Melbourne’s hotel market set for growth

The Melbourne hotel sector is ready to meet future tourism demand from local and overseas travellers, with a strong supply of new hotels on or coming to the market over the next two years, according to findings from the latest M3 Property research report.

The report, Melbourne Hotels Insight (May 2025), analyses Melbourne’s hotel market and finds it is set for growth, with a total of 5,000 rooms opening across 22 hotels in Melbourne between January 2019 and January 2025, representing a 21% increase in supply, and strong demand. This compares with the Sydney market, which saw 2,270 rooms completed over the same period, representing a 10.4% increase in supply.

Antony Schober, Director – Specialised Assets, Hotels & Leisure said, “Melbourne’s hotel market is strengthening, with increased supply coinciding with higher numbers of bookings. The Melbourne hotel market has proved adept at absorbing the increase in the number of new rooms on the market, with international tourist numbers to Australia returning to pre-pandemic levels and the Melbourne market attracting the highest number of domestic tourists of any city in Australia.”

Despite the increase in the number of rooms since 2019, hotel bookings have also increased by around 9% over the same period, according to the City of Melbourne. The occupancy rate per room for the Melbourne market in January 2025 was 74.63%, which is a 3% year-on-year increase. Revenue per room (RevPAR) has also gone up, with a 9% year-on-year increase.

The report finds that, while on face value the Melbourne market may not be performing as well as the other major Eastern seaboard capital city markets, Melbourne is well placed to meet the demands of international and domestic tourists over the medium to long-term.

“Melbourne has a higher level of new hotel room supply completed and in the pipeline over the next few years compared with the other major capital city gateways. In particular, Sydney has seen fewer rooms supplied to the market in recent years and has a smaller number of rooms in the pipeline for the next few years,” said Mr Schober.

 According to the report, in the Melbourne market, 2,117 rooms are currently under construction or proposed across 10 hotels and due to open in 2025 or 2026. The new hotels that have opened in the last 24 months include Hyde Melbourne Place – the first Ennismore lifestyle brand to debut in Australia, Lanson Place Parliament Gardens and Standard X Hotel. In comparison, there are a projected 1,173 rooms due to be supplied to the Sydney market in the next two years.

“Luxury accommodation is driving Melbourne’s hotel pipeline. Many of the new rooms are being developed to meet the demands of cashed up tourists looking for high-end accommodation, with premium supply dominating,” said Mr Schober.

The report finds that approximately 61% of new rooms completed so far in Melbourne since 2019 are classed as upper upscale or luxury accommodation. Many of the new hotels due to open over the next two years will be built to high spec upper upscale hotel standards.

“Despite greater supply, the number of hotel transactions remains subdued in Melbourne but this is likely to improve in 2025 due to a combination of market factors,” concluded Mr Schober.

According to the report, although the Melbourne market has greater supply of new hotel rooms in the pipeline than any other capital city in Australia, the transactions market has been quiet. There were $237 million of hotel transactions in 2024 compared with $457.8 million in 2023. This is due to several factors including reduced investor demand related to economic uncertainty and interest rates, Victorian State government policy and taxation, and an unrealistic bid-ask spread between buyer and seller expectations.

However, there is some evidence that the bid-ask spread is narrowing and with a reduction in the cash rate in February 2025 and further reductions expected throughout the year, there is likely to be more interest from investors in purchasing hotel assets during 2025.

Read more and view the full report at this link.

Melbourne Hotels Insight (May 2025)