Hotel returns fall but outlook ok

The hotel sector has recorded a decline in total returns with further softening on the horizon, but the “fundamentals remain strong”, according to a new report.

The 2012 Investment Property Databank Commercial Property Index showed lower occupancy rates and a decline in average room rates were behind the fall which saw hotel returns weaken to an annual total return of 13.5%.

But the sector still outperformed others such as retail and industrial which posted returns of just 9.1% and 9.7% respectively.

CBD hotels continued to outperform non-CBD hotels due to their appeal to corporate travellers.

“The Hotel Property Index results for the year to June 2012 confirm that the sector remains firmly entrenched as the best performing of all property asset classes,” managing director of strategic advisory Jones Lang LaSalle Hotels Troy Craig said.

“The slight moderation in the rate of total return reflects a more restrained macro-economic environments however the fundamentals in the hotel sector remain strong.’

However, the report forecast a further softening of the hotel sector, with weak employment growth set to result in “sluggish” corporate demand, translating into lower revPAR and weaker capital growth.