Rooms cheaper as hotel-building booms

The high supply of rooms in Melbourne is also expected to quell hotel building in the city, whereas new hotels are likely to be built in Sydney and Brisbane.

According to the LandMark White Group (LMW), over the past five years room nights available in Melbourne have increased by 1.93 per cent a year, expanding last year by 4.07 per cent, to a total of 8.865 million room nights.

The CBD was particularly popular. Completions included the Hilton (319 rooms) and Atlantis stage 2 (160 rooms), with several others to still come on line, including Crown Casino (658), Citadenes (398), the Oakes Serviced Apartments (294) and Queensberry Street (86).

In contrast, Sydney's supply has grown only marginally since the 2000 Olympics, last year falling by 0.14 per cent to 11.99 million room nights available. There has been more emphasis in Sydney on refurbishments and replacements of existing hotels.

"The challenges of the global financial crisis have reduced the availability of credit, and hotel owners have experienced reduced profitability, which has further delayed some projects," according to the LMW report.

Brisbane room numbers grew by 3.04 per cent last year to 4.653 million, but over the past five years, "more concerning for the Brisbane market", room numbers mainly serviced apartments had grown by 24.78 per cent, or 4.96 per cent a year.

LMW found that hotel occupancy rates in all three cities had fallen since 2007. Melbourne's had dropped over the past year to 71.12 per cent and Brisbane to 71.56 per cent, while Sydney was relatively stable over the past two years at 74.36 per cent.

Lower occupancy has meant lower room prices, with the Melbourne tourist region falling by 2.85 per cent last year to an average of $154.02 a night, despite falling visitor numbers. The rates in Sydney and Brisbane were respectively $154.79 and $141.87.

While overseas tourist arrivals are expected to grow by 4.36 per cent a year over the next five years, the domestic travel market is predicted to grow slowly, with the strong $A making it cheaper to go overseas for a holiday.

LMW said the recovery in Melbourne's hotel market would be hampered by the increase in room supply. But "a seemingly more proactive state government . . . lacking in Sydney" would help stimulate stronger guest room demand.