocating a larger stake of assets to real estate and overseas holdings.

He also highlighted the two-tier economy in Australia, stating that Perth and Brisbane's exposure to the growing mining market was allowing those cities to see office rentals recover around a year faster than expected.

Stanley said that, while the "traditional" business centres of Sydney and Melbourne would still see growth, it would be at a lower rate than the other state capitals.

While acknowledging Sydney was probably more reliant on domestic financial companies and therefore also global market turbulence, he remained positive on the growth outlook.

"There is depth and stability about these cities that is very reassuring for foreign investors, and they are normally the first ports of call for offshore groups," he said.