Why the hotel sector is expected to have a strong 2023

With domestic travel booming and inbound tourism gradually returning to pre-pandemic levels, one of Australia's leading commercial property experts believes investors may want to take a fresh look at accommodation assets.

Ray White Commercial Head of Research Vanessa Rader said Australia enjoyed a busy summer holiday period, with both domestic and international travel sharply increasing on the year before.

“There’s been strong hotel occupancy levels and new benchmarks in average daily room rates recorded across Australia,” she said.

“After a number of years of poor results, this has put the spotlight again on the accommodation sector as a viable investment opportunity from four- and five-star full-service hotels in major tourism centres through to the regional hotel/motel segment.”

Ms Rader said that while Australians were excited to resume overseas travel, many have chosen to travel domestically instead, due to cost-of-living pressures and a relatively weak Australian dollar.

“The drive segment has shown good results, with occupancy improvements across regional areas of Australia setting new highs in daily room rates,” she said.

Conversely, our weaker currency gave international visitors another reason to visit Australia over the summer. That was one reason why an average of 1,520 flights per week entered Australia during December. 

“While this is still below pre-COVID-19 results (December 2019) of 2,167 per week, there has been a vast improvement since early 2022 where just 400 flights per week were entering Australia,” she said.

Domestic tourism is booming

Ms Rader noted forecasts from Tourism Research Australia predicting that both outbound and inbound tourism would not return to 2019 levels until 2025.

However, domestic tourism is booming. Australians spent a collective 400 million nights in domestic accommodation in 2022 and are expected to average 444 million nights per year over the next five years – well above the long-term average of 310 million nights.

“Domestic tourism expenditure has already eclipsed results seen in 2019, with continued annual growth of 4.7% expected over the next five years making hotel investment attractive,” she said.

“Capitalising on this growth potential, interest in the hotel sector in 2023 will continue after a strong 2022 which achieved $3.2 billion in sales. Offshore buyers accounted for 58.4% of these sales and are likely to continue to seek out these quality, ongoing returns. 

“Savvy local groups and private investors, notably in the smaller, regional markets, are expected to remain active, however financing availability may be a stumbling block for some buyers.”

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