03 Mar 2025
Words Trudy Crooks Informer

The Cost of Inaction

It seems interest rates and cost of living have ruled our lives for the last couple of years. They’ve been top of mind for households right across the country, and accommodation operators have been wondering like everyone else when they would start to feel some pain relief.

So it was to universal relief when the RBA dropped the cash rate by 0.25% to 4.1% in February, the first reduction since November 2020.

Some operators we’ve spoken to have told us they’re taking a ‘wait and see’ approach with interest rates before deciding to sell.

They think further interest rate cuts will help them get a higher sale price.

Despite this being logical thinking, ResortBrokers doesn’t share that view.

Interest rates aren’t the core underlying driver of the accommodation industry. It might be the news headline but it’s not what’s going to help your profitability on a day-to-day basis or your yield when you sell.

Whatever your occupancy is driven by, whether it’s corporate or leisure, there are multiple factors that are going to affect whether guests choose to stay at your property. Those factors are far more important in determining your profitability than interest rates.

Some of these factors are within operators’ control (e.g., tariffs); some aren’t (e.g., extreme weather events and geopolitics).

For holiday accommodation businesses owners, increased costs of everyday living will affect where Australians holiday more than one or two cash rate cuts. As I’ve said before, Australians love to take a holiday, but household disposable income will determine where they take that holiday, in what form and for how long.

Our advice to vendors thinking of holding out for further interest rate cuts is: Don’t let interest rates rule your decision to sell.

The risk of inaction in continuing to hold onto your property is that we just don’t know what’s around the corner.

Neither does the RBA. In its February statement announcing the cash rate cut, the RBA said although inflation eased a little more quickly than expected, the economic outlook remains “uncertain.”

That doesn’t mean to say it will worsen. It’s that we just don’t know. The RBA says it remains “cautious” on further cash rate cuts.

What does this mean for those considering selling their accommodation property or business?

It means this: for now, the only certainty is uncertainty.

Here’s what we do know.

We know that post-pandemic most operators across the country have had the best two years of trade they’ve ever seen, which is great. We know that while inflation is cooling, it has also increased operating costs and encouraged rising tariffs.

We also know there’s no supply of new accommodation properties coming to market due to our national construction crunch.

We also know there’s a lot of pent-up activity from operators who’ve come out of the pandemic, enjoyed a couple of bumper years and are ready to move on. That will bring more existing supply to a market that’s been undersupplied for several years. Ultimately, it’s supply and demand that drives all markets, including our own.

Here’s the other thing we know, and it’s the most important:

Buyers are out there now. We also know yields are holding tight, far tighter than pre-pandemic. And that’s despite the cash rate rising from 0.1% to its peak of 4.35% over three years from November 2020.

At ResortBrokers, we’ve always said the yields or multiples buyers will pay reflects the risk they see in an accommodation business.

That is, if you’ve had great trade, buyers want to know if it’s sustainable. If they feel it is, they’ll pay you a strong price for your business.

Will those buyers be out there in a year or more? That’s also something we don’t know.

The current market poses challenges, but it’s not a challenging market.

ResortBrokers is transacting a record number of deals — and achieving great prices for our clients — because we provide realistic appraisals, supported by the best sales data in the industry from our inhouse department RB Research, of what we believe the market will pay for an asset. If your list price is overcooked, you simply won't get buyer engagement in this market.

We frequently exceed list prices at sale because we know how to create competition for an asset.

Those great sales prices are available now. And for now, that’s the only certainty there is.

So, consider the cost of inaction in not going to market sooner rather than later.

Also, think about what you could be doing. Is your best opportunity to stay in the business you’re currently in? Or should you make the most of the current market by selling to set yourself up for something better? While there are plenty of buyers for your property now, there’s also enormous opportunity out there for experienced operators.

Above all, have a plan. Make sure you understand what it is you need to do to get your business into a position where you can achieve your dream price. Then get to work doing it.

Don’t just sit there waiting for things to happen because there’s no certainty things will go your way. The cost of inaction may be higher than you think. END