Commercial property investment has been limited in 2023, but tourism investment remained high.
Hotel assets buck the trend of commercial investment. Image: Canva.
  • Investment has been limited across most asset classes and regions in 2023.
  • 2022/23 hotel investments leapt 56.7% on the prior year, reaching $4.1B.
  • Private and institutional buyers are representing the greatest net acquisition in 2023.

There has been a dearth of Australian commercial property investments across most asset classes and regions in 2023, according to Ray White’s head of research, Vanessa Rader. Reduced listing numbers and a shrunken buyer pool have been attributed to the increased cost of finance and uncertainty felt across some investment classes. However, the story is much brighter for hotel investments.

While the pandemic drove investment volumes to new highs across multiple sectors, tourism assets, understandably, languished; the first pandemic year recorded an annual turnover of $1.4 billion.

Investors promptly responded to improved tourism data, including increased air travel, hotel occupancy, and more, with turnover in 2022 quickly taking off. Domestic travel trends also led to growing interest in smaller regional hotels and motels.

Investors check in as travellers take off

For 2022/23, investment volumes rose 56.7% from the prior year to $4.1 billion, with Sydney seeing the most investment; the Harbour City continued to record improvements in occupancy and room rates, with STR Global data from July 2023, as cited by Rader, currently at 77.2% and $245 per night, respectively.

The Gold Coast was another key investment market, with occupancy figures bolstered by both busy conference and holiday periods; the annual average daily room rate rose to over $270 per night.

Rolling four-quarter volume for hotel investment

Source: Ray White, RCA.

Private investors take over from offshore buyers

Rader noted that offshore buyers have historically comprised the lion’s share of hotel asset purchasers. However, 2023 has seen reduced activity from this buyer group. Indeed, they represented the largest seller group.

“Private and institutional buyers are representing the greatest net acquisition this year, with foreign investors representing the largest seller group,” said Rader.

Returns for the hotel sector are also looking positive. According to recent returns data from MSCI, hotels achieved 5.8% over the last year. Rader said that hotel returns were second only to industrial.

Percentage change of total annual returns by asset type (year to 2Q 2023)

Source: Ray White, MSCI.

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

Despite pandemic challenges, the 10 year figures show the hotel sector recorded strong returns (9.2% per annum), closely aligned to office (9.4%) and well ahead of retail (5.7%).

The outlook remains positive in the face of inflation pressures and tightened purse strings, with demand for domestic travel remaining high. Rader added that the current state of Australia’s currency will also encourage travel to the Australia, improving demand for accommodation, growing occupancy and returns for this commercial investment class.

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