Even though per-room income in some major cities may take three to five years to recover to pre-pandemic levels, over 90 percent of hotel industry players in Australia and New Zealand are eager to preserve or enhance their exposure to the sector.
This is one of the primary findings of a CBRE Hotels survey of more than 70 hotel owners, investors, developers, and industry consultants, who discussed themes such as revenue recovery and asset valuations.
Even with recent volatility in financial markets, responses to the Market Conditions Survey show hints of recovery as travel in the two nations cranks up after two years of closed borders.
Pro-invest Group co-CEO Jan Smits said the market had bounced back strongly.
“I think it might have even caught some people by surprise,” he said.
Pro-invest, which owns and manages over 4,500 rooms across 22 properties in Australia and New Zealand, has about $2 billion under management across two funds.
During COVID they launched another, aptly named Fund 3. The new fund, which has secured up to $200 million from institutional investors, is seeking to buy real estate and re position them into the hotel space.
This differs from the first two funds in which they built the hotels.
Smits said there was plenty of appetite from investors, but closed borders made things complicated.
“During COVID these companies or people who didn’t have local representation couldn’t come in, they want to come and have a look and see the asset,” he said.
“Since the borders have opened, most of these investors have been through Australia and now they understand what sort of assets are available and where the opportunities lie.”
Smits said the group has seen international interest in their third fund.
“We’ve bought one asset already in that fund that opens in July,” he said. “We’re in due diligence on two other assets at the moment which hopefully will complete in the next quarter or the next couple of months.”
When asked if their investment prognosis for the industry has changed since early 2020, 50 per cent of respondents in the CBRE survey said they would invest more, while 38 per cent said it would remain the same.
Smits said some markets, such as Brisbane and Adelaide, were already ahead of pre-COVID levels, but warned that there is still a long way to go.
“The hospitality sector has been driven by domestic demand because the international borders are open but the volume of flights in and out of Australia is just not there yet,” he said.
“If you look at cities like Adelaide and Brisbane, you’re definitely in the 70 per cent occupancy levels, and forward bookings are strong. If you look across the Australian portfolio, you’re around 60 per cent.”
Half of those polled in the CBRE survey expect higher interest rates to be reflected in yields, while 58 per cent do not believe inflation would result in faster average daily rate (ADR) increase. Capital city hotel values are likely to climb over the next three years, with 55 per cent expecting a 10 per cent increase and 11 per cent expecting a bigger increase.
Most responders in Auckland (69 per cent), Melbourne (63 per cent), Sydney (54 per cent), and Perth (46 per cent) set the same timeline on revenue per available room (RevPAR) reverting to 2019 numbers on an annualised basis.
However, there was more confidence in Brisbane (51 per cent of respondents) and Adelaide (49 per cent) about RevPAR increasing next year.
Another source of optimism is corporate travel, with more respondents (44 per cent) anticipating demand to recover to 2019 levels next year than in the previous three-to-five-year timeframe (39 per cent).
In the latest ANZ/Property Council survey, findings showed that the COVID-19 virus is expected to cause the greatest impact to the commercial office sector. Until this most recent survey, the hotels, tourism and leisure sector has consistently ranked highest in terms of COVID impacts.
“After experiencing a significant downturn at the onset of the pandemic it’s heartening that construction activity expectations in the hotel and retail sector continue their upward trend,” Property Council Chief Executive Ken Morrison said.