Commercial Property: JLL Tips a Strong Rebound for Aussie Hotels

According to JLL’s Australian Hotel Investment Review and Outlook 2025, the country’s hotel investment market experienced a significant slowdown in 2024, with total transaction volumes reaching $1.69 billion—a 34% year-over-year decline and 23% below the 10-year average. Despite this drop, the report highlights strong activity in the mid-market segment (under $40 million) and a late-year uptick in deals, indicating a potential market rebound in 2025.

With interest rate cuts on the horizon, a weak Australian dollar attracting foreign investment, and renewed interest from Asian capital, JLL predicts a return to long-term average transaction volumes of $2.2 billion. Here’s what investors need to know about the key trends shaping the market and where the best opportunities lie in the year ahead.

2024 in Review: Key Market Trends

1. Declining Large-Scale Transactions, but Strong Mid-Market Activity

o Institutional investors largely remained on the sidelines due to higher borrowing costs and a wide bid-ask spread.

o However, 51 deals were finalized, mostly in the sub-$40 million range, highlighting ongoing confidence in the mid-market segment.

2. Domestic Investors Leading the Market

o Local investors accounted for 81% of total transaction volume ($1.36 billion), significantly above historical averages.

o Many of these buyers had offshore backing, particularly from Asian capital sources.

3. Metropolitan Markets Dominated Investment

o 55% of total investment ($921 million) was concentrated in metropolitan locations, especially in Sydney and Brisbane, with a focus on prime fringe areas ripe for redevelopment.

4. Investor Sentiment Improved Late in the Year

o The fourth quarter saw a noticeable pickup in transaction activity, as pricing expectations began to align between buyers and sellers.

2025 Outlook: A Market Poised for Rebound

JLL forecasts a recovery in transaction volumes in 2025, with total sales projected to exceed $2.2 billion, slightly above the long-term average. Several factors are set to drive this resurgence:

· Interest Rate Cuts Expected: Lower rates could improve buyer confidence, narrow the bid-ask spread, and bring institutional investors back into play.

· Foreign Exchange Advantages: A weak Australian dollar (AUD) is making the market more attractive for USD, GBP, and SGD-based investors, increasing inbound capital.

· Renewed Asian Investor Interest:

o Asian investors, who had focused on the UK, Europe, and Japan in recent years, are now pivoting back to Australia.

o JLL expects new capital from Hong Kong, Thailand, and Vietnam to enter the market.

· Sydney Still Leads, but Melbourne and Brisbane Offer Value:

o Sydney remains the dominant investment destination, backed by its status as an economic and tourism hub.

o Melbourne is emerging as a strong value play, given its improving tourism outlook and lower price point compared to Sydney.

o Brisbane’s "golden decade" ahead of the 2032 Olympics makes it one of the most promising growth markets.

· Focus on Value-Add Investments:

o Rising construction costs are limiting new hotel developments, prompting investors to refurbish and reposition existing properties instead.

Investment Opportunities for 2025

1. Mid-Market Deals Continue to Dominate: With institutional buyers still cautious, smaller private investors, family offices, and high-net-worth individuals (HNWIs) will remain active, particularly in deals under $40 million.

2. Melbourne and Brisbane Present Strong Growth Potential: While Sydney remains the preferred market, investors are increasingly considering Melbourne and Brisbane, where assets offer greater capital growth potential relative to historical trading spreads.

3. Foreign Investment Set to Rise: Offshore buyers represented only 19% of total volume in 2024, but North American and Asian investors are expected to return in 2025, particularly as the AUD remains weak.

Final Thoughts: A Market Turning the Corner

JLL’s report makes it clear: while 2024 was a challenging year for Australia’s hotel investment sector, 2025 presents a prime opportunity for a market rebound. With interest rate cuts, favourable exchange rates, renewed offshore interest, and value-add investment strategies gaining traction, the hotel sector is expected to return to long-term transaction volume averages.

For investors, mid-market deals, redevelopment opportunities, and strategic plays in Sydney, Melbourne, and Brisbane offer some of the best value in years. With JLL projecting transaction volumes to exceed $2.2 billion, 2025 could mark a turning point for Australia’s hotel investment market.