KUALA LUMPUR (APRIL 2022) – Knight Frank Malaysia, the global property consultant has recently concluded its second Malaysian Hospitality Investment Intentions Survey. The survey analysed the investment perspectives of hotel owners, operators and owner operators to draw a comparison with its earlier survey to compare how they have continued to be impacted by Covid-19 in Malaysia, the level of investment demand, investment preferences, and investment sentiment towards the sector.
64% of respondents are considering to increase their exposure to the Malaysian hotel sector, a sharp hike in comparison with 36% back in 2020. 36% of respondents are currently not interested to increase their exposure in hotels but this is a significant drop compared to the 64% in 2020. This is a positive sign that sentiment towards the sector is returning.
Source: Malaysian Hospitality Investment Intentions Survey Report 2022
James Buckley, Executive Director Capital Markets, Knight Frank Malaysia, says “Given the last two tumultuous years, it is not surprising that investment in hotels across Malaysia fell from a 2017 high of RM2.2bn to just RM556m in 2020 and RM177m in 2021. Since our first survey, we have seen a rapid and widespread distribution of Covid-19 vaccines globally, an increasing list of countries opening their borders to international travellers and airlines re-establishing some of their flight 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.”
Investors continue to seek high returns to offset the risk of investing in the sector. 33% of respondents are targeting a net yield of above 7% (versus 36% in 2020) when acquiring a 4 to 5-star hotel in Malaysia. 26% of respondents are targeting net yields of 6-7% (versus 29% in 2020), whilst 19% would accept 5-6% (versus 29% in 2020).
Source: Malaysian Hospitality Investment Intentions Survey Report 2022
He continued saying, “I think investors are seeing 2022 as a good time to invest in Malaysian hotels. 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. 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.
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. Malaysia ranked as the top destination out of 140 countries in the MasterCard CrescentRating Global Muslim Travel Index 2021 for being the most Muslim friendly holiday destination, beating Turkey, Saudi Arabia and Indonesia. 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 majority of the hotels have conservative levels of gearing. 43% have less than 49% loan to value ratio whilst 17% have no debt at all. However, 31% have the 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.
Source: Malaysian Hospitality Investment Intentions Survey Report 2022
“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 covid-19 pandemic,” he further added.
