Foreign investment set to boost Australian hotel market 2023 transaction volumes, which will exceed the long-term average of $1.66 billion, with around $2.2 billion of expected deals.

Following two years of dormancy, offshore capital reached well above the pre pandemic average investment level of 50%, ensuring it was a strong year for the national hotel market by accounting for over 60% of $2.14 billion in total transaction volume, Colliers’ investment research reveals.

Increased inquiry and activity from offshore groups occurred through the second half of the year, as Australia’s relative stability took centre stage in a turbulent global economic landscape, and 29% above the annual long-term average total transaction volume was achieved by the end of 2022, according to Colliers’ Head of Hotels for Transaction Services Karen Wales.

“The uptick in transaction activity in Q4 2022 provides a promising base for increased activity in 2023, with more assets expected to be brought to market throughout the year.” Ms Wales said.

“Although higher interest rates are likely to have an impact on pricing, this should be somewhat offset by further income growth, particularly in Sydney and Melbourne and as more market segments recover.”

Last year, 45 percent of deal activity was in Sydney across 10 deals, with more assets in play. Trading in Sydney is also shaping up for a very strong 2023 due to average room rates increasing in 2022 to be 15.6 per cent above the level recorded in 2019 according to STR and a strong a calendar of events scheduled across the city,

“Buyers are chasing quality – newer construction or those that were recently renovated, while moving away from aged or underperforming assets.

“In many ways, this supports overall industry valuations, as the impulse right now, with a strong assist from the brands, is for property remodels and conversions, as opposed to languishing portfolios of hotels.”

High value deals saw investment funds account for 49% of deal flow in 2022. While private buyers and owner operators together comprised the remaining 41 per cent of the total transaction volume.  

Singaporeans were the most active investors last year, as the Australian dollar hit a low in October against the Singapore dollar of 0.91, compared to an average of 1.11 over the decade prior. According to Wealth-X’s 2021 Billionaire Census, Asia’s billionaire population also increased by 16.5 per cent in 2021.

“An explosive growth of wealth and a proliferating network of contacts is expanding direct investment opportunities for Asian families, many of whom have a strong affiliation with hotels.” Ms Wales said.

“We expect to see the greatest activity from long-standing Asian investors in 2023, particularly from Singapore and those who do not require significant leverage and see long-term value in Australian hotels amidst the strong trading recovery and displaced capital markets.

“Motivated all-cash buyers or low leverage buyers may win the day in the present financial environment, as well as those buyers who are creative with their capital structure.

“2023 is emerging as the year to make strategic decisions and set up growth for the next decade.”

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