Melbourne’s hotel boom creates plenty of rooms for visitors

Next Hotel manager David Ness said while it was not ideal to open between closings, it has allowed the boutique hotel to steadily build up a clientele.

He said the hotel had seen strong demand from local holidaymakers, but corporate clients were making a slower return.

“The consumer has gone down and the supply has gone up significantly, so there’s a bit of an oversupply problem right now,” he said. “During COVID, five or six new hotels have opened. But luckily for us, we were the only ones at the “Paris” end of Collins Street. At the end of Southern Cross and in Docklands it’s quite flooded.

Girish Talreja, general manager of the Marriott Docklands, which opened in November, said guests at the $250million hotel were mostly leisure travelers, but he hoped business and group travel would come back.

“Especially after COVID, people are going to look to new construction,” Talreja said. “I think the way forward is new hotels, and I’m really lucky to have one.”

The growing number of hotels are fighting for a share of a depleted market, with the latest figures from Tourism Research Australia showing overnight domestic travel to Victoria fell by 47% from March 2020 to February 2022.

David Ness, general manager of the Next Hotel which opened during the pandemic. Credit:Jason South

Melbourne Airport passenger numbers have slowly increased from 1.2 million in January and 1.1 million in February to 1.7 million in March.

However, hotel rooms have yet to be booked, with data from hotel analytics firm STR recording hotel occupancy in Melbourne for the year to April 2022 at 51.5%. Before the April 2019 pandemic, it was 77%.

Adam Schwab, founder of travel company Luxury Escapes, said high occupancy rates and good returns for investors had fueled Melbourne’s hotel building frenzy.

“If so many hotels have been built, it is because the returns have been very good for hotels for 15 years. From GFC [Global Financial Crisis] pre-COVID, hotel returns were amazing,” he said.

Schwab said the increase in RevPAR (revenue per available room) and increased occupancy led to a “perfect storm,” which increased the hotel’s value and attracted more investors.

“Melbourne and Sydney were quite underserved for hotels, especially luxury hotels. There had barely been a luxury hotel built in either city for quite some time, probably a decade,” did he declare.

Schwab is confident the travel industry will rebound and new hotels in Melbourne will fill up steadily.

An artist's drawing of what the pool should look like at Melbourne's Ritz-Carlton hotel when it opens this year.

An artist’s drawing of what the pool should look like at Melbourne’s Ritz-Carlton hotel when it opens this year.

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“I think supply, to some extent, creates demand,” he said. “Once you’ve built the Ritz-Carlton, or a Four Seasons comes in a few years, that itself attracts customers.”

James Wilkinson, founder of hospitality trade publications Traveler and Hotel Managementsaid that until demand increases, the oversupply of hotels in Melbourne would mean good business for locals.

“Apart from major events, there will be amazing offers for business and leisure travelers in the short to medium term,” he said. “Oversupply was expected before the pandemic, and it’s great to see the confidence of so many landlords to not delay openings and open hotels.”

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