Australian Hotel Market Turns to Hybrid Models as Supply Dries Up

Australia’s hotel sector is still attracting capital—clearing $2.7 billion worth of deals in 2025—but the old stand-alone model is no longer the cleanest path to growth. At The Urban Developer’s Hotel Summit in Sydney, the clearest shift in thinking is towards hybrid projects that blend hotel rooms with branded residences, co-living and other flex-living products as owners and developers search for new ways to make schemes stack up. Colliers head of hotels Australia Karen Wales maps a market pulling in money while struggling to produce enough new rooms. Her numbers show 67 hotel transactions in 2025, 6252 rooms sold and an average price per key of $427,000. ▲ Colliers head of hotels Australia Karen Wales unpacks the capital and supply forces reshaping the hotel market at The Urban Developer’s Sydney summit. Premium assets account for $1.8 billion across 13 major deals, while offshore groups make up about 49 per cent of total transaction volume. Yet only 2339 rooms opened across major markets in 2025, representing stock growth of 1.3 per cent, with just 7272 rooms under construction for the next three years. STR regional manager Pacific Matthew Burke gives the trading side of the same story, saying demand is not the problem, bur rather deliverability. ▲ Colliers’ 2025 snapshot shows hotel investment returning with $2.7 billion in deals completed across Australia. “Since July, only one month has been less than 5 per cent revenue per available room,” he says. Burke says “every month we’ve now sold more rooms than we did in 2019”, even as Australia’s supply growth over the past two years remains “one of the lowest since 2015”. So where does all of this leave the sector? Five things stand out. Capital is back and is chasing scarcity Hotel money is returning to Australia, but not because a big new supply wave is coming. It’s returning to a market where good existing assets are becoming harder to replace. Wales says premium assets account for $1.8 billion of deal volume across 13 major trades, while offshore capital re-engages “in a meaningful way” and makes up about 49 per cent of total transaction activity. Thailand and Singapore are among the most active offshore buyers, while private investors and family offices stay active locally. Her broader view puts Australia’s investment-grade hotel universe at about $82 billion, up from roughly $60 billion a decade ago. ▲ STR regional manager, Pacific Matthew Burke outlines how stronger demand and slowing supply are lifting Australia’s hotel market. The implication is straightforward. More money is chasing a market where replacement is difficult. Existing assets are becoming more valuable, with the strongest uplift flowing to the best-located stock. Stand-alone hotel feasibility is still broken This is where the optimism runs into reality. Wales says one of the biggest drivers of confidence is “what is not coming—new supply”. She also warns “not many of those we think will actually proceed” because of construction costs. New upscale hotel delivery costs range from about $421,500 a key in Adelaide to $834,000 a key in Sydney before land and wider project risk are counted, she says. Australia’s supply growth is slowing ▲ Our hotel supply growth is slowing sharply, reinforcing the scarcity now underpinning confidence in the sector. Source: STR In many cases, Wales says the build cost still runs too far ahead of what the market will support. “Stand-alone hotel development really isn’t feasible. But mix-use may potentially work,” she says. Hybrid models are moving closer to the centre This is where the market starts looking for a workaround. As stand-alone hotel feasibility weakens, owners and investors are looking harder at co-living, build-to-rent, serviced apartments, branded residences and other flex-living formats. Projects carrying more than one use and more than one income stream are looking preferable to pure hotel schemes. Wales says hotel-to-co-living conversions can stabilise in 12 to 18 months, compared with four to six years for a new development. ▲ The Urban Developer’s Adam Di Marco with CapitalLand investment and business developer Ivy Cheng during the Hotel Investment Lifecycle panel. She describes hotels as a “capital efficient conversion strategy” for living uses. CapitalLand investment and business developer Ivy Cheng points to Sydney Junction as “a purpose-built co-living property, co-living hotel” that “enables us to pivot between the short stay market and also the long stay market”. The broader mix of hotels, serviced apartments, build-to-rent, co-living and PBSA is framed as part of one wider “urban living” sector rather than a set of separate silos. Vitale Property Group co-director Letitia Vitale says the residences component at the Mondrian Burleigh ( pictured at top ) “makes it feasible”. Crystalbrook Collection chief financial officer Nigel Greenaway says premium value is “not just the brand on the building”. The next hotel play, in other words, may not be a pure hotel at all. Rooms are filling; building more is harder Burke’s data explains why capital is still willing to lean in despite weak feasibility. He says national supply growth slowed to about 0.8 per cent by February while demand is above 2019 levels and occupancy is almost back there too. ▲ Letitia Vitale and Nigel Greenaway with Adam Di Marco during the branded residences panel. Compression is returning with it. In Sydney Centre, 28 per cent of nights now sit above 90 per cent occupancy. “A night that’s above 90 per cent is worth 80 bucks more per room than it is when the market does less than 70 per cent,” he says. He also points to another strain in the pipeline, saying “there’s about a 1000 or so rooms that are literally stuck”. This is why the sector feels strong and constrained at the same time. Rooms are selling and rates are rising, yet the pipeline remains too thin, and in parts stalled, to meet demand cleanly. Brisbane, finance, luxury: where value is going Wales calls hotel finance “the canary in the coal mine”, with non-bank property lending rising from 10.4 per cent of Australian commercial real estate debt in 2020 to 16 per cent in 2024, with an estimated 26.7 per cent in 2025. In a market already under pressure from high build costs and weak stand-alone feasibility, debt matters more. Brisbane is the clearest stress test. Wales questions the reality of getting “the reported 30,000 hotel rooms” often tied to the Olympics. “I don’t think it’s going to materialise.” If Brisbane can’t get enough rooms delivered with an Olympic runway ahead, the broader supply problem is hard to ignore, she says. At the same time, value is sharpening at the top end. At the same time, luxury is pulling further ahead. Burke says capital-city luxury hotels continue to leverage demand, while Salter Brothers managing director Paul Salter makes clear where his firm is placing its bet : “I think we’re long luxury.”

Australian Hotel Market Turns to Hybrid Models as Supply Dries Up

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