Melbourne’s hotel market is experiencing its biggest expansion in recent memory as occupancy rates climb and luxury developments dominate the sector pipeline.
New research from M3 Property shows Melbourne has added 5000 hotel rooms across 22 properties since January of 2019, a 21 per cent increase in supply compared with Sydney’s 2270 rooms over the same period.
This growth trajectory shows no signs of slowing—another 2117 rooms are under construction or proposed across 10 hotels that are due to open by 2026.
Melbourne’s January 2025 occupancy rates reached 74.63 per cent, a 3 per cent year-on-year increase, and revenue per room climbed 9 per cent for the period.
M3 Property director of specialised assets, hotels and leisure Antony Schober said Melbourne’s hotel market was 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,” Schober said.
Around 61 per cent of new rooms completed since 2019 are in the upper-upscale or luxury categories, and many upcoming developments are targeting cashed-up tourists seeking high-end experiences.
And as Sydney’s hotel stock ages, Melbourne is refreshing its accommodation offering with modern, upmarket properties strategically located in high-demand areas, including the CBD, Docklands, Southbank, and Bourke Street Mall.
Notable projects include the 496-room Shangri-La Melbourne, which has reached practical completion and is due to open its doors by 2026, and the dual-branded Holiday Inn Bourke Street Mall and Indigo Hotel Little Collins, offering 452 rooms and opening this year.
This focus on luxury accommodation aligns with broader industry movements. Major hotel groups are repositioning their portfolios to capture the premium market segment.
IHG Hotels & Resorts recently announced a significant partnership with Salter Brothers that will result in Regent Hotels & Resorts returning to Melbourne after 28 years, with the current InterContinental Melbourne transforming into Regent Melbourne by 2030.
The agreement, representing more than $1 billion in investment, also includes three properties joining the InterContinental brand and a new Hotel Indigo in Canberra.
IHG Hotels and Resorts managing director, Australasia Pacific, Matt Tripolone said the extended long-term agreement with Salter Brothers “further strengthens our existing, highly successful relationship”.
“This partnership accelerates IHG’s Luxury and Lifestyle growth in Australia and enables Salter Brothers to reposition key assets and unlock long-term value in this space,” Tripolone said.
Radisson Hotel Group is also expanding its Australasia presence with several upcoming openings, including Park Inn by Radisson Melbourne Carlton, marking the brand’s Australian debut.
RHG managing director Australasia business unit Lachlan Hoswell said Melbourne’s projected rise to become Australia’s largest city by 2031 underscored its growing importance as a hub for business, culture, and tourism “and Radisson Hotel Group is positioning itself accordingly”.
“We see Melbourne as a strategic anchor for our long-term expansion in Australia,” Hoswell told The Urban Developer.
Despite the robust development activity, hotel transactions have remained subdued. The Melbourne market recorded $237 million in hotel transactions during 2024, down from $457.8 million in 2023.
Several factors have caused the decline, including economic uncertainty, elevated interest rates, Victorian state government policies, and unrealistic pricing expectations between buyers and sellers.
However, market observers expect transaction activity to increase throughout 2025.
The RBA’s interest rate reduction, and further cuts anticipated, may encourage greater investor interest in hotel assets as the bid-ask spread narrows.
The timing of Melbourne’s hotel expansion coincides with tourism recovery reaching pre-pandemic levels.
International visitor numbers have returned to historical norms, while domestic tourism continues to favour Melbourne.
This demand foundation supports the substantial supply increase and provides confidence for developers considering future projects.
Construction costs present both challenges and opportunities for the sector.
High building costs are expected to make new hotel developments less feasible once the current supply cycle concludes, potentially creating opportunities for developers to focus on refurbishments or acquisitions of existing properties rather than ground-up construction.
The Melbourne hotel market’s performance over the medium to long term also appears well supported by modern infrastructure, increasing occupancy rates, and growing revenue per room.
