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Investors Hold On to Hotel Assets as Values Fall


Australia’s hotel sales market will require a further 24 months to hit pre-Covid levels, according to industry experts.

While a steady stream of hotels are beginning to hit the market, investors remain cautious as occupancy rates and daily rates remain suppressed, with many tipping listings activity to kick up in the second half of the year.

According to Colliers latest hotel sentiment survey, expectations for hotel cap rates averaged 6.67 per cent across all ten Australian hotel markets.

The lowest remain in Sydney at 5.5 per cent, Melbourne at 5.9 per cent and Canberra at 6.3 per cent, as major markets continue to record a softening trend.

Colliers found that the overwhelming majority of investors expect city hotel capital values to decline by up to 10 per cent by the end of 2021 while regional hotels are expected to lift by up to 10 per cent.

MaxCap state director David Oudshoorn, who will speaking at The Urban Developer's upcoming Hotel vSummit, said that despite subdued investor sentiment, the financier had continued to provide healthy levels of debt and equity to those targeting counter-cyclical opportunities across the hotel sector.

“So far, there has been little transaction activity as a result of the pandemic with very few sales,” Oudshoorn said.

“Despite this, investor appetite remains fairly strong with both debt and equity seeking opportunities and developers activating new projects.”

Change in Australian hotel capital values by the end of 2021

Investor expectations hotel capital values

^Source: Colliers International, Australian Hotel Investor Sentiment Survey Fifth Edition

Oudshoorn said asset prices were likely to hold as many hotel owners—either institutional investors or wealthy families—were well resourced and able to withstand prolonged periods of low cash flow.

“Financiers are remaining patient and asset owners are comfortable to hold and work through the current environment,” Oudshoorn said.

“The roll out and greater confidence in a vaccine will also be key to further improvement in 2021 with international borders unlikely to be open in a meaningful way for a further 12-24 months.”

Sydney and Melbourne hotels, traditionally the most attractive to investors, have continued to endure record low occupancies since last April.

Despite this, prices have remain solid, reflected by the recent transaction of the five-star Primus Hotel in Sydney which traded for $132 million ($767,000 per room) and reports of $600 million paid by GIC for the Mirvac-NRMA Travelodge portfolio.


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“Fortunately we haven’t seen the doomsday case that some were predicting and pleasingly there hasn’t been a pronounced level of distressed or forced sales,” Minett Prime Square chief operating officer Anthony Ries said.

“Borrowers are beginning to realise that certainty of funding and tenor are becoming as important as the more commonly talked about gearing levels and pricing.

“There is likely to still be some more immediate trading headwinds for owners and operators, especially those more reliant on corporate travel and achieving break-even occupancy during the middle of the week.”

To incentivise domestic travel the federal government recently rolled out a $1.2 billion tourism package, which has been widely scrutinised for its exclusion of major cities, such as Sydney and Melbourne.

“Government policy in terms of stimulus for the tourism and leisure sector will be critical for continuation of an orderly recovery,” Reis said.

“We are now starting to see some green shoots from developers that may have put projects on hold last year and are now re-commencing planning with a greater level of confidence.”

339-341 Pitt Street Sydney
▲ Pro-invest Group acquired the five-star Primus Hotel in Sydney last month.


Mulpha hotel investments general manager Lucia Grambalova said the withdrawal of capital by traditional banks had continued to limit appetite and capacity for existing hoteliers and new investors.

“International private equity funds and their institutional partners are likely to dominate the Australian investment market over the medium term,” Grambalova said.

“They will look to build scalable platforms primarily motivated by how well Australia has combated the pandemic while supporting the local economy, which will deliver a faster recovery compared to many other countries.”

While Australia has maintained its safe haven status, the extent of the pandemic has led many non-bank lenders to reassess their customer profiles.

In shifting demographics, the non-banking sector has now captured a larger portion of market share.

“In line with the decline in interest rates, capitalisation rates are naturally contracting, resulting in a somewhat benign contraction of book values,” Grambalova said.

“However, non-bank financiers are very much aware of the income shortfall and we will see some pressure on highly leveraged borrowers.”

David Oudshoorn, Anthony Ries and Lucia Grambalova will be speaking at The Urban Developer's Hotel vSummit Thursday 25 March.

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Article originally posted at: https://www.theurbandeveloper.com/articles/australian-hotel-market-investor-finance