New entrants booking into Australia’s booming hotel sector

25 September 2019

As published on:

US billionaire Barry Sternlicht’s global real estate fund has teamed up with private Melbourne developer Riverlee to open an upmarket 1 Hotel on the banks of the Yarra River, the latest in a string of deals in Australia’s busy accommodation sector.

A subsidiary of Mr Sternlicht’s $US60 billion Starwood Capital Group, hotel management business SH Hotels & Resorts, will run the 280 room five-star hotel in the Seafarers development on the river’s north bank opposite the Melbourne Convention Centre.  It will be the environmentally focused 1 Hotel brand’s first foray into Australia.

The rapidly expanding SH Hotels operates three similarly branded hotels in the US, with another five underway in Hollywood, Mexico, China, London and Paris.

SH president Arash Azarbarzin said the group’s focus on serving organic food, monitoring and reducing energy use and its carbon footprint, composting leftover food, and minimising plastic and paper use, had grown a loyal base of environmentally aware travellers.

“Every decision we make is with Mother Earth in mind,” he said.

Riverlee’s development manager David Lee, the son of the firm’s founder Malaysian-Australian architect Clement Lee, said construction on the 17-storey building that will house the hotel and 140 waterfront apartments will begin early next year and finish in 2022. It includes a wellness centre and 1000-seat conference space as well as bars and restaurants facing the river that will be managed by 1 Hotel, he said.

The hotel is the centrepiece of Riverlee’s $450 million Seafarers wharf site which includes the revitalisation of the historic goods shed – it will be partly occupied by the conference space – restoration of the site’s heritage-listed crane and a 3500 square metre public park.

Mr Azarbarzin said the group was attracted by Melbourne’s high revenue per average room rates and the site’s location near the Convention Centre. Record levels of international visitors to Australia are also attracting other offshore investors.

Singapore-based REIT Ascott Residence Trust this week acquired the freehold to the Felix Hotel, a limited-service business hotel close to Sydney Airport, for $60.6 million.
The 150-room venue will be rebranded as Citadines Connect Sydney Airport once the transaction is complete in May.

The deal will bolster Ascott Reit’s portfolio in Australia to more than 900 rooms across six properties. It already owns three in Sydney – Quest Mascot, Quest Campbelltown and Quest Sydney Olympic Park, as well as Citadines St Georges Terrace Perth and Citadines on Bourke in Melbourne.

Another Singapore-based player, Park Hotel Group, has also been busy bedding down a deal to open a 319-room venue in Melbourne. The group, which manages 15 hotels across Asia including a Park-branded venue in Adelaide, struck a deal with another Singaporean developer Roxy-Pacific Holdings to manage a hotel in a 23-storey building at 360 Little Bourke Street.

Roxy-Pacific is better known in Australia for its deal making – it part-owns the NSW Aboriginal Land Council’s building on Argyle Street, Parramatta and put its $150 million tower at 117 Clarence Street in Sydney on the market last year.  It paid $33 million for 360 Little Bourke Street in 2017. Roxy-Pacific’s application to demolish the six-storey Leo Cussen Institute building currently on the site was approved late last year.

Deloitte Access Economics’ latest Tourism & Hotel Outlook  forecasts 33,000 new rooms are in the hotel pipeline across Australia. Half of those will be in operation by the end of 2020, it said.

“The majority of this new stock will be concentrated in Perth, Sydney and Melbourne in particular. In Melbourne alone, approximately 6500 new rooms are expected to come online in 2019 and 2020, [when] 12 and 20 new properties are scheduled to open.”

Deloitte expects Melbourne’s occupancy rates to fall consecutively through to 2020, and be five percentage points lower than 2018. RevPAR was likely to fall by 5.4 per cent come 2020, it said.


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