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2 June, 2020

10 key findings from Colliers’ Australian Hotel Investment Sentiment Survey

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Global commercial real estate giant Colliers International has released its inaugural Australian Hotel Investment Sentiment Survey in response to the COVID-19 pandemic.

According to Colliers, the survey was designed to reflect the opinions and intentions of the Australian hotel investment community, and seeks to identify future trends in the sector to assist with planning for the recovery.

Below are 10 key findings from Colliers’ new research:

Investors expect the Q3 of 2020 to be the weakest quarter for hotel trading in Australia, with sentiment for negative trading averaging minus-79.4 per cent. While considerably improved, investor sentiment for trading in Q4 is still negative at minus-27.2 per cent, which highlights the slow road to recovery which owners, operators, financiers and government must navigate.
The green shoots of recovery are expected to emerge in the first half of 2021, underpinned by growth in domestic leisure travel as Australians look to reconnect, given their inherent desire to travel. Canberra and Brisbane are expected to lead the recovery.
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.
Investor expectations for hotel cap rates in Australia averaged 75 per cent across all 10 hotel markets, and range between 5.6 per cent in Sydney and 8.6 per cent in Darwin.
More than one-third of investors expect to see city hotel capital values decline by zero to 10 per cent, but with over half of all respondents expecting a greater decline of between 10 per cent and 30 per cent.
The overwhelming majority of investors expect it to take between 18 months and two years before the Australian hotel market reaches stabilisation.
While 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 per cent. Uncertainty about the quantum of future room night demand has undermined hotel development feasibilities and investors have refocused activities further down the risk curve.
In a marked turnaround for the sector, Australian hotel investors cited the lack of room night demand as the biggest challenge facing the industry at this time.
Against this unprecedented backdrop, tourism marketing can only go so far. The Australian government may need to consider targeted incentives for hotel owners if properties are to remain open for business once the current stimulus falls away.

For those interested in taking a deep dive into the survey, you can do so here.

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