Investors see buying opportunities in prime hotels amid pandemic

Due to Covid-19, the value of Malaysian hotels is expected to contract by about 10% to 30%


SHRINKING asset values and revenue in the tourism sector are expected to present investors with a buying opportunity to take control of some of the country’s prime hotel estates, an industry survey showed.

Knight Frank Malaysia Sdn Bhd capital markets ED James Buckley said the value of Malaysian hotels is expected to contract by about 10% to 30% as a result of the pandemic, which put investors at an advantage to make an acquisition.

“Well-capitalised and 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 will reflect a 10% to 30% discount from their pre-Covid values,” he said at Knight Frank’s “Malaysian Hospitality Investment Intentions” survey released yesterday.

Investor sentiment on hotels remains bearish, the survey revealed, backed by the hospitality sector’s anticipated recovery this year and the gradual resumption of international and domestic travels.

The survey analysed investment perspectives of hotel owners and operators and provided insight on investment demand, preferences and pricing.

“About 45% of the respondents feel the sector is on its way to recovery, albeit contingent on the progressive rollout of Covid-19 vaccines and the opening up of international travel restrictions.

“We expect these respondents to seek opportunities created by the market volatility and are bullish in looking for undervalued hotels,” Buckley said.

The survey further revealed a significant preference among investors for the hotel segment in South-East Asia with about 83% of respondents ranking the region as their preferred destination compared to other localities.

It also showed 14% of respondents indicating their intent to buy hotel assets within the next two years, with a further 16% planning to make similar acquisitions within the next six months despite the pandemic.

Kuala Lumpur’s (KL) flight connectivity and the city’s ability to attract more business travellers and tourists also put it as the most attractive city for hotel investment, according to the survey.

“71% of the respondents chose KL as their first choice for hotel investment.

“Passenger traffic to the KL International Airport far exceeds any other airport in Malaysia and the ability to attract more business travellers and makes KL the most attractive city for the majority of the respondents.

“Penang is the second most popular choice for hotel investment with places like Batu Ferringhi and Georgetown being the popular destinations for both international and domestic holidaymakers,” it said.

In 2020, however, the number of hotel transactions across Malaysia dropped 30% year-on-year to RM589 million as well-capitalised owners do not want to dispose of their hotels until market sentiment improved.

This was further exacerbated by the unavailability of bank financing for hotel acquisitions or the significantly lower loan-to-value ratios, Knight Frank noted.

Tourism is an important economic sector for Malaysia, being the third-largest contributor to the economy and employing about 3.6 million people.

Prior to the pandemic, the sector contributed a total of RM86 billion in tourist receipts from about 26 million international visitors in 2019.