The hunt for hotels is on as Australia’s borders reopen

The market appears to be regaining confidence in Australia’s tourism sector, with demand for hotel assets surging in recent months.

Realcommercial.com.au data shows that a record number of people and businesses were searching to buy hotel assets over the September quarter which, in turn, has translated to a record number of enquiries.

Comparing year-on-year, searches to buy hotels have more than doubled in every state and territory, with the strongest growth seen in South Australia (226%), the Australian Capital Territory (170%), and Victoria (126%).

The reopening of borders isn’t the only factor behind this recent flurry of activity. The fact that hotels are still competitively priced compared to pre-COVID levels is also having an impact.

Australia’s tourism sector has undeniably been one of the worst hit by the pandemic, and this has been reflected in prices.

Between March 2020 and March 2021, Australian hotel values, as measured by average price per room, fell by close to 40%, according to Real Capital Analytics. While prices have been steadily rising since the start of this year, they remain well below their pre-pandemic levels.

But it’s not all smooth sailing from here.

The International Air Transport Association doesn’t expect overseas tourist arrivals will reach 2019 levels until at least 2023. This, in turn, will impact occupancy rates and revenue per available room, particularly in regions with a heavy reliance on overseas travellers.

The low cost of debt is fuelling an increase in demand for hotels. Picture: realcommercial.com.au/for-sale

Despite the short-term challenges, a growing number of buyers are looking to take advantage of discounted prices and the low cost of debt by investing in hotels.

Over the first three quarters of 2021, approximately $1.2 billion worth of $1 million-plus hotels transacted, up 62% from levels seen over the same period last year. Renewed interest from offshore buyers is also supporting sales activity.

Historically, offshore groups have been the dominant buyers of hotel assets in Australia, accounting for an average of 57% of all $1 million-plus purchases between 2011-2019, according to RCA. This collapsed to just 37% in 2020, but is now creeping back, with offshore buyers accounting for 44% of sales (including those currently pending) year to date. This is likely to increase further once international travel picks up.

Sales volumes have increased at most price levels but have seen particularly strong growth at the smaller end. Hotel sales for sub-$5m properties are up 65% year-to-date compared to the same period last year, and are even tracking above 2019 levels

These figures are especially impressive considering many sales campaigns were delayed or extended during the most recent lockdowns in Victoria and New South Wales.

While challenges remain for those in the tourism sector, there are signs optimism is returning.

Record high enquiry levels are likely to translate to increased sales, and growing competition among buyers should help to support further price recovery.