Domestic buyers dominated hotel transactional activity in 2023
Cross-border capital ready to make their moves in 2024
Australian hotel transaction volumes soared to new heights in 2023, with domestic buyers taking center stage in the market, according to a recent report by Savills Australia and New Zealand.
The study, which delves into hotel deals valued at over $5 million throughout the 2023 calendar year, provides a comprehensive overview of the industry’s performance.
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Robust growth in transaction volumes
The report revealed that Australian hotel transaction volumes reached approximately $2.494 billion in 2023, marking a remarkable growth of over 6 percent compared to the previous year. This surge exceeded the long-term average of $2.1 billion, signifying a promising trend for the sector.
Fewer transactions but bigger deals
Despite the impressive growth in total value, the number of hotel transactions during this period decreased by approximately 8.6 percent compared to the previous year. This decline can be attributed to factors such as rising interest rates and macro-economic challenges impacting investment activities.
However, the average deal size surged by 26.4 percent to reach $47.1 million, driven by several larger ‘outlier’ sales.
Key players
Private investors and family offices emerged as the most active participants in the hotel market, representing 58 percent of total investments. Investment funds accounted for 30 percent of the activity, showcasing a diversified investor landscape.
Domestic dominance
One of the standout trends was the dominance of domestic buyers, representing a significant 73 percent of hotel transaction activity in 2023, up from approximately 50 percent in the previous year. Singaporean buyers were the second most active, accounting for 24 percent of acquisitions. In contrast, the majority of sellers were Australian at 76 percent, while 24 percent were Asian-based owners.
International interest persists
Mark Durran, Managing Director, Hotel Capital Markets at Savills Australia and New Zealand, emphasised, “Australia remains a preferred destination for international hotel investors, particularly from Asia.”
He noted that Savills’ Asia Pacific team continues to experience strong interest from investors across the region.
Outlook for 2024
As 2024 unfolds, the industry anticipates a surge in cross-border capital entering the Australian hotel sector.
Despite the challenges posed by the limited availability of major investment-grade hotel assets, the year has started strong with notable transactions, such as the $96 million acquisition of the 273-room Four Points by Sheraton Melbourne Docklands Hotel.
Mark Durran concluded: “Looking ahead to 2024, we anticipate similar levels of hotel transaction activity, with both major single assets and portfolios attracting well-capitalised strategic investors.” He stressed the importance of positioning capital for continued recovery in both trading and investment markets.
Strong recovery in key markets
Nick Lower, State Director, Hotels, Savills Australia and New Zealand, highlighted that key Australian cities, particularly Melbourne and Sydney, are expected to experience significant transactional activity in 2024. The market’s remarkable post-COVID recovery is reinforced by December 2023 STR reports, indicating substantial year-on-year growth in RevPAR (Revenue Per Available Room) across many destinations.
Adrian Archer, National Director, Hotel Valuations at Savills Australia and New Zealand, attributed this resurgence to a resurgence in international visitation, stating that it is expected to be a key driver of demand throughout 2024.
In summary
The Australian hotel sector demonstrated resilience and growth in 2023, with domestic buyers dominating the market. As the world continues to recover from the challenges of the past, the industry looks forward to a promising 2024, with cross-border capital poised to make its mark on the Australian hotel landscape.
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