According to Knight Frank’s Malaysian Hospitality Investment Intentions Survey, 45% of industry players in the hospitality sector sees a positive outlook for the next 12 months. Depending on the introduction of the covid-19 vaccine and opening up of international travel restrictions, the sector half of the sector feels it is on its way to recovery.
The survey that was conducted in 4Q2020 and launched yesterday, analysed the investment perspectives of hotel owners, operators and owner operators, providing an insight on investment demand, investor preferences and pricing. It also focused on the relief measures that were initiated to combat the impact of the pandemic on the sector.
Participants of the survey were mostly owners or managing upscale and luxury hotels, of which 44% were owner operators, 43% were hotel owners and 13% were operators. Of this number, 72% of the respondents already have investments in the hotel sector in Malaysia, with 68% of them from Malaysia, 14% from Southeast Asian countries while the rest from other parts of the world.
Among all the survey respondents, 14% of them anticipated buying hotel assets within the next two years, whilst 16% looked to making an acquisition even sooner within the next six months despite the pandemic.
Knight Frank Malaysia executive director James Buckley observed that well-capitalised, shrewd investors are looking beyond the pandemic and see this as an opportunity to acquire prime hotel assets at more reasonable pricing.
“We believe prices for Malaysian hotels that trade will reflect a 10-30% discount from their pre-Covid values. Tourism is an important sector as it is the third largest contributor to the economy and employs about 3.6 million people. Before the pandemic hit, it contributed a total of RM86 billion in tourist receipts from about 26 million international visitors in 2019,” said Buckley.
Meanwhile, the location factor is the most important key which respondents look at when investing in a hotel followed by expected return or yield.
Knight Frank Malaysia executive director of valuation & advisory Justin Chee highlighted that during these challenging times, investors are increasingly looking to yield accretive assets. “Many investors are now seeking higher returns to offset the risk of investing in the sector during the pandemic with 36% of respondents targeting a net yield of above 7%."
"As a consequence of the global pandemic in 2020, the volume of hotel transactions across Malaysia fell by 36% compared to the 10-year annual average. The availability of bank financing for hotel transactions has been significantly curtailed, which has also played a factor,” the survey noted.
“It is important to note that based on the few transactions in the past five years, hotels in Malaysia were generally transacted at net yields of about 4% to 6% and there is definitely a mismatch between the expected return and the selling prices of hotels. What we may possibly see during this pandemic and the fallout of the Covid-19 impact on the hospitality sector is the bridging of the gap between the two as vendors are getting more realistic with their hotel values and asking prices,” he added.
Nevertheless, the road to recovery for the battered tourism industry will be long and hard with the country now under MCO 2.0 with the exception of Sarawak following the resurgence of Covid-19 cases, said Knight Frank Malaysia executive director of research and consultancy Judy Ong.
“Government measures and incentives to support the industry may be too little and too late as we continue to hear of more hotels shutting down either temporarily or permanently. Hotels that are still in operation are aggressively promoting staycations and attractive ‘work from hotel’ packages as well as food delivery service to stay afloat and support employment. Moving forward, once interstate travel is allowed, we believe that domestic tourism will lead the way to recovery supported by the recently launched National Tourism Policy 2020 – 2030, which aims to position the country as among the top ecotourism destinations,” Ong said.