Capital Markets Investment Review 2023

Hotel Capital Markets

Investment Review 2023

2022 was shaping up to be a big year for Australian hotel transactions as the industry's recovery continued to strengthen, but the rising cost of debt had some buyers hitting the brakes.

Australia’s hotel investment market took pause towards the end of H1 2022 as the market adjusted and strategic decision making recalibrated against a changed economic backdrop. Higher rates arrived quickly and are expected to become the new normal for the foreseeable future as part of central banks’ fight against inflation in the aftermath of a decade of highly dovish monetary policy. Historically, the hospitality industry has been resilient to inflation.

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1.

A Strong Year for Hotel Transactions

Overall, 2022 was a strong year for Australian hotel transactions with about $2.14 billion in total transaction volume, above the long-term average but representing a decrease of 25 per cent on 2021’s dollar volume. 2021 was a near-record year, beaten only by 2015.

Deal flow was dominated by smaller single asset sales with a total of 63 transactions concluding. Only one third of these occurred in the second half of the year. The timeframes for deals become extended as the dislocation between strong industry performance became juxtaposed with hotel debt capital markets.

2.

Offshore Capital Ramps Up

Offshore capital investing in Australian hotels increased through 2022 after a two-year lull. Offshore investors accounted for 61.4 per cent of deal flow, well above the 50 per cent average and with investors from Singapore the most active but with increased inquiry and activity from offshore groups through the second half of the year.

3.

Recovery Exceeds Expectation

The tourism recovery in 2022 exceeded expectations. The easing of localised and domestic restrictions led to a pick-up in domestic tourism and a renewed focus and recognition of its importance, as destinations and businesses looked to mitigate the loss of international markets.

Hotel rates across the country faced upward pressure from well-above-average inflation and all ten major accommodation markets saw rates increase to be well above 2019 levels.

ADR may decline year-on-year due to new supply or an industry slowdown, but today’s higher rates are largely expected to be maintained even as demand rebalances.