Australia’s burgeoning hotel sector continues to attract strong levels of investment despite inflationary pressures.  

Savills predicts around $2.5 billion in hotel transactions for 2022, with a spate of recent hotels changing hands revealing the on-going trend for re-branding within the sector.  

Underpinned by strong occupancy, Australia’s hotel sector has recovered more swiftly from the pandemic than expected and is tipped to continue on a growth trajectory into 2023.  

Record occupancy levels are expected to continue into 2023 fuelled by increased demand coupled with reduced competition as AirBnB properties convert to permanent rentals, capitalising on the groundswell of residential tenant demand. 

While $1.7 billion of hotel stock transacted in the first half of 2022, economic uncertainty around interest rates and inflation has led to slower-paced deals in the last few months. 

“We are tracking at close to $2 billion in hotel sales as of September 2022 – so definitely on par with last year with another quarter to consider before year-end,” said Nick Lower, State Director – Hotels (NSW & VIC) at Savills (pictured, right). 

There was a notable trend towards the re-branding of hotels, exemplified by the sale of Rydges Sydney Harbour for around $100 million to Crystalbrook and the sale of Peppers King Square in Perth to Rydges for $26 million. 

“The re-branding trend is definitely one that is here to stay, with major hotel brands able to acquire new stock to reposition at well below replacement cost – it makes solid financial sense and will help boost the portfolios of our major hotel brands,” Lower said.  

Hotel yields under par

Savills found that initial yields continued to tighten in Q3 despite the return of positive EBITDA levels.  

Initial yields average at 1.53% so far in 2022, significantly below the long-term average of 6.07%.  

“Initial yields remain low as investors are focussed on repositioning opportunities where assets are underperforming and require capital investment,” said Adrian Archer, National Director, Valuations & Advisory – Hotels of Savills (pictured, left).

He noted that foreign investment in Australia’s hotel sector is earmarked to rise in 2023, with increased attention anticipated from offshore investors, with the Australian dollar at its lowest against the US dollar since peak COVID-19 and the GFC. 

Deloitte Access Economics has also forecast an extended period of weakened Australian dollar of US$0.70 per AU$1. 

Pre-COVID occupancy levels gain on lower AirBnB stock

This year has been a year of positive change for Australia’s hotel sector, with most state markets back at pre-COVID 19 occupancy levels and reduced AirBnB stock set to further boost hotel occupancy.  

Sydney recorded its highest ADR since February, 2018 in September, 2022 at $253.79. 

Perth is a notable performer and needs to wind the clock back to March, 2015 to beat the $213.51 ADR achieved in September 2022. 

Occupancy has been slowly ramping up over the last three months at mid to high 60% levels in Melbourne and Sydney, while Brisbane and Perth forge ahead at mid-70% occupancy levels. 

The Gold Coast remains Australia’s best performing market with RevPAR at $178.37 so far, with summer school holidays still to come. 

“We expect to see a further boost to hotel occupancy statistics as AirBnB stock dries up. High demand from residential tenants has driven the conversion of many AirBnB properties to the permanent rental market,” Archer said. 

Brisbane, Perth and The Gold Coast were already at annual pre-COVID RevPAR levels, with Melbourne and Sydney forecast to achieve annual pre-COVID RevPAR levels by CY2024, sooner than originally anticipated.