Knight Frank survey sees hotel investment revival

Positive sentiment returns, majority of respondents open to expanding their exposure to Malaysian hospitality sector

Knight Frank Malaysia’s second Malaysian Hospitality Investment Intentions Survey 2022 found positive sentiment returning to the sector with 64% of the respondents considering to increase their exposure to the Malaysian hotel sector, a stark contrast to 36% of those surveyed wanting to increase exposure back in 2020.

The survey also found 36% of respondents not interested in increasing their exposure in hotels, a significant improvement from 64% reported in 2020.

The property consultant firm’s executive director James Buckley remarked that with the last two tumultuous years, it is not surprising that investment in hotels across Malaysia fell from a 2017 high of RM2.2 billion to just RM556 million in 2020 and RM177 million in 2021.

Since the first survey, he stated that there has been a rapid and widespread distribution of Covid-19 vaccines globally, an increasing list of countries opening their borders to international travellers and airlines reestablishing some of their networks.

“International traveller’s confidence is slowly returning and this is filtering through to the 2022 survey with investor sentiment recovering. We do expect to see an increasing number of hotel transactions over the next 24 months,” Buckley said in a statement earlier this week.

The survey noted that investors continue to seek high returns to offset the risk of investing in the sector as 33% of respondents are targeting a net yield of above 7% (versus 36% in 2020) when acquiring a four to five-star hotel in Malaysia, and 26% of respondents are targeting net yields of 6-7% (versus 29% in 2020), whilst 19% would accept 5-6% (versus 29% in 2020).

Buckley opined that investors are seeing 2022 as a good time to invest in Malaysian hotels as they can see the economy is recovering, especially now that the borders have opened. Many can see the strong pent-up demand for holiday travel and in the short term, Singapore tourists coupled with domestic demand will drive hotel performance in 2022.

“We expect to see hotel transaction volumes to increase in 2022 as the price gap between vendors and purchasers will narrow as investors become more optimistic with the border opening and increasing arrivals,” he said.

Although bank financing of hotels has been quite difficult during the pandemic, banks will also see the improvements in the sector and begin to lend again.

Knight Frank noted that historically, Malaysia has attracted a diverse pool of international tourists from all over the world and is particularly well positioned to capture the growth of halal tourism, as it took the number one spot in MasterCard CrescentRating Global Muslim Travel Index 2021 for being the most Muslim-friendly holiday destination.

It pointed out that traditionally prime hotels do not come to market regularly and the next 12 months presents a window of opportunity to acquire some unique opportunities.

The firm laid out that the majority of hotels have conservative levels of gearing, with 43% having less than 49% loan to value ratio whilst 17% have no debt at all. However, 31% have loan to value between 50% and 69%, and 9% have high gearing of above 70%. On a whole, hotel owners with conservative gearing have managed to weather the pandemic storm and have not had to sell at fire sale prices.

“The survey indicates that owners of Malaysian hotels tend to have quite conservative levels of debt. Lower leveraged properties carry less risk and are better equipped to weather market fluctuations and might explain why we have not seen any notable distressed hotel sales during the Covid19 pandemic,” said Buckley.