While the construction rate for residential dwellings is falling, the hotel sector is in the middle of a rapid growth phase across Australia, with Melbourne leading the push.
Developers have been quick to tap into the aggressively expanding sector with a wide range of hotel products being approved and built as the construction rate of inner-city apartments slows.
At this time, 5 per cent of Australia's entire hotel stock is on course to be built and added to the market over 2019 with global giants Accor, Marriott and Intercontinental most active across the sector.
Approximately 17,000 rooms are currently under construction out of a total development pipeline of 53,000 across the country, the fourth biggest in the Asia-Pacific.
Over the course of the next four years a total of 8,100 hotel rooms will be added to Melbourne's CBD, Southbank and Docklands.
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Despite the increase in supply, Melbourne's hotel returns have held firm according to new figures from hotel researchers STR.
Across the first three months of 2019, Melbourne maintained a high occupancy rate above 84 per cent and lifting average daily rates above $198 a night.
In Melbourne, revenue per available room (revPAR), the key industry metric calculated by multiplying the average daily rate by the occupancy rate, has remained steady despite new stock additions to the market creating heightened competition as well as a booming Airbnb market.
Melbourne's hotel market has been helped along the way with its strong calendar of events including international draw cards the Australian Open in January and Formula 1 Grand Prix in March.
Hotel sales have also tightened with overseas buyers vying for rare acquisition opportunities.
The Quincy Hotel (which is currently under construction) is the only city hotel to sell in 2018 to Indian conglomerate InterGlobe for $91.3million (representing close to $380,000 per room).
“This market has seen some new supply added and will continue to do so over the next few years, which we anticipate will keep these indicators stable,” STR head of research Vanessa Rader said.
“While investors will continue to aggressively contest these assets, keeping investment yields some of the lowest in the country.”
Yields also continue to fall for the limited stock available on the market, with strong interest from overseas buyers keeping yields the tightest in Australia.
According to STR, current Victorian yields range from 4.30 per cent to 7.75 per cent with an average of 5.50 per cent, which has compressed by 210 basis points in the last five years.
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After more than 20 years, the site of the 107-room Rydges Hotel in Melbourne’s inner-city Carlton has hit the market, with price expectations of more than $40 million.
The 1,762 square metre, dual-frontage corner lot at 701 Swanston Street, has been under private ownership since 1997 and is available with zoning potential to develop up to a further 18 levels, subject to council approval.
“Blue-chip corner locations overlooking parkland, with two street frontages and an option to develop another 18-levels, aren’t that common in inner-city areas,” Jones Real Estate director Paul Jones said.
Despite operating as Rydges franchise, no contractual obligation exists for the site to continue to operate as a hotel, while the private vendors are rumoured to be open to a range options including straight sale terms, Joint-Venture proposals and long-term settlements.
“A new owner has the option to extend the hotel lease or to explore the site’s huge potential,” Jones said.
“With excellent facilities and an 86 per cent occupancy rate the hotel earnings are very sound.”