Despite a soft discretionary spend through 2024, Colliers' Australian  Real Estate Investment Review and Outlook 2025’ indicates that consumer travel intentions have  remained strong, demonstrating an enduring need and desire for Australians to travel.

According to  Colliers Head of Hotel Transactions Australia, Karen Wales, "The resilience in travel intentions  highlights the strong underlying demand for travel among Australians, which is a positive sign for  the hotel market."

Investment funds, high-net-worth individuals (HNWIs), and family offices were the most active buyer  groups in 2024, accounting for two-thirds of deal flow, with domestic capital continuing to dominate.  Offshore capital became active again in the second half of 2024, notably from global funds and  investors from Singapore, with acquisitions in Brisbane and Hobart. More acquisitions are  anticipated in 2025, with Sydney ranked as one of the highest destinations for global capital.

The year 2024 saw a notable increase in new investors entering the hotel sector, with a record 48  per cent of investment volume driven by first-time buyers. Investors cite robust operating  performance, superior risk-adjusted returns, and an inherent hedge against inflation as key  attractors to the sector. The government emerged as a dominant buyer group with acquisitions in  Tasmania and Queensland, acquiring hotels to provide affordable housing for key workers amidst  an ongoing housing crisis.

Ms Wales explained, "Transaction activity is expected to accelerate through 2025, driven by the  expectation of falling debt costs, moderation in accommodation supply, and improving tourism  demand. The perception of a more favourable interest-rate environment will help narrow the bid ask gap and facilitate transactions."

"While prices for in-demand hotels are predicted to hold in 2025, newly developed stock and  secondary assets may come under pressure. New CBD hotel stock is typically outperforming older  competitors, prompting more owners to consider major refurbishments and sustainability  commitments. Transaction volumes are anticipated to average $2.2 billion in 2025."

Demand growth in 2025 is expected to be more muted, whilst GDP growth remains weak.  International holiday and domestic business travel are projected to underpin growth, along with the  strong appeal of major events in Sydney, Brisbane, Perth, and Melbourne. Smaller hotel markets  with infrastructure investment supporting future outperformance will also continue to feature.

Colliers' market forecast indicates that the Australian accommodation market is expected to  continue growing in 2025. Growth in accommodation revenue is predicted to be driven by  improvements in demand rather than room rates, although some markets like Sydney and Brisbane  will still see strong Average Daily Rates (ADR) gains. 

Declining additions to accommodation supply in most major markets, combined with increasing  optimism about an economic soft landing and easing monetary policies, are expected to bring  welcome relief to hoteliers.

A strong forward portfolio of events in Australia will continue to provide  opportunities to yield throughout the year with major MICE, music, and sports events.

Perth, Brisbane and Gold Coast are the only markets where occupancies are trending higher than  2019, which indicates ample opportunity for growth as markets continue to stabilise. In 2025,  international holidays and domestic business travel are projected to underpin growth, with hotel  room rates remaining elevated compared to 2019, providing a strong platform for growth.

Room  rates in all markets are trending above 2019, with growth ranging between 50.6 per cent in Brisbane  and 13.6 per cent in Melbourne's luxury hotels.

Ms Wales concluded, "The outlook for the Australian hotel market in 2025 is positive, with strong  fundamentals and a favourable investment environment. We expect continued growth and  resilience in the sector, driven by robust demand and strategic investments."

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