Window of Opportunity: Today’s Hotel Investment Market – Colliers

While deal flow for the first half of 2022 was $1.15 billion in assets traded – a slight increase from $1 billion in deals in the first half of 2021, buoyant investment activity Q1 2022 Australian hotel sales slowed in Q2 as the market recalibrated amid a changed economic backdrop, presenting a window of opportunity for new investors.

In the year to July 2022, offshore capital accounted for around 57% of deal flow, after declining in the past two years as borders were closed. Karen Wales, Country Manager, Asia Pacific, Hotels Transaction Services, Colliers expects this to increase over the coming year.

“While most major types of investors are looking to deploy capital, low-debt borrowers anticipate a medium-term investment advantage as borrowing costs rise.” Ms Wales said.

“This has already been reflected in the investment market with investment fund-dominated tenders earlier this year and the re-emergence and dominance of traditional hotel investors, notably offshore groups until recently. in the second quarter of 2022.

“Hotels offer a unique proposition in this inflationary environment with immediate revenue, as rising costs can be passed on with dynamic pricing models that don’t need to wait for contract terms to reset.

Travel and tourism spending is accelerating as consumers shift from spending on goods to spending on experiences. Resorts and regional Australia offer opportunities with immediate upside as the recovery continues.

Responding to market conditions, average daily room rates in most markets exceeded 2019 levels, including Darwin, Brisbane and Cairns, which saw the largest growth of 42%, 36% and 32 ​​% respectively.

“At the end of 2021, we were talking about a recovery in trading in FY23 or FY24, but in the semester, room rates exceeded 2019 levels in all ten major markets in the world. ‘accommodation.” Ms Wales said.

“On the investment side, Singaporeans have been quick to move, traditionally being adept players in shifting periods of capital and currency markets.”

Chinese owners have been one of the most active sellers, accounting for around 48% of deal flow since July 2022, including the sale of Hilton Sydney by Bright Ruby and some smaller assets in Cairns. Other Chinese-owned assets are on the block in the second half of the year, including Palazzo Versace on the Gold Coast and Lindeman Island in the Whitsundays.

“We see little evidence over the past 12-18 months of a decline in prices and the opening up of international travel in addition to a strong recovery in the domestic base will help boost investor confidence.” Ms Wales said.

“The dominance of domestic leisure travel, rather than corporate contract rates, and a greater reliance on technology is also translating into the agility that Australian hotels – and indeed their owners – have long sought.”

Colliers expects total annual transactions for 2022 to reach $2.4 billion, with larger unique assets and portfolios currently in play or mandated for sale in the second half of the year.

“Accelerating performance in cities offers an opportunity to leverage future growth with multiple investment catalysts. The location of assets, as opposed to the demand segment, is now at the center of investor concerns. » Ms Wales said.

“We expect to see a flight to quality in key locations and a strong brand or operators at the top of investors’ lists.” Ms Wales said.

“Owner-operators will continue to grow their portfolios, especially those that have emerged from the pandemic in good shape. »

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