Groundswell of investor appetite for Australia’s high-performing hotels market

23 October 2023

The future is bright for the hotels’ investment market, which is attracting traditional property investors at a time when there is over $2 billion in assets on the market, 75% of which were listed in Q3 2023, according to Colliers’ Head of Hotel Transactions Karen Wales.

“Hotels are emerging as a preferred property investment sector, as new market entrants are drawn to conditions of easing supply, high room rates and the return of international travel.” Ms Wales said.

“Since hotels differ from other commercial real estate assets, with many continuing to enjoy strong income growth amidst resurgent tourism markets, transaction volumes are expected to reach $2.5 billion by end of year.”

Sydney’s hotel market is frontrunning performance of the sector nationally, boasting occupancy above 75%, an average daily rate (ADR) above $300 and revenue per available room (RevPAR) above $200, according to STR and Colliers.

In addition to hosting the 2032 Olympics, achievement of the highest RevPAR growth (50.9%) and ADR growth (50.2%) nationally over the year to September 2023 when compared to 2019, according to STR and Colliers, will catapult Brisbane onto the global institutional investor stage. Brisbane is also the only market in Australia where occupancies are trending higher than 2019.

“While the next couple of years will see a slowing in the hotel accommodation pipeline nationally, with 7,529 rooms expected to open between 2024 -2027, compared to the 4,499 rooms which opened this year, Brisbane is emerging as a favoured hotel development hot spot as investors look to gain a foothold and capitalise on the decdae of green and gold.” Ms Wales said.

The staged opening of the Queens Wharf Brisbane from April 2024 will bring new standards of luxury with three new hotels, including the Star Grand with 340 rooms, Dorsett Brisbane with 359 rooms and Rosewood Brisbane with 150 rooms.

The renaissance of Australian luxury hotels will continue into 2024 and beyond with more significant openings in the major cities including Marriott Adelaide (285 rooms), Mondrian Gold Coast (212 rooms), Shangri-La Melbourne (499 rooms) and 1 Hotel Melbourne (277 rooms).

Luxury and upscale hotels outperformed all other classes with a national average occupancy level of 70% and room rate of $326, which represents growth of 59.5% compared to the prior year, according to the Australian Accommodation Monitor. This highlights the underlying strength of the sector and its reliance on a large domestic tourism base.

“While Luxury resorts are performing strongly amid the resurgence of leisure travel and desire for experiences post pandemic, we expect capital values for the broader Australian hotels market to also remain competitive compared to global peers, as international travel and revenue defends against economic fluctuations.” Ms Wales said.

New market entrants are partnering with known hotel fund and asset managers, as it becomes imperative to operate strategically in order to realise revenue gain in a market impacted by a 20% increase in hospitality wages since 2018, pressures to reduce carbon footprint and global events disrupting supply chains, according to Colliers’ National Director of Hotel Asset Management Neil Scanlan.

“Hotels need to recalibrate their modus operandi now to adapt to a fundamentally different operating environment and successfully navigate the course to uncover hotel ‘alpha’ or ‘excess return.” Mr Scanlan said.

“Operators who don’t proactively align with the flight to quality, factoring in capital for asset upgrades and repositioning, while improving energy efficiency and overall operational costs, will find core issues can no longer be hidden behind the veil of strong surges in hotel room rates.”