China’s reopening is set to boost Australia’s hotel market in 2023, with the lodging industry continuing to benefit from a pent-up demand for travel.
“We’re seeing some positive news coming out of China about reopening,” Michael Simpson (pictured), Managing Director, Capital Markets – Hotels at CBRE, told ANZPJ.
“We’re going to see, as soon as they’re able to, a material growth in the China inbound market and that’s really going to assist our market KPIs and the profitability of our hotels.
“If you consider what’s happened all around the world, not just in Australia, there’s really no change to the thematic that people like to travel.”
In 2019, China was Australia’s top inbound tourism market with more than 1.4 million visitors that year.
But Chinese inbound tourist numbers have been down significantly since then, even after Australia reopened its borders earlier this year.
Yet Australia’s hotel market has proved resilient since the Omicron wave at the start of the year.
Simpson said there had been an acceleration in travel this year since the borders reopened and local and international travellers became more confident in travelling.
In many markets, RevPAR – a measure of hotel room performance – was back to or above 2019 levels.
“Demand is coming back, it’s probably not back to 2019 levels across all markets, but average daily rates have risen quite materially,” he said.
Hotel watchers are also monitoring airfares and the availability of flights, which have a direct correlation with lodging performance.
“We’re seeing some very expensive airfares across Australia at the moment both for domestic airfares and international inbound fares,” Simpson said.
He said airlines were taking planes out of storage and looking at other ways to increase the availability of flights for next year, which should help drive down airfare costs.
For investors, 2022 was a reasonably strong year for Australian hotel transactions, with more than $2 billion in deals including Spirit Super’s acquisition of the Tasman Hotel in Hobart.
“Traditionally we haven’t had a lot of direct investment in hotels by Australian superannuation funds,” Simpson said.
“International pension funds have invested, and certainly Australia Post was a major investor in hotels for a while, but not as a direct investor.”
Tasman Hotel
This year, there was also interest from private equity players like KKR and Baring Private Equity Asia, which acquired the Sydney Hilton hotel for $530 million, as well as high net worth investors.
Looking to 2023, Simpson said he expected some hotels sold and settled in the first quarter.
But after that, investors were likely to wait and see how interest rates, inflation and other economic forces played out.
He said hotel transaction activity typically increased in the second half of most years and expected the same for 2023.
On the development front, Simpson said there would be a slowdown in new hotel supply over the next couple of years.
The supply slowdown stemmed from the height of the pandemic, when hotel and travel demand plummeted.
Even now that demand for hotels has rebounded, rising interest rates and construction costs have dampened some plans for new projects.
He said about 5000 hotel rooms were added to the national market in 2022, in addition to some further supply on the way that was already committed to or under construction.
But he said the slowdown would help consumer demand catch up to supply in certain markets where there were room oversupplies.
Despite the pandemic, Simpson said there had been little change to Australia’s reputation as a top destination for domestic and international travellers.
“If you consider that back in March 2020, the industry was facing an almost existential threat with no one in the world traveling, the way that hotels have responded is a testament to the strength and resilience of the industry,” Simpson said.
“Historically Australia has been an aspirational travel destination for international travellers, and it will continue to be because of all of those positive aspects that we’re fortunate enough to enjoy here.”
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