Australian hotel transaction activity rose 15% year-on-year to $1.15 billion during the first half of 2022, however Colliers found that hotel investment activity slowed during Q2 2022.
Offshore capital accounted for about 57% of deal flow during the year to July 2022, following a retreat over the past couple of years while the borders were closed.
“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,” said Karen Wales, National Director, Asia Pacific, Hotels Transaction Services, Colliers.
“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.”
Wales said hotels offered a unique proposition in the current inflationary environment with an immediacy of income, since rising costs could be passed on with dynamic pricing models that did not need to wait for contract terms to be reset.
Colliers found that travel and tourism spend was accelerating, as consumers shifted from spending on goods to spending on experiences.
Resorts and regional Australia were said to be providing opportunities with immediate upside as the recovery continued.
Colliers reported that average daily room rates in most markets surpassed 2019 levels, including Darwin, Brisbane and Cairns, which recorded the most significant growth of 42%, 36% and 32% 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.”
Colliers found that Chinese owners had been one of the more active sellers, accounting for around 48% of deal flow between January and July 2022, including the sale of Hilton Sydney by Bright Ruby and some smaller assets in Cairns.
More Chinese-owned assets were said to be on the block in the second half of the year, such as the Palazzo Versace on the Gold Coast, 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 predicted that total annual transactions for 2022 would reach $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,” Wales said.
“Asset location, as opposed to demand segment, is now the focus for investors.
“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.”