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A continuation of positive trends | Australia hotel market update: December 2023

Over the year to mid November 2023, the Australian hotel sector has experienced robust activity, marked by 45 transactions totalling approximately $1.96 billion.

Key Transactions and Market Trends

One of the most significant deals included the $520 million sale of the proposed Waldorf Astoria Hotel/One Circular Quay development in Sydney CBD to Fiveight, the property company of Tattarang, reflecting one of the highest value per room metrics in Australia’s history at over $2.35 million per key. Other significant transactions involved the Sheraton Grand Mirage Resort Gold Coast ($192 million), Sofitel Adelaide ($154 million), and the CapitaLand Ascott properties, including the Novotel Parramatta and Courtyard by Marriott North Ryde, amounting to a combined total of $109 million. 

 

One of the pivotal transactions in 2023 was the acquisition of the Escarpment Group, encompassing five properties with a total of 237 rooms primarily located in the Blue Mountains and one property in the Hunter Valley in New South Wales. 

Transaction volumes are expected to remain above the long-term average of around $1.6 billion, with projections indicating a total deal volume exceeding $2 billion for the full calendar year. Domestic investors and fund managers have been the most active players, contributing to over 80% of the deal flow, while offshore capital accounted for less than 20%. 

Despite the economic headwinds, the hotel sector has demonstrated resilience, with investors in traditional asset classes now closely looking at the hotel, student accommodation and build to rent sectors as an alternative. These markets however are generally tightly held especially as operational performance of these assets is improving, despite some inflationary pressures on operational expenses. Therefore, fewer asset trades have been observed as strong performance has decoupled from tightening capital markets. 

As of now, more than $2 billion worth of hotel assets are on the market, with 75% listed in Q3 2023, indicating increased activity in the coming year. New South Wales (NSW) has dominated transaction activity, with must-have assets in major cities attracting investors. 

The key triggers for transactions in the upcoming year include higher debt costs, impending loan maturities, deferred capital expenditures, and near-term lease expiries. New buyers may have the flexibility to wait out performance wrinkles, while owners who hold on may face a weaker case for disposal in the second half of 2024. 

Supply

New supply is easing with few new projects expected to commence in the near term whilst construction and funding costs remain high. Melbourne has dominated the supply pipeline and surpassed Sydney to become Australia’s largest CBD accommodation market in early 2023 and is expected to remain larger over the foreseeable future given the lower barriers to entry into that market in comparison to Sydney. 

Key recent openings in Q3 2023:

 

 

Domestic and International Travel Trends 

Despite recent economic challenges, domestic travel in Australia has remained robust. Visitors and visitor nights are tracking slightly behind 2019, but spending has seen an increase over the seven months to July 2023. 

Intrastate travel has shown the strongest gains in spend, with Queensland (QLD) standing out with a remarkable increase of 45.8%. Regional markets, including NSW, VIC, QLD, and SA, continue to record gains in tourism spend, up more than 35%. 

On the international front, recovery has been slower, with visitors, visitor nights and spending all lagging behind 2019 figures. Holiday and business travel have been the slowest to recover, with visitor nights down by 31% and 34%, respectively. Victoria has been the slowest to recover among the major states. 

Performance Metrics and Occupancy Trend

As of September 2023, Sydney leads the country in hotel occupancy, average daily rate (ADR), and revenue per available room (RevPAR). Sydney is the only market with an occupancy above 75%, ADR above $300, and RevPAR above $200. 

Brisbane has recorded the strongest RevPAR growth compared to 2019, up by an impressive 50.9%. Melbourne is the only market not to have recorded RevPAR growth, weighed down by new supply affecting occupancies. ADR growth has been strongest in Brisbane, up by 50.2% compared to 2019.  

Brisbane is the only market where occupancies are trending higher than 2019, while Darwin has the lowest occupancy rate at 55.3%. Darwin is also the only major hotel market where ADR is less than $200. 

Conclusion

In conclusion, the Australian hotel sector has navigated the challenges of 2022 and 2023 with resilience, marked by significant transactions, steady deal flow and promising trends in domestic travel. While international travel recovery lags, the sector remains dynamic, with key markets demonstrating notable improved performance metrics however rising operating costs are also placing some pressure on margins and should be closely monitored. Overall however, investors and industry stakeholders are poised for a continuation of positive trends in the coming year. 

For more hotel industry insights across Asia Pacific, reach out to our experts Christopher Milou – Australia and Govinda Singh – Asia, Flora He and James Woo – China, Shaman Chellaram – Hong Kong and Chris Bennett – New Zealand

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Chris Bennett

Director | Hotel Advisory & Valuation

Auckland CBD

Chris specialises in the provision of valuation and consultancy advice for hospitality and tourism assets in New Zealand and South Pacific.  Chris is a Registered Valuer with a strong background in real estate and finance.  

Chris originally joined the Colliers International NZ Limited’s Valuation & Advisory Services Team in October 2003 becoming registered in 2007.  Subsequent to registration Chris spent four years working for a property firm in the UK, before returning to Colliers in April 2011.  In 2015 Chris moved to the ANZ as a manager of the Property Risk team before re-joining Colliers International in June 2017 as Director – Hotel Advisory and Valuation.

Chris’ experience gained while in the working and travelling over the past 16 years has provided him with a sound knowledge of the tourism real estate industry and banking procedures.

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