Amidst economic difficulties, the premium hotel sector manages transactions worth $1.53Bn in 2023

The burgeoning premium hotels sector in Australia has emerged as the market's star performer despite the challenging economic conditions of the previous year, with a new report by Colliers estimating that the transaction volume for premium hotels (hotels with a value of above $50m) reaching $1.53Bn in 2023, or 64% of all hotel investments. Unexpectedly, 77% of transactions in the previous year were facilitated by domestic investors, a level of domestic investment for this buyer segment not seen since2006. Despite this, it is anticipated that offshore investors will increase their activity level this year, expanding their current ownership of $30Bn worth of premium hotels.

Sydney’s luxury sector had a remarkable year. Compared to the pre-pandemic era, room rates grew by 26%, averaging $450. The segment prospered from the additions of new ultra-luxury assets, like Crown Resort and Capella Sydney, together with luxury lifestyle brands W and Ace Sydney. Neil Scanlan, the National Head of Hotels for Colliers, said that many opportunistic funds decided to hold on to their capital reserves or slow down their purchases because they thought there would be better deals in 2024.

Recently, Colliers Head of Hotels Transaction Services, Karen Wales, commented that as prices for premium assets in gateway cities and leisure markets remained resilient, average hotel sales increased by 19.1% to $41.8m, a result of a 21% increase in premium hotel transaction volume in 2023.“Investors see the opportunity presented by improving demand levels, which supported increases in room rates across key markets of 20-50%, compared to 2019.” Wales said.“Positive sentiment around recovery in travel and asset performance continue to be key investment drivers across the hotels market, ensuring investment volumes held up well last year compared to other commercial property asset classes, decreasing only 7% compared to 2022 to$2.4Bn."

"While established portfolio hotel owners accounted for 87% of transactions in 2023 and acquired all ten premium assets on the market, the hotels sector continues to attract new investors with lower cap rate expansions and more capital targeting quality opportunities across the burgeoning sector.”

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“Australia’s high-performing premium hotel market has swelled over the past ten years with the development of more than 36,000 new rooms. There are now more than 117,000 premium hotel rooms nationally, with a combined value of almost $60 billion, providing a breadth of opportunity for sophisticated hotel investors,” Wales said. "The lion’s share of premium stock is in Sydney, with an estimated value of more than $22Bn (c.37%). “Notwithstanding the boom in premium stock underpinning the evolution of the sector, Australia will still be under-represented when it comes to premium lifestyle hotels, despite more brands coming to our shores throughout 2024, expanding on the currently available 6,000 rooms or 5%of the total premium hotel market."

“Strategic investors will look past any short-term volatility for long-term returns, which lie with industry megatrends such as lifestyle, sustainability, automation and wellness.”

"The uptick in listings seen in Q3 2023, and the fact that there are currently around $2.2Bn assets currently on the market, points to higher levels of investment activity over 2024, and we expect transaction volumes to reach $2.5Bn,” she said.

It is anticipated that premium hotels will maintain their lead over older establishments, surpassing them. During the fiscal year 2023, luxury and upscale hotels have maintained an average occupancy rate of more than 70% and have commanded a national average daily rate of $326.

Investors interested in secondary and older hotel assets are not looking to get into the hotel business, but rather, convert said assets for other uses, such as build-to-rent, co-living, or residential, aiding the government’s efforts to tackle the housing crisis. Colliers expects transaction volumes to reach $2.5Bn during 2024.

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