While deal flow in H1 2022 totalled $1.15 billion in assets traded, an increase from $1 billion in H1 2021, the buoyant Australian hotel investment activity of Q1 2022 slowed through Q2 as the market recalibrated against a changing economic backdrop, presenting a window of opportunity for new investors.
Offshore money accounted for around 57 per cent of transaction flow in the year to July 2022, following a decline over the previous two years as borders were closed.
Karen Wales, Colliers’ National Director, Asia Pacific, Hotels Transaction Services, expects this to rise in the following year.
“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,” Wales said.
“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.
“Hotels offer a unique proposition in this inflationary environment with an immediacy of income, since rising costs can be passed on with dynamic pricing models that do not need to wait for contract terms to be reset.”
Travel and tourism expenditure is increasing as people move their purchasing from products to experiences. As the recovery continues, resorts and regional Australia are giving chances with quick upside.
In response to market circumstances, average daily room rates in most locations exceeded 2019 levels, notably Darwin, Brisbane, and Cairns, which had the greatest rise of 42 per cent, 36 per cent, and 32 per cent, respectively.
“At the end of 2021, we were talking about trading recovery in FY23 or FY24 but at the half year room rates have surpassed 2019 levels in all of the ten major accommodation markets,” Wales said.
“On the investment side, Singaporeans have been quick to move, being traditionally deft players in periods of capital and currency market displacement.”
Chinese owners have been among the most active sellers, accounting for around 48 per cent of transaction movement YTD July 2022, including the sale of the Hilton Sydney and several smaller assets in Cairns by Bright Ruby. More Chinese-owned assets are on the market in the second half of the year, including the Gold Coast’s Palazzo Versace and Lindeman Island in the Whitsundays.
“We see little evidence in the last 12-18 months of pricing declining and the opening up of international travel on top of a strong recovery of the domestic base will help increase investors’ confidence,” Wales said.
“The predominance of domestic leisure travel, rather than corporate contracted rates, and a greater reliance on technology is also resulting in a nimbleness that Australian hotels – and indeed their owners – have long pursued.”
Colliers expects that total yearly transactions will reach $2.4 billion in 2022, with more major single assets and portfolios in play or mandated for sale in the second part 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,” Wales said.
“We expect to see a flight to quality in key locations and strong brand or operators high on the investors’ list.
“Owner-operators will continue to grow their portfolios, particularly those that came out of the pandemic in good shape.”