Replacement Cost Realities Spark Regional Hotel Renaissance

Say the word “regional” in relation to hotels and it likely brings to mind down-at-the-heel motels with paper-thin walls and bedsheets from the 1980s. But times are changing. There is a perfect storm brewing for the regional hotel subsector as accommodation demand climbs, according to CBRE hotels director Hayley Manvell. Investors are seeing a growing demand as an opportunity. According to CBRE data, regional Australian hotel transaction volumes reached $509 million in 2024, closing in on CBD volumes, which were $526 million for that year. “Our biggest challenge is getting stock to sell,” Manvell says. “We have a substantial amount of investors waiting for regional hotel investment opportunities to come to market, and the regional and motel investment market has become highly competitive.” ▲ A rendering of the $150-million Crowne Plaza Maroochydore on the Sunshine Coast approved late last year. Major player InterContinental Hotel Group (IHG) has been in the headlines most recently for its $150-million Crowne Plaza Maroochydore as well as its partnership with Kokoda Property Group on a Kimpton Hotel at its Teneriffe Banks project , both in Queensland, as well as a host of hotel brands recognised across the globe. But it is increasingly playing further afield as hotel owners bring IHG in to manage regional assets, IHG director of development for Australasia and Pacific Cameron Burke says. “We’re seeing an increasing attraction to regional hotels and motels, particularly in Queensland, but more broadly across Australia,” Burke says. Many of these assets can lean towards dated inventory, which isn’t a bad thing, he says. “There’s a much lower barrier to entry for hotel investments in regional markets and, depending on the market, they can be acquired for much lower than replacement cost,” Burke says. “With a smaller capital budget or a smaller capital expenditure budget, these hotels and motels can be repositioned under a new brand to unlock latent asset value.” From mums and dads to major investors Perhaps surprisingly, much of the new investor interest in regional hotels is coming from abroad, including established hotel investors from China, as well as newer interest in our accommodation sector from India. “Where they may have previously focused on retail, they are now looking to diversify their portfolios into accommodation,” Manvell says. In Townsville, the 174-key Mercure Hotel Townsville was last year sold to an Asian investor making its first play in Queensland’s hotel market, while the Madison Plaza Hotel, a mid-scale four-star was also sold to an Asian-based investor. “For anything listed regionally that has at least 30 rooms, you get inundated ... you’re looking at 15 or 16 offers—there’s so much interest,” Manvell says. Institutional investors are also seeing the attraction. ▲ CBRE hotels director Hayley Manvell: Investor interest in regional hotels is rising fast. “Even some of the smaller-scale properties have been purchased by institutional investors that are looking to grow a portfolio,” Manvell says. And it’s not just international money, it’s interstate too. Manvell last year sold the Mercure Rockhampton, a freehold hotel on the riverfront with 74 rooms that has undergone a $4-million refurbishment, on behalf of Fifty Group to a Sydney investor for its first investment in Queensland. The hotel earned an EBITDA of more than $2 million in 2024, with an 84 per cent occupancy and an average daily rate of $183. “If you’re coming up from Sydney, you see real value given the pricing in some of those New South Wales markets,” Manvell says. Burke says that the market has traditionally been favoured by “mum and dad” investors “but what we’re seeing is increasingly sophisticated capital flowing into these markets because of those lower barriers to entry”. What do they want? Generally, hotels with more than 30 rooms and in the $10 million to $20 million range are the hottest commodities in the regional hotel investment space. These hotels are commanding much more attractive rates, Manvell says, following the “sugar hit” of Covid. “Performance in some markets that have an unbalanced supply/demand equation can almost charge whatever they want because if you’re running at 90 per cent capacity or above for the year, it means room rates can substantially increase.” ▲ The Mercure Rockhampton Hotel was sold late last year. Many regional markets have a lot less seasonality than others because areas including Rockhampton, Townsville and Mackay have strong year-round business travellers, she says. Combined with a refurbishment or repositioning, these rates can be particularly strong. “It becomes a really attractive investment proposition if you can buy what’s typically a more dated asset, maybe one that is positioned at the economy or medium scale and perform a refurbishment program at a fraction of the cost that it would in a primary market,” Burke says. Institutional capital moving into the market means that hotels can professionalise and take advantage of economies of scale thanks to bringing in the likes of IHG, in a way that smaller and independent hotels could not. “[This is because] they are globally known brands, but they also have really strong resonance in the market in which the investor resides and that gives them a lot of security with respect to their investment and their value-added strategy,” Burke says. ▲ Only major new build hotels are feasible, such as the 150-room, $100-million InterContinental Barossa Resort &amp; Spa due to open in 2028 in SA. And rates are even comparable to CBD markets. “Quite intriguingly, in the mid-scale regional market in Australia, the rates that operators are able to command actually sit comparatively at a premium in comparison to other markets from regional Europe and Asia and so on,” Burke says. “That’s why we see so much offshore capital flow into regional Australia, they have confidence which is underpinned by our ability to drive really strong room rates in these regional areas.” Growth drivers Demand drivers are diverse but also consistently strong in regional markets, Manvell says. “There are so many different demand drivers for a town like Rockhampton, for example, they have the Singaporean defence force up there, they have resources and agriculture, a major hospital for the region, a bit of tourism. “There are so many different demand drivers for a location like that, and they simply don’t have enough rooms, so what you can charge per night, and the occupancy you can achieve is quite amazing in those regional markets.” Regional Australia is “primed for transformation”, Burke says. “[It ’s] the culmination of all of these investment factors which are leading people to look more closely at the regions.”

Replacement Cost Realities Spark Regional Hotel Renaissance

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