Investor interest in acquiring existing four and five-star hotels in five important Malaysian cities is growing.
Recent transactions in Malaysia suggest that acquiring an existing hotel rather than building a new one is more cost-effective.
“Not only does the relationship between development cost and purchase price frequently support this investment strategy, but it also allows investors to immediately take advantage of the sector’s recovery rather than taking the time to develop and stabilise a new hotel,” said James Buckley, executive director of capital markets investments at Knight Frank Malaysia.
According to the firm’s most recent Malaysian Hospitality Investment Intentions Survey for 2023, city hotels and beach/highland resorts capture 40% of investors’ interest.
Integrated developments provide the potential for greater diversification and appeal, whilst independent hotels offer a more focused and personalised experience.
“Ultimately, the choice between the two depends on the specific investment strategy and objectives of the investor in the hotel sector,” Buckley explained.
Kuala Lumpur is the top choice for hotel investment, indicating the capital city’s sustained attraction and growth potential in the hospitality sector.
Penang, famed for its rich culture and attractions, is still a strong contender, having secured the second spot in 2023 and rising from third place in 2022.
Langkawi, with its spectacular natural beauty and popularity as a tourist destination, is ranked third in 2023.
Kota Kinabalu, Sabah, remains in fourth place, demonstrating its ongoing attraction for hotel investment.
Melaka, a Unesco World Heritage Site, has risen from sixth to fifth place in the rankings, indicating great interest in investing in the mediaeval city’s hospitality sector.
The poll investigates the investment perspectives of hotel owners, operators, and owner-operators, providing significant insights into the Malaysian hospitality industry’s ongoing recovery.
“Due to the Covid-19 pandemic, the industry faced challenges, affecting key aspects such as hotel occupancy rates, average daily rates, and investor confidence.” “However, as the recovery gains traction, a positive shift is visible,” Buckley said.
Three percent of respondents expected returns of less than three percent in 2022. However, by 2023, this figure had decreased to zero, indicating a substantial reversal in investor optimism.
This shift demonstrates that investors are less ready to tolerate low returns and are actively seeking better options.
“This upward trend indicates growing investor confidence in achieving higher net yields, possibly as a result of favourable market conditions, increased tourist demand, or improved operational efficiencies,” Buckley added.
The substantial percentage of respondents reporting increases in hotel occupancy in 2022 versus 2021 implies that the industry is gaining pace.
The majority of respondents indicated an increase of 10% to 30%, showing a slight but continuous improvement in occupancy levels.
The majority of respondents anticipate that the hospitality sector will fully recover in the second half of 2023, suggesting a more hopeful picture as travel demand recovers and consumer confidence rises.
Another sizable proportion (29%) expects a rebound in the first half of 2024, reflecting a little more cautious approach.
11% of those expecting a rebound in the second half of 2024 forecast a more gradual and sustained recovery trajectory.
The remaining 11% believe that full recovery will take until 2025 or later, possibly due to the time required for the hospitality industry to achieve pre-pandemic levels of demand and profitability.
