Despite Covid-19 and lower room rates, hotel investors are still keen

InterContinental Hotel in Sydney’s Circular Quay is undergoing a $110m renovation.

The Covid pandemic has not deprived investors of their appetite for the hotel sector, with the majority of respondents to a recent survey saying they will continue to invest even though room rates in the major Australian and New Zealand capitals may not fully recover for three to five years.

Sydney, the Gold Coast and Brisbane are expected to produce the strongest hotel performances next year, while for investors and developers the best markets for development will be NSW and Queensland, according to CBRE’S Market Conditions Survey of more than 70 hotel owners, investors, developers and industry consultants.

CBRE Hotels managing director, capital markets Michael Simpson claimed the industry’s optimism was underlined by the fact that nearly 90 per cent of respondents are keen to maintain or increase their exposure to the hospitality sector. “Only 12 per cent are looking to reduce their positions,” Mr Simpson said.

Half of the survey respondents expect higher interest rates to flow into yields, but 58 per cent don’t believe inflation will result in stronger daily hotel rate growth.

Artist’s impression of the proposed upgrade to the InterContinental Sydney.

Around 55 per cent of survey respondents believe capital city hotel values will rise by up to 10 per cent over the next three years.

“Two-thirds of our survey respondents see growth in asset prices over the medium term, in line with recovering visitation,” Mr Simpson added.

While the survey found demand is recovering, international arrivals could be three to five years away from returning to pre-Covid 2019 levels. Specifically Auckland, Melbourne, Perth and Sydney could take three to five years to return to 2019 revenue per available room levels, but Adelaide and Brisbane are expected to recover as early as next year.

For survey respondents labour shortages outweigh concerns about interest rates, construction costs and inflation.

Meanwhile, Malaysian conglomerate Mulpha is clearly banking on a quick turnaround in Sydney’s hotel fortunes, having just pumped $110m into a major renovation of its landmark InterContinental Hotel in Sydney at Circular Quay.

From September, the hotel will offer 509 fully renovated rooms, public spaces and new bars designed by local architects Woods Bagot after a two-year renovation. First opened in 1985, the hotel is set in Sydney’s restored Treasury Building which was developed in 1851.

Mulpha Australia chief executive Greg Shaw said the hotel was a premium business and events destination and would now offer a rooftop bar on level 32.

“InterContinental Sydney’s new design is a contemporary interpretation of the building’s historical significance and evolution, as well as its prestigious location on the doorstep of Sydney Royal Botanic Garden and Circular Quay,” Mr Shaw said.

“The building’s existing materiality is being maintained whilst innovative touches, new fine food and beverage experiences and an updated colour palette will breathe new life into the classical architecture.”