Melbourne is the primary recipient of new room supply, according to CBRE

As part of HM’s 2023-24 Development Outlook, CBRE Hotels Managing Director – Capital Markets, Michael Simpson, and Pacific Head of Hotels Research, Ally McDade, discuss the challenges and opportunities that lie ahead in the Australian hotel market.

The Australian hotel market’s expansionary phase experienced over the last 10 years is set to peak in the next 12 months. New hotel room supply tracked by CBRE shows that approximately 8,400 rooms are scheduled for completion across our major hotel markets over the course of 2023 and 2024.

Almost 65% of these new rooms will be upscale, upper upscale or luxury, continuing the elevation of luxury hotel standards across Australia. This development trend towards luxury boutique/lifestyle hotels delivers on experience, amenity, design aesthetic and service. Melbourne is the primary recipient of new room supply (35% of total).

Following this wave of additions, higher debt cost and construction costs are anticipated to suppress the development pipeline, with activity being largely limited to key strategic sites usually having mixed use appeal.

Sustainability is increasingly a major concern for developers and operators due to rising utility costs of hotels, and the global investment market’s focus on ESG for all real estate asset classes.

The continued recovery of inbound arrivals should provide relief to pressures placed on occupancy, particularly in the major gateway markets of Sydney and Melbourne (where most of the new supply will be delivered). In addition, the new wave of supply is anticipated to play a role in driving rate performance over the next two years.

The opening of several premium projects (which are set to achieve a new luxury benchmark) in Sydney, Melbourne and the Gold Coast will elevate Average Daily Rates in the luxury market segment. It is also a segment that represents the most promise as an inflation hedge due to its less price-sensitive clientele. 

Relative to peer countries, the number of new hotel rooms to be delivered in Australia remains conservative. We see good opportunities for further development following the stabilisation of market conditions, normalisation of supply chains and moderation of interest rates.