INDUSTRY NEWSNationalReal Estate News

Investors seek hotels after near record year of transactions 

The $575 million sale of Australia’s first Waldorf Astoria Hotel is evidence investors are continuing to turn to hotel assets following a bumper year of transactions in 2022.

CBRE’s latest Hotels Overview and Outlook report shows hotel sales hit $2.14 billion in 2022 – the second highest transaction volume on record – and there’s still plenty of equity capital waiting on the sidelines for signs of interest rate and inflation stabilisation.

Last year a record 53 hotels sold for more than $10 million, which was also 39 per cent above the 10-year average.

The report shows notable sales included The Hilton Sydney, at a reported $530 million, Spicers Retreats portfolio (110 regional luxury rooms) sold for a reported $130 million and Rydges Sydney Harbour sold for a reported $101 million.

That momentum has continued in 2023 with the sale of Australia’s first Waldorf Astoria Hotel to Tattarang property company Fiveight, for a suggested $575 million according to the Sydney Morning Herald.

Designed by Kengo Kuma & Associates, the 220-room Waldorf Astoria hotel – which is part of the Hilton stable of brands – will offer luxury accommodation, restaurants, spa and wellness facilities, indoor pool, ballroom and function spaces, boardrooms, and a rooftop bar.

CBRE jointly negotiated the Waldorf transaction, setting a new Australian record for a single asset hotel sale. 

The report highlights that recovering occupancies and strong growth in average daily rates (ADR) assisted in insulating the hotels sector from rising inflation.

“An expected stabilising of conditions as the year unfolds should see capital markets benefit from greater investor certainty,” CBRE’s Australian Head of Hotels Research Ally McDade said.

“While a high inflation and interest rate environment will place upward pressure on yields and IRR expectations, improving tourism demand fundamentals and impressive performance indicators are likely to cushion any impact of higher credit-funding costs.” 

The report also tracked the demand drivers and development outlook for the sector, with CBRE Regional Director, Hotel Valuations, Troy Craig noting domestic tourism was a major factor.

“Even with a recovery in Australians departing for overseas, domestic travel continues to drive the Australian tourism industry,” he said.

“Domestic travel nights are now at or surpassing pre-pandemic levels in Queensland, South Australia, Western Australia and Tasmania and spending in these states is up 40 per cent on pre-pandemic levels. 

“This is benefitting Australia’s gateway cities of Sydney and Melbourne, which recorded the strongest y-o-y growth rates in relation to both ADR and occupancies aided by a recovery in corporate travel and international travel.”

Nationally, ADR rose 24 per cent in 2022 to $228, which was 23 per cent higher than in 2019.

The national occupancy rate averaged 65 per cent, according to the report, just 10 per cent short of pre-pandemic levels.

CPRE expects ADR growth will moderate over the rest of 2023, but Mr Craig said most city markets were still expected to post gains as operators maintain strong rate policies in favour of returning to pre-pandemic occupancy levels. 

“Occupancy levels in domestic demand dominated cities are expected to edge upwards from already strong levels, while Sydney and Melbourne should continue to see occupancy gains as inbound demand recovers,” Mr Craig said.

In relation to international visitation, while short-term overseas arrivals remain 40 per cent below pre-pandemic levels, a recovery is in motion, with the reopening of China’s borders key to the rate at which Australia’s inbound tourism economy recovers in 2023.

On the development front, the report highlights that the hotel market’s expansionary phase is set to peak in the next 12 months with around 8400 rooms set to be delivered across the country’s major hotel markets in 2023 and 2024. 

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.