While deal flow for H1 2022 totalled $1.15 billion worth of assets traded – an uptick from $1 billion worth of transactions in H1 2021, the buoyant Australian hotels’ investment activity of Q1 2022 slowed through Q2 as the market recalibrated against a changed economic backdrop, presenting a window of opportunity for new investors.
Over the year to July 2022, offshore capital accounted for approximately 57 per cent of deal flow, following a retreat over the past couple of years while borders were closed. Karen Wales, National Director, Asia Pacific, Hotels Transaction Services, Colliers expects this to increase over the coming year.
“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.” Ms Wales said.
“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.
“Hotels offer a unique proposition in this inflationary environment with an immediacy of income, since rising costs can be passed on with dynamic pricing models that do not need to wait for contract terms to be reset.”Travel and tourism spend is accelerating as consumers shift from spending on goods to spending on experiences. Resorts and regional Australia are providing opportunities with immediate upside as the recovery continues.
In response to market conditions 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.” Ms Wales said.
“On the investment side, Singaporeans have been quick to move, being traditionally deft players in periods of capital and currency market displacement.”
Chinese owners have been one of the more active sellers comprising around 48 per cent of deal flow YTD July 2022, including the sale of Hilton Sydney by Bright Ruby and some smaller assets in Cairns. More 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 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.” Ms 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 predicts total annual transactions for 2022 to 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. Asset location as opposed to demand segment is now the focus for investors.” Ms Wales said.
“We expect to see a flight to quality in key locations and strong brand or operators high on the investors’ list.” Ms Wales said.
“Owner-operators will continue to grow their portfolios, particularly those that came out of the pandemic in good shape.”
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