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Investing in tourism assets is back as confidence returns

After some lean years during Covid, investment in hotel assets is once again surging, highlighting the improved confidence across the tourism industry.

Ray White Commercial, Head of Research, Vanessa Rader said that with both domestic and international travel showing these improvements, investment levels in hotel assets across the country have increased to $4.1 billion – up 56.7 per cent on the prior year.

“Most investment has been in the Sydney market, which continues to show improvement in occupancy and room rates, currently at 77.2 per cent and $245/night respectively,” Ms Rader said.

“Gold Coast has been another key investment market capitalising on strong occupancy, due to both busy conference and holiday periods growing the annual average daily room rate to over $270/night.”

Ms Rader said despite the pickup, the investment profile has seen some significant changes.

“Historically, offshore buyers have been the major purchasers of hotel assets, however, we have seen a reduction this year in activity from this buyer group,” she said.

“Private and institutional buyers are representing the greatest net acquisition in 2023 with foreign investors representing the largest seller group.”

She said recent data from MSCI showed growth had bounced back with the return of travel and tourism.

“Over the last year, returns achieved 5.8 per cent, trending ahead of other traditional commercial assets other than industrial, which has been the standout performer over the last few years,” Ms Rader said.

“The five-year average returns of just 3 per cent highlights the difficulty for this sector during the pandemic era, while assets such as office recorded 6.6 per cent returns.

“However, over the longer 10-year period, we can see despite these difficulties that returns continued to achieve outstanding levels at 9.2 per cent per annum closely aligned to office at 9.4 per cent and well ahead of the retail sector which only represented a 5.7 per cent annual return.”

According to Ms Rader, the outlook for the hotel sector is strong.

“While inflationary pressures have been elevated, reducing discretionary spending levels, we continue to see demand for travel high domestically,” she said.

“The current state of the Australian dollar will further enhance the attractiveness of Australia as a destination, improving the demand for accommodation, growing occupancy and returns for this commercial investment class.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.