Sydney set for biggest hotel boom since Olympics in 2000

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Fourteen years after the last major hotel opened in Sydney’s center, 42 developers are competing to turn two 100-year-old government office buildings into accommodations as demand soars.

Elsewhere in the city, developers including China’s Greenland Holding Group Co and Singapore-based M&L Hospitality Trust plan to add more than 5,300 rooms over the next five years. If they are completed, the city’s supply of rooms will rise by about 20 per cent by the end of the decade, the most since Australia’s largest city hosted the Olympics in 2000, according to broker CBRE Group Inc’s hotels division.

Hotel construction is picking up as the number of visitors to Australia grows at the fastest pace in at least nine years, sending occupancies in Sydney to a record and the highest in Asia after Hong Kong and Tokyo. Sydney’s average hotel occupancy is set to reach 88.8 per cent by the end of 2016, the highest since at least 2000, according to economics advisory firm Deloitte Access Economics Pty.

“The hotels are all full, so there’s more than enough demand for more rooms,” said Michael Kum, chairman of Singapore-based M&L, which is adding a third tower at its 683-room Four Points by Sheraton, Australia’s biggest hotel, in Sydney. The new developments planned for the city’s center mean “the whole area will be totally transformed,” he said.

Sydney ranks 15th on a list of the most expensive markets for hotel rooms, according to an index compiled by Bloomberg. With an average room cost of US$221 a night, Sydney lagged behind the priciest market, Geneva, at US$308, No.2 Dubai and New York in tenth place, at US$233 for a stay.

 

Government backing

M&L in October received government approval to add about 230 rooms to the Starwood Hotels & Resorts Worldwide Inc- operated hotel in Sydney’s Darling Harbour tourist area. That’s part of more than 2,100 rooms set to be completed in Sydney’s centre by 2019, according to CBRE’s analysis of data compiled by researcher Cordell Information Pty.

The last major luxury hotels to open in the city center were the Westin, operated by Starwood, and Minnetonka, Minnesota-based Carlson Inc’s Radisson Blu Plaza, both in 2000, broker Jones Lang LaSalle Inc said.

“Sydney has had huge challenges in getting new product into the market in the past,” said Oscar Westerlund, Sydney-based director of strategic solutions at CBRE.

“Many of the bigger projects are conversions of existing buildings or new releases of land with government at the base of them, and with things like casinos that add to their viability.”

The largest hotel development going up in the west of Sydney’s center is the 650-room International Convention Center hotel overlooking Darling Harbour. It’s being built by Lend Lease Group, Australia’s biggest developer.

 

Barangaroo South

An operator has not been identified for the hotel, set to open in 2017, as the project is still in the planning stage, Iwona Polski, a spokeswoman for Lend Lease, said by e-mail.

Operators of new hotels are usually selected through a competitive process, based on their ability to increase revenue and manage costs, according to Richard Munro, chief executive officer of the Accommodation Association of Australia, which represents the industry. The timing of the process varies based on project and developer, he said.

 

Sydney-based Lend Lease is also creating the A$6 billion

Barangaroo South precinct that will include Sydney’s first six-star hotel with 350 rooms and a high-rollers’ casino, built in partnership with billionaire James Packer’s Crown Resorts Ltd. The state government is managing the redevelopment of Barangaroo, the site of former dockyards and the last available land parcel in the city. It will also include offices, apartments and a waterfront park.

 

Darling Harbour

“It’s still expensive to build and hard to secure sites,” said Karen Wales, vice president for research at broker Jones Lang LaSalle’s hotels division. “But people are finding opportunities through mixed-use developments, by incorporating hotels into them, so the returns and risks are spread across a variety of uses.”

M&L plans to spend A$160 million to expand the Four Points by Sheraton in Darling Harbour, which will have its own convention space and seven floors of offices, Kum said.

The additional visitors these projects will bring to the area and Sydney’s center, less than 500 metres (547 yards) away, coupled with a shortage of land for future developments, dispels any concerns about a potential oversupply, he said.

Greenland is converting a heritage-listed state government building it acquired in Sydney last year into a hotel to capitalise on its central location and growing demand from Chinese travelers, said Sherwood Luo, managing director of Greenland Australia, the Shanghai-based developer’s local subsidiary. The state-owned company plans to create a 171-room boutique hotel under its Primus brand.

 

Olympics surge

Almost 5,000 hotel rooms were added in New South Wales state over the 12 months to September 2000, following about 2,300 the previous year, according to figures from the Australian Bureau of Statistics.

That pace of growth dropped sharply following the Olympics, with 415 rooms being added over the year to September 2001, and more than 1,900 rooms being taken out the following 12 months across the state. — Bloomberg