Almost 6000 rooms will open next year, but it's not good for hoteliers
Artist impression of the pool inside the Ritz-Carlton Melbourne which will open next year.

Almost 6000 rooms will open next year, but it's not good for hoteliers

An avalanche of new property openings next year could put a dent in Australia’s strong hotel rebound, especially in Sydney and Melbourne where most of the new supply will land, according to a new report by Colliers.

Almost 6000 hotel rooms are under construction and expected to enter the market in 2023, nearly double the 3420 that opened this year.

On the flip side, consumers will likely enjoy lower daily rates and be spoilt for choice, especially those seeking luxury accommodation, as new Ritz-Carlton and Le Méridien hotels in Melbourne and a long-awaited W Hotel at Sydney’s Darling Harbour (all three operated by Marriott) open their doors next year.

Other hotels due to open in 2023 include Harry Triguboff’s first Meriton Suites hotel in the Melbourne CBD and the country’s first Capella hotel in the Department of Education sandstone building in the Sydney CBD.

“Colliers’ research has identified that 5949 rooms are now scheduled to open during 2023, placing additional downward pressure on recovering city hotel markets,” the commercial agent said in its Australian Accommodation Supply Report.

“Many of these projects have been delayed from their previously stated opening dates as supply chain disruptions have pushed back project timeframes.”

Colliers noted that hotel operators would need to remain nimble to respond dynamically to changes in demand and spending.

“The re-opening of international borders is yet to provide significant relief, with higher levels of inbound travel constrained by longer booking windows as well as the substantially higher cost of flights,” the firm said.

In October, hotel occupancy rates hit 70 per cent or more and average daily rates rose above $200 across all the major capital city CBDs for the first time since the pandemic, figures from STR showed.

The better-than-anticipated recovery has encouraged overseas investors such as Indonesia’s ultra-wealthy Karim family, which made its maiden antipodean investment last month, buying the Harbour Rocks Hotel in Sydney for almost $40 million.

Almost $2 billion of hotels changed hands over the first three quarters of 2022, in line with the long-term average, according to a report by Savills.

Karen Wales, Colliers’ Asia-Pacific director of hotels, said the moderation in supply this year helped hoteliers be more resilient amid fluctuating trading conditions, and while international travel recovered more slowly.

Also helping was a 15 per cent drop in “shadow” hotel supply – predominantly Airbnb listings – as investors returned their properties to the traditional rental housing market to take advantage of surging rents driven by a national rental crisis.

Melbourne, which has been the slowest of the capital city hotel markets to recover from the pandemic – it only hit 70 per cent average occupancy levels for the first time in October – is again at the epicentre of new hotel development next year. More than 1800 hotel rooms are due to open in the CBD and almost 900 in the suburbs.

Last year, almost 1900 hotel rooms opened across both Melbourne markets.

In Sydney, almost 1000 hotel rooms are under construction and due to open next year in the CBD, and about 1100 rooms will open in the suburbs.

Although the other capital cities will also have to deal with increased supply – 700 hotel rooms will be added in Brisbane and 600 in Perth – Colliers said Melbourne was considered the market most at risk to a faltering recovery due to the sheer number of hotel rooms coming onboard.

“New openings in Melbourne are also heavily skewed towards the first half of the year whereas Brisbane, Perth and Sydney major openings are currently scheduled for the second half of 2023,” Colliers noted.