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 Trusts 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 percent 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 percent 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 $221 a night, Sydney lagged behind the priciest market, Geneva, at $308, No. 2 Dubai and New York in tenth place, at $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 center 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 hasn’t 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 meters (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 capitalize 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.

While growth across the country turned positive the following year, the pace remained sluggish as the Australian dollar’s climb to a record $1.1020 in July 2011 weighed on overseas visitor arrivals. On average, less than 700 rooms a year have been added in New South Wales over the decade to June 2013, according to the statistics bureau.

“It’s been a difficult market to grow from an operator’s point of view because there hasn’t been much construction and opportunities,” said Jones Lang LaSalle’s Wales.

Visitors Increase

The Australian dollar bought 94 U.S. cents as of yesterday. It’s set to fall to 89 cents by the first quarter of 2015, according to the median of 53 analyst estimates compiled by Bloomberg.

As the currency wanes, Australia is looking attractive again. The number of overseas visitors to Sydney jumped 6 percent to 2.8 million in 2013 from the previous year, the biggest increase since 2005, the earliest year of data available from Tourism Research Australia shows. Travelers from China represented the biggest group with 394,718 arrivals, a 13 percent surge from the previous year. Growth in overseas arrivals will average 4.5 percent a year over the next decade, the government agency forecasts, revised from an earlier forecast of a 4 percent annual increased.

The number of Australians visiting Sydney rose 7.2 percent in 2013, the biggest increase since at least 1999, according to the agency.

Operators’ Growth

Outside of Sydney, Wyndham Worldwide Corp. will open its first Australian Tryp hotel in a new property in Brisbane, in Queensland state, this year. Singapore-based SilverNeedle Hospitality Pte is redeveloping an existing building in the same city to open the world’s first Next hotel.

Among global operators, Intercontinental Hotels Group Plc has 26 hotels in Australia, nine of which are in Sydney; Hilton Worldwide Holdings Inc. has one in Sydney and 11 others across the country; and Marriott International Inc. operates three of its six Australian hotels in Sydney.

Occupancy rates in Sydney were at 84.6 percent in the first four months of 2014, compared with 78.7 percent in New York and 77.3 percent in London, according to STR Global. Only Hong Kong and Tokyo were higher, at 86.9 percent and 85.8 percent respectively.

Investor Demand

Sydney room rates are set to climb 4 percent a year to A$228 by the end of 2016. Revenue per available room — a hotel- industry measure of occupancy and rates — will increase 4.9 percent a year, a Feb. 27 report by Deloitte Access Economics showed.

The city was the world’s 15th most expensive market for hotel rooms and the third in Asia after Hong Kong and Singapore, according to an index compiled by Bloomberg. Rooms in Sydney hotels averaged $221 a night.

Also encouraging development is strong demand from investors for existing hotels. Australia had about $1.9 billion of hotel transactions in 2013, the highest on record, according to figures from Jones Lang LaSalle Hotels. This led to a tightening of capitalization rates — a measure of investment yield that contracts as prices rise — by 80 basis points in the year ended March 31 to 8 percent, according to real estate researcher IPD.

LaSalle Investment Management in May sold its five-star Sofitel Sydney Wentworth in the city’s center to Frasers Centrepoint Ltd. for A$201 million, according to an e-mailed statement from Jones Lang LaSalle, which marketed the property. LaSalle bought the hotel, managed by Accor SA, for A$130 million in 2010.

“The fundamentals have been building behind the scene” for years, CBRE’s Westerlund said. “There is a definite sense now that the timing is right for development.”

To contact the reporter on this story: Nichola Saminather in Sydney at To contact the editors responsible for this story: Andreea Papuc at

Photo Credit: A room with views to the exterior at the Westin Sydney. Westin Sydney