Playing the long game has built resilience into Australia’s hotel market through the tumultuous times of the past two years but even with the reopening of its international borders it is not out of the woods yet.
“To date we’ve been really resilient,” Knight Frank’s joint national head of hotel valuation Samantha Freeman said.
“We haven’t seen a huge shift in valuations from pre-Covid to post-Covid.
“Weve seen yield compression because incomes have tightened up, particularly in the bigger hotels in the major cities but in terms of capital values we haven’t seen wild volatility.”
Freeman, who will be a panellist at The Urban Developer Hotel Property vSummit on March 24, said the sector was taking a long-term view that had been key to its resilience throughout the pandemic.
“It’s looking ahead to when the going concern operations are going to be back to stabilised levels and in some markets that could be next year and in others it’s going to be another few years out,” she said.
“The opening up of borders now, the vaccine deployment—that’s all been factored in already to decision-making and we’ve had a volume of transactions come through that has demonstrated that resilience."
Freeman said there was "some real optimism that we’re on our way out of this thing” and Australia's hotel market landscape was clearly shifting.
“Let's be realistic. The Chinese money is shifting out. We’ve got a lot of properties that are quietly being put to the market now.
“But we’re seeing new markets emerge. We’ve got domestic capital coming back in that had been standing back leading into Covid.
“We’re seeing European funds, institutional investment coming back to the space more aggressively, syndicated groups banding together or creating interesting structures in order to do deals, and the emergence of non-bank lenders shoring up transactions and, more interestingly, shoring up development funding where the banks have really gone cold.”
But Freeman also warned: “There’s still a hell of a lot that can go wrong”.
“With the major banks really tightening their belts in this space that’s potentially going to have an impact.
“Also, if we have financial contagion coming out of China, which hasn’t really revealed itself yet, or the geo-political situation globally causes broader market shocks pushing us into a recessionary environment and we start to see a lot of stock come onto the streets, we’re likely going to see some trauma in the space."
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She said with the reopening of borders there was also a risk of “a race to the bottom on rates” within the hotel sector.
"During the restricted periods of trade the market wasn’t price driven.
"You either had a market or you didn’t and there was no point competing on rate because it wasn't going to make any difference.
"But now that we're opening up again I think there is a risk of a race to the bottom on rates.
"We're not really seeing it yet but that can be a really hard hole to climb out of and I think iyt's certainly a risk going forward.
"So, I think this year is going to be interesting because there has been the withdrawal of support and stimulus and the market has returned to normalised trade.
“To date, however, core values have held up, quality assets are still well regarded, there’s a good depth of market and there’s still a lot of cash washing around seeking a home.”
