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Commercial Finance News April 2023
FOUR questions to ask before renewing your invoice finance contract
Renewing your invoice finance contract is an important decision that can significantly impact your business’s cash flow. As your business grows, it’s essential to assess your different options to ensure they continue meeting your needs. Here are four questions to ask before renewing your invoice finance contract.
Is invoice financing still the best option for my business? Your business needs may have changed since you first entered your invoice finance contract. Other options, such as loans or lines of credit, might now be better suited to your current situation and where you want to take your business in the future.
Are the current service and terms still suitable for my needs? Even if invoice financing remains the best choice for your business, your current provider may not offer the services and terms you need with where your business is at now. It’s important to review the level of customer service you’ve received. Lenders might also have adjusted their offerings due to market conditions, which could impact the flexibility and terms of your contract. Having an open, transparent conversation with your provider will help you make an informed decision.
Are there any changes to fees and costs? Renewing your invoice finance contract may result in different fees and costs than your initial agreement. Ensure you fully understand the ongoing fees, such as annual, account management, auditing and processing charges. Compare these to your previous contract and the fees offered by other providers to ensure you’re getting the best deal for your business.
Are there any changes to the terms of the contract? Terms and conditions can change when renewing a contract, so it’s important to have a clear understanding of any differences from your previous agreement. Ask the lender about potential penalties for late invoice payments, the ability to submit multiple invoices as collateral and any lock-in periods. Knowing the terms upfront will help you make the best decision for your business.
Increased investor interest in the hotel sector
The hotel sector could be set to see further demand from investors as interest rises.
According to CBRE, Australian hotel sales reached $2.14 billion in 2022, the second-highest transaction volume on record.
The hotel sector was one of the most in-demand assets during the pandemic, with a record 53 hotel sales across Australia valued at over $10 million in 2022, which was 39% above the 10-year average.
CBRE’s Australian Head of Hotels Research, Ally McDade, said as economic conditions stabilise, we should see capital markets benefit from greater investor certainty, translating into more demand for hotel assets.
CBRE Regional Director of Hotel Valuations, Troy Craig, said domestic travel is also likely to continue driving the Australian tourism industry.
“Occupancy levels in domestic demand-dominated cities are expected to edge upwards from already strong levels, while Sydney and Melbourne should continue to see occupancy gains as inbound demand recovers,” Mr Craig said.
According to CBRE, while short-term overseas arrivals remain 40% below pre-pandemic levels, the reopening of China’s borders is likely to see Australia’s inbound tourism economy fully recover in 2023.
CBRE’s forecast reveals that the hotel market’s expansionary phase is set to peak in the next 12 months, with around 8,400 rooms to be delivered across the country’s major hotel markets in 2023 and 2024. Following this wave of additions, higher debt and construction costs are anticipated to suppress the hotel development pipeline, largely limited to key strategic sites with mixed-use appeal.
Meanwhile, high inflation and elevated interest rate levels will place upward pressure on yields and IRR expectations according to Ms McDade.
“Improving tourism demand fundamentals and impressive performance indicators are likely to cushion any impact of higher credit-funding costs,” she said.
Despite this, CBRE is forecasting moderate Average Daily Rates (ADR) growth over 2023 and Mr Craig said that most city markets will still post gains as hotel operators maintain strong rate policies in favour of returning to pre-pandemic occupancy levels.
For now, the hotel sector has been largely insulated from the effects of rising inflation due to recovering occupancies and strong growth in ADR.
CBRE’s national occupancy rate averaged 65%, just 10% below pre-pandemic levels and ADR rose 24% over the year to $228, outpacing 2019 rates by 23%. Domestic travel nights have also reached or surpassed pre-pandemic levels in Queensland, South Australia, Western Australia and Tasmania and spending in these states is up by approximately 40%. This trend is benefitting Australia’s gateway cities of Sydney and Melbourne, which have recorded the strongest year-on-year growth rates in relation to both ADR and occupancies, aided by a recovery in corporate travel and international travel.
CBRE said it’s optimistic about the future of the hotel industry and expects to see investors return as well as the reopening of borders, a growing tourism industry and the addition of new hotels all being factors contributing to the positive outlook of the industry.
The life science sector emerging as an asset class
Demand for life science assets is on the rise in Australia as the ageing population will continue to put more demand on the growing sector, according to a report from CBRE. The report also found that the industry is emerging as a major growth sector, with increased levels of investment from pharmaceutical companies and the government contributing to rising demand.
There is currently a significant shortage of quality life science facilities in Australia and only a small number of investors are seeking exposure in this emerging asset class. The life sciences industry includes medical laboratories, medical research organisations, pharmaceutical companies, and biotech firms.
Sandro Peluso, CBRE’s Director of the Australian Healthcare and Social Infrastructure team, said that there is a growing appetite for life sciences venture capital and private investment opportunities.
He said that while investors are starting to seek quality assets in the life science field, the sector is still relatively new.
The report noted that life science operators often commit to long lease terms of 10-15 years (or more) due to the capital needed to set up such facilities. Additionally, with record low vacancy rates, having a life science operator in a facility is likely to drastically increase its market appeal when it comes time to sell.
One of the key reasons for future growth is the rise in Australia’s average age, which is expected to increase significantly and lead to rising demand for medical treatment and life-extending products. According to the report, Australia’s population aged 85 and above is expected to increase from 534,000 in 2021 to 1.28 million by 2041, representing an increase of 140%.
The Australian Government uses the National Health and Medical Research Council, Biomedical Translation Fund, and the Medical Research Future Fund, alongside university grants, to fund health and medical research. Since the beginning of 2010, total government research spending allocated for health sits at 16.5%, compared to a median of 7.8% in other countries.
Pharmaceutical companies are also expanding their production capabilities in Australia, including R&D, manufacturing and distribution. On top of that, life sciences businesses are also active in real estate acquisition, disposition, and debt and equity recapitalisation strategies across the sector.
Mr Peluso said developers and investors are also focused on the sector’s strong underlying fundamentals.
He said despite the significant shortage of quality life science facilities in Australia, it is becoming a sector of interest for investors as it continues to grow due to the rising demand for medical treatment and the increase in government funding.