The Valuers' Survey - Hotels

July, 2020

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A survey of m3property Valuers

The Valuer’s View

In times of uncertainty where transactions are limited and new trends establishing, industry participants place even more reliance on Valuers to provide market guidance.

To assist lenders, investors and owners, the Valuers at m3property have contributed their opinions on the current state of the property markets and where they expect those markets to head over the next 12 months.

This is the fifth report in a series of papers on the major sectors of the Australian property market and focuses on Hotel property.

Key Hotels Sector Insights

  • Occupancy rates and daily room rates have been reduced to levels that are generally not profitable for operators, significantly impacting Valuations.
  • Occupancy rates and room rates should increase as intra and interstate travel increase with some domestic borders reopened.
  • The sector is unlikely to fully recover until international borders reopen and confidence in travel is restored.

Value Comparison by Sector

Authors

James Ruben

Director

View Profile > NSW
Jennifer Williams

National Director - Research

View Profile > NSW
Amita Mehra

National Director - Research, Marketing & Strategy

View Profile > VIC
Casey Robinson

Director

View Profile > QLD
Zoe Haskett

Research Manager

View Profile > SA

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The Valuers' Survey - Service Stations

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Stages of the COVID-19 recession

The COVID-19 crisis is likely to have three distinct stages:

 

Survey Results

 

“How and when cash flows of operators return, will be the determining factor of value recovery in the hotel sector.”

James Ruben
Director

YIELDS

  • The accommodation industry has been hit very hard by the COVID-19 pandemic. Occupancy rates and daily room rates have both been significantly reduced to levels that are generally not profitable or maintainable for operators. This is significantly impacting Valuations.
  • Owners and investors have become cautious and any recovery will be driven by the reopening of borders and appetite for travel resuming.

OCCUPANCY RATES

  • Occupancy rates and average daily room rates were approaching 0% at the height of shut-down with an average of 23.1%, across the country in May 2020, according to STR.
  • Some hotels offered rooms to travellers and medical staff self-isolating and self-quarantining due to COVID-19 at highly discounted rates.
  • STR consider the break-even point for most hotels is around 30% occupancy. They are reporting that the lowest occupancy market in Australia is the Gold Coast at sub-10% (of hotels remaining open). Perth is circa-20%. The difference is that QLD is reliant on tourists and Perth is reliant on workers – FIFO workers.

RENTS

  • Rental arrangements and management agreements in the hotel sector are usually long-term.
  • Rents are linked to the profitability of the operator. With occupancies and rates approaching zero, there is no appetite for rental arrangements from operators. When this returns and how strongly is yet to be seen.

INCENTIVES

  • Changes to incentive arrangements are yet to be seen in the market, but it is likely that significant incentives will be required in order to attract operators.

VALUES

  • How and when cash flows of operators return will be the determining factor of value recoveries in the hotel sector.
  • Overall values nationally have fallen, however, States with borders remaining closed are suffering more than States allowing interstate visitation.