Strong appetite for Malaysian hotel investment: Knight Frank

A SURVEY analysing the investment perspectives of hotel owners, operators and owner operators has found that 64 per cent of respondents are considering increasing their exposure to the Malaysian hotel sector, a sharp hike compared with 36 per cent in an earlier survey done in 2020.

In another sign that sentiment towards the sector is returning, 36 per cent of respondents are currently not interested in increasing their exposure in hotels - a significant drop compared with 64 per cent in 2020.

The findings, released on Tuesday (Apr 12), are from Knight Frank Malaysia's second Malaysian Hospitality Investment Intentions Survey, which compares how respondents continue to be impacted by Covid-19 in Malaysia, the level of investment demand, investment preferences and investment sentiment towards the sector.

"Given the last 2 tumultuous years, it is not surprising that investment in hotels across Malaysia fell from a 2017 high of RM2.2 billion (S$709.5 million) to just RM556 million in 2020 and RM177 million in 2021," said James Buckley, executive director, capital markets at Knight Frank Malaysia.

But with widespread Covid-19 vaccine distribution, the opening of international borders and airlines re-establishing flight networks since the first survey, international travellers' confidence is slowly returning and filtering through to recovering investor sentiment in the 2022 survey.

Investors continue to seek high returns to offset the risk of investing in the sector, with 33 per cent of respondents targeting a net yield of above 7 per cent (versus 36 per cent in 2020) when acquiring a 4 to 5-star hotel in Malaysia, 26 per cent targeting net yields of 6 to 7 per cent (versus 29 per cent) and 19 per cent willing to accept 5 to 6 per cent (versus 29 per cent).

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Buckley said that a recovering economy, open borders, a strong pent-up demand for holiday travel and, in the short term, Singapore tourists and 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, he believes banks will see improvements in the sector and begin to lend again.

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. The country has attracted a diverse pool of international tourists and is particularly well-positioned to capture the growth of halal tourism, said Buckley.

"Traditionally, prime hotels do not come to market regularly and the next 12 months presents a window of opportunity to acquire some unique opportunities," he added.

The majority of Malaysian hotels have conservative levels of gearing, with 43 per cent having less than 49 per cent loan-to-value ratio, while 17 per cent have no debt at all. However, 31 per cent have a loan-to-value ratio of between 50 and 69 per cent, while 9 per cent have high gearing of above 70 per cent.

"The survey indicates that owners of Malaysian hotels tend to have quite conservative levels of debt," noted Buckley. "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."

READ MORE:

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• The rebound of tourism in South-east Asia

• Malaysia's borders to reopen on April 1, no quarantine for fully vaccinated travellers