Since the impact of the COVID-19 travel restrictions, the traditional motel market has been closely monitored across all interests, including Going Concern, Freehold Investments, and Leasehold Interests, to detect signs of recovery.
2023 Resurgence: Domestic Travel and Investor Interest.
The year 2023 witnessed a resurgence in the traditional motel industry, propelled by domestic travel, the corporate trade fuelled by business resumption, and strong government spending in public infrastructure, which also attracted investor interest.
Recent data from Tourism & Events Queensland reveals a substantial rebound in Domestic Overnight Visitors (DOV) in Queensland, reaching $29.1 billion – an impressive 18.5% increase over the year. This growth in OVE is due to a 20% surge in spending, to $291 per visitor. Of note the average length of stay by visitors was down by 0.2 nights to 4.0 nights.
Domestic Overnight Visitors in Queensland
| Visitors | annual change | change vs ye dec -19 | avg stay |
annual # change | |
| Total QLD | 25,214,000 | 3.3% | -2.7% | 4.0 | -0.2 |
| – Holiday | 11,045,000 | 3.4% | 10.4% | 4.3 | -0.2 |
| – VFR | 7,938,000 | -0.2% | -11.3% | 3.5 | -0.2 |
| – Business | 5,255,00 | 12.0% | -14.2% | 3.5 | -0.4 |
| Interstate | 17,545,000 | -2.6% | -1.3% | 3.1 | -0.2 |
| – Holiday | 7,410,000 | -3.3% | 11.3% | 3.1 | -0.3 |
| – VFR | 5,582,000 | -6.6% | -13.5% | 2.6 | -0.3 |
| – Business | 3,581,000 | 4.9% | -8.9% | 3.4 | -0.5 |
| Interstate | 7,669,000 | 19.9% | -5.7% | 5.8 | -0.6 |
| – Holiday | 3,635,000 | 20.2% | 8.5% | 6.8 | -0.6 |
| – VFR | 2,356,000 | 19.4% | -5.4% | 5.6 | -0.7 |
| – Business | 1,674,000 | 31.2% | -23.7% | 3.5 | -0.4 |
Domestic Overnight Visitor Expenditure in Queensland
| Expenditure | annual change | change vs ye dec -19 |
|
| Total QLD 1 | $29,079.5m | 18.5% | 49.6% |
| – Holiday 2 | $16,051.6m | 12.3% | 67.5% |
| – VFR 2 | $4,546.3m | 14.7% | 37.9% |
| – Business 2 | $4,886.2m | 44.6% | 23.7% |
2. Expenditure excluding airfares and long distance transport costs.
Source: Research & insights, Tourism & Events Queensland
As a passive freehold investment, recent motel sales in NSW and Victoria have seen a marked decrease (tightening) in yields, indicating increasing investor interest in securely leased properties with sound underlying operational attributes.
Where traditional yields for securely leased motels were generally within the range of 7.50% - 9.00%, recently market evidence is indicating sales in the range of 6.00% - 8.00%.
In Queensland, despite increased market activity driven by southern-based investors seeking higher yields compared to other commercial property investments, yield tightening has not materialised thus far. As market opportunities ‘dry up’, both locally and interstate, there is a possibility that increased competition for the properties that do come to the market will put downward pressure on yields.
Despite heightened investor interest, the traditional motel industry faces ongoing challenges, particularly in regions heavily reliant on international tourism. The anticipation of future international departures, likely fuelled by airline discounts and incentives from overseas accommodation providers, adds to the pressure on underlying industry fundamentals.
Moving into 2024, the market will continue to grapple with concerns related to high inflation, tariffs, and operating costs. Increasing expenses such as insurance, electricity, and linen costs impact the underlying net operating profit, potentially affecting the industry's growth trajectory. While travellers are expected to continue supporting motels aligned with their personal values, high inflation may have the flow-on effect of growth tapering off.