Colliers International launched their inaugural Australian Hotel Investor Sentiment survey in April 2020 in response to the COVID-19 health pandemic, with the intentions to reflect the opinion and intentions of the Australian hotel investment community to assist with planning for the recovery, whilst establishing a benchmark position on key issues.
Investors surveyed believed that the green shoots of recovery were expected to emerge in H1 2021, lead by Canberra and Brisbane and underpinned by growth in domestic leisure travel as Australians looked to reconnect to their inherent desire to travel.
“In Australia, the pace of change for the hotel and tourism sector was unlike anything that the sector has experienced before resulting in a sharp decline in trading during the first quarter of 2020, with the impacts widespread and indiscriminate across borders, cities and visitor segments,” said Gus Moors, Head of Hotels at Colliers International.
“As some Australian states and territories begin to cautiously relax social distancing measures, investors remain optimistic that 2022 will see strong performance across all geographies and segments. International tourism is expected to rebound but driven by the international corporate segment given the strong and salient relationships offshore.”
“Investors expect Q3 2020 to be the weakest quarter for hotel trading in Australia with sentiment for negative trading averaging -79.4%. Whilst considerably improved, investor sentiment for trading in Q4 2020 is still negative at -27.2% which highlights the slow road to recovery which owners, operators, financiers and governments must navigate.”
Colliers report found that the overwhelming majority of investors expect it to take between 18 months and 2 years before the Australian hotel investment market reaches stabilisation. More than one third of investors expect to see city hotel capital values decline by 0-10% by the end of 2020.
Investor expectations for hotel cap rates in Australia averaged 6.75% across all ten hotel markets but are lowest for Sydney (5.6%), Melbourne (6.05%) and Brisbane (6.4%) as the three largest and most liquid hotel investment markets in Australia. Colliers hotel specialists expect these three markets to remain the focus of investor activity over the coming year as many investors adopt a ‘flight to quality’ investment strategy in response to dislocation in the global hotel trading markets.
Karen Wales, Director, Hotels at Colliers International said, “Although the majority of investors are adopting a ‘wait and see approach’ to hotel investments over the next six months, almost one third of investors say their primary investment activity will be to ‘buy’, indicating that the Australian hotel transaction market is expected to heat up towards the end of 2020.”
“While Australia’s hotel development cycle has been in full swing over the past couple of years, investors have signalled a significant change in strategy with ‘build’ intentions the lowest across all Australian markets averaging only 3.9%.”
“Uncertainty about the quantum of future room night demand – which investors have cited as the biggest challenge currently facing the industry - has undermined hotel development feasibilities and investors have refocussed activities further down the risk curve.”
“Whilst the reconvening of the National Cabinet to consider the baseline restrictions will likely provide some guidance to the hotel industry for the stepped timing of the recovery, the Australian Government may need to consider targeted incentives for hotel owners if Australian hotels are to remain open for business once the current stimulus falls away.”