Knight Frank: 64% of hotel owners looking to increase exposure in Malaysia

PETALING JAYA (April 12): Knight Frank Malaysia expects to see an increase in hotel transactions over the next 24 months, supported by improved appetite of hotel owners and operators as shown in its latest market survey report.

According to the Malaysian Hospitality Investment intentions Survey released by Knight Frank, some 64% of the hotel owners, operators and owner operators survey respondents are considering increasing their exposure to the Malaysian hotel sector, a sharp hike compared with 36% in 2020.

Even though 36% of the respondents are currently not interested in increasing their exposure to hotels, it is already a significant drop compared with 64% in 2020. Knight Frank Malaysia opined that it is a positive sign that sentiment towards the sector is returning.

“Given 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. International travellers' confidence is slowly returning and this is filtering through to the 2022 survey with investor sentiment recovering. We expect to see an increasing number of hotel transactions over the next 24 months,” said James Buckley, the capital markets executive director of Knight Frank Malaysia, in a press statement on Tuesday (April 12).

The report also showed that investors continue to seek high returns to offset the risk of investing in the sector. About 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, while 26% of respondents are targeting net yields of 6%-7% (versus 29% in 2020). Some 19% would accept 5%-6% (versus 29% in 2020).

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

He also expects to see an increase in hotel transaction volumes in 2022 as the price gap between vendors and purchasers will narrow, while banks will begin to lend again as they see improvements in the sector.

“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 present a window of opportunity to acquire some unique opportunities,” he shared.

The majority of hotels have conservative levels of gearing. About 43% have a less than 49% loan-to-value ratio, while 17% have no debt at all. However, 31% have a loan-to-value ratio of between 50% and 69%, and 9% have high gearing of above 70%. On the whole, hotel owners with conservative gearing have managed to weather the Covid-19 pandemic storm and have not had to sell at fire sale prices.

Edited by Racheal Lee Mei Nyee

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