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Australia’s hotel investment market — much like the rest of the property market — slowed during the second quarter of 2022, presenting a window of opportunity for new owners.
2022 rests at $1.15 billion, an increase on the $1 billion worth of transactions during the first six months of last year; however, market activity halted during the second quarter of the year due to a change in the economic backdrop.
In the year to July 2022, offshore capital made up a large portion of deal flow — at 57 per cent — which symbolises the rebound experienced following a two-year lull due to pandemic border closures.
Karen Wales, national director, Asia-Pacific region, hotel transaction services at Colliers, anticipates this figure to rise in the coming years.
“Whilst most major investor types are looking to deploy capital, low-leverage borrowers anticipate an investment advantage in the medium term whilst borrowing costs increase. This has already been reflected in the investment market with bidding dominated by investment funds early in the year and the re-emergence and dominance of traditional hotel investors, notably offshore groups through Q2 2022,” Ms Wales said.
Ms Wales explained that in the current inflationary climate, hotels offer a unique proposition, considering their immediacy of income; in addition to this, rising costs can be passed on with dynamic pricing models, which don’t require contract terms to be reset.
“Travel and tourism spend is accelerating as consumers shift from spending on goods to spending on experiences. Resorts and regional Australia are providing opportunities with immediate upside as the recovery continues,” she said.
In reply to market conditions, daily room rates have surpassed those seen in 2019, with the biggest growth reported in Darwin (42 per cent), Brisbane (36 per cent) and Cairns (32 per cent), with this trend also seen in all 10 major accommodation markets.
She outlined that Singaporean investors have been the quickest to act, while Chinese investors have been the most active sellers — accounting for 48 per cent of deal flow in the year to July 2022. This activity included the sale of the Hilton Sydney by Bright Ruby and some smaller assets in Cairns, while more Chinese-owned investments are on the chopping block for the second half of the year — notably the Palazzo Versace on the Gold Coast and Lindeman Island in the Whitsundays.
“We see little evidence in the last 12 to 18 months of pricing decline and the opening up of international travel on top of a strong recovery of the domestic base will help increase investors’ confidence,” she said.
“The predominance of domestic leisure travel, rather than corporate contracted rates, and a greater reliance on technology is also recruiting in a nimbleness that Australian hotels — and indeed their owners — have long pursued.”
Colliers currently forecasts total annual transactions for 2022 to double by year’s end to $2.4 billion, with more large single assets and portfolios currently in play or mandated for sale during the second half of the year.
“Accelerating performance in cities presents an opportunity to bank future growth with multiple catalysts for investment. Asset location as opposed to demand segment is now the focus for investors.
“Owner-operators will continue to grow their portfolios, particularly those that came out of the pandemic in good shape,” Ms Wales concluded.
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