Hospitality sector on the mend
08 Sep 2023
Investor appetite to acquire existing four and five-star hotels in five key cities in Malaysia is increasing.
Recent transactions in Malaysia show that it is more cost-effective to acquire an existing hotel rather than build a new one.
“Not only does the relationship between development cost and purchase price often support this investment strategy, but the other benefit is that it allows investors to immediately take advantage of the recovery in the sector instead of taking the time to develop and stabilise a new hotel,” said James Buckley, executive director of capital markets investments at Knight Frank Malaysia.
According to the firm’s recent Malaysian Hospitality Investment Intentions Survey for 2023, investors’ choices revolve around city hotels and beach/highland resorts, each capturing 40 per cent of their interest.
Integrated developments offer the potential for greater diversification and broader appeal, while standalone hotels provide a focused and tailored experience.
“Ultimately, the choice between the two depends on the specific investment strategy and objectives of the investor in the hotel sector,” Buckley said.
Kuala Lumpur is the top choice for hotel investment, reflecting the continued appeal and potential for growth in the capital city’s hospitality sector.
Penang, known for its vibrant culture and attractions, remains a strong contender, securing the second spot in 2023 and moving up from the third position in 2022.
Langkawi, with its stunning natural beauty and status as a popular tourist destination, holds the third position in 2023.
Kota Kinabalu in Sabah maintains its fourth position, indicating its consistent attractiveness for hotel investment.
Melaka, a Unesco World Heritage Site, has climbed up the rankings from the sixth position in 2022 to fifth, suggesting strong interest in investing in the historical city’s hospitality sector.
The survey examines the investment perspectives of hotel owners, operators, and owner-operators, providing valuable insights into the ongoing recovery of the Malaysian hospitality industry.
“The industry encountered difficulties due to the Covid-19 pandemic, affecting key aspects such as hotel occupancy rates, average daily rates, and investor confidence. However, as recovery gains momentum, a positive shift is evident,” Buckley said.
In 2022, three per cent of respondents anticipated returns below three per cent. However, in 2023, this figure dropped to zero, indicating a significant shift towards optimism among investors.
This change illustrates that investors have become less willing to accept minimal returns and are actively seeking more favourable opportunities.
“This upward trend indicates growing confidence among investors in achieving higher net yields, possibly due to positive market conditions, increased tourist demand, or improved operational efficiencies,” said Buckley.
The significant percentage of respondents reporting improvements in hotel occupancy in 2022 compared to 2021 suggests positive momentum in the industry.
The highest proportion of respondents reported an increase of about 10 per cent to 30 per cent, indicating a moderate yet steady improvement in occupancy levels.
The majority expects the hospitality sector’s full recovery to occur in the second half of 2023, reflecting a more optimistic outlook as travel demand rebounds and consumer confidence improves.
Another significant portion (29 per cent) anticipates recovery in the first half of 2024, indicating a slightly more cautious stance.
Eleven per cent of respondents who anticipate a recovery in the second half of 2024 expect a more gradual and prolonged recovery trajectory.
The remaining 11 per cent contemplate full recovery may extend into 2025 and beyond, potentially due to the time required for the hospitality sector to regain pre-pandemic levels of demand and profitability.