Hotel sales and construction decrease, however there is a silver lining

Australia’s hotel market suffered tremendously last year with planning, construction and sales decreasing.

According to STR research commissioned by The Australian, hotel construction dropped over 13 per cent, planning of hotels was down by over 11 per cent and the number of hotel transactions dropped 10.7 per cent. 

Even though banks refused to lend on Australian hotel construction and investment, many transactions of local hotels still occurred such as the sale of the Sofitel Wentworth for $315 million. 

Jerry Schwartz, owner of 14 east coast hotels, was just one hotelier who has felt unloved by his bank.

Schwartz was forced to sell Sydney’s Four Points by Sheraton after COVID’s impact on his former bank’s decreasing appetite for hotel lending.

“Most hotel owners are able to refinance their hotels in Sydney and we expect the hotel industry to rebound so strongly we would not want to sell hotels,” said Dr Schwartz on Wednesday.

“I have had a few offers from people wanting to buy my hotels thinking they are distressed assets, but they are not. We had to sell the Four Points by Sheraton because of the structure of the bank refinancing due to Covid. 

“Banks are very short sighted and I have had particularly differences with one of the big four, it has been our family bank for the past 50 years and has not supported me over this difficult period and initiated the need for me to sell one of my hotels.”

“The finance model has changed such that a lot of people have left the big four and gone to private financiers,” Dr Schwartz added.

While the STR data seems bad, industry experts were nonplussed believing that a lack of construction of new hotels will, as The Australian, reports “lead to more conversions of secondary hotels into build to rent or apartments or major refurbishments of existing hotels to compete with newer hotels about to hit CBD markets.

JLL Hotels managing director and head of investment sales, Peter Harper points to the strong amount of  hotels developed in Sydney, Melbourne, and Brisbane. 

“This slowdown is symbolic of the Australian hotel market coming to the end of what is arguably an unprecedented supply cycle,” Harper said.

“Given the volume of new hotels that have recently opened or are currently under construction such as the Chinese-owned Greaton Group’s W Hotel at Darling Harbour coming into certain markets in Australia and Covid, along with the banks significant decrease in appetite for hotel development over the short to medium term, it is simply not feasible in a lot of instances to consider the development of hotels. 

“There is limited appetite among banks to fund new development."

“We certainly will have ample hotels for the foreseeable future. And another positive is the reality that all these new hotels will force exciting hotels to refurbish and this will significantly enhance the overall product offering which sets the market up for some strong average daily rate improvements over the coming years.”

Irit Jackson, 20^th January 2022