By Triana O'Keefe, Editor- Australian Hotelier

Hotel Bondi, Sydney

Strong demand for residential development is continuing to transform the pub property landscape, with hoteliers increasingly looking to mix-use and residential conversions.

According to John Musca of Jones Lang LaSalle, it’s a simple case of market forces, with a shortage of residential accommodation and hoteliers seeking to drive maximum value from their property assets.

“By nature, the zoning and location of particular venues is at the mercy of market dynamics,” he said. “At the moment, the hybrid hoteliers understand the value of a site is potentially more profitable as a residential tower in the heart of a city.”

In Sydney, there have been several recent examples of mix-use developments, with Hotel Bondi, The Crest, Sylvania, and the Mercure Hotel all taking advantage of their prime real estate locations.

The suburb of Bondi is in the midst of a significant transformation. Hotel Bondi is situated adjacent to the soon-to-be-completed Pacific Bondi Beach, a luxury apartment/boutique hotel and hospitality development.

James Aroney, director of investment sales at JLL Capital Markets, says the proximity of luxury developments in Bondi helps explain the hotel’s potential mixed-use conversion as a “viable alternative use” of the property.

“With the sale of the penthouse luxury apartment at neighbouring Pacific Bondi Beach for $21 million reflecting a rate of $41,000 per square metre, residential demand for the location cannot be ignored,” Aroney adds.

Elsewhere, the Iris Hotel Group recently listed The Oxford, Drummoyne, for sale, with the aim of redirecting funds towards a $300 million residential development of its Mercure Hotel in Potts Point.

Developing the Mercure makes good commercial sense, Musca suggests. “While the hotel earnings have dropped recently, due to lockout laws and liquor licensing restrictions, the owners have simply realised the site is worth more as an apartment tower,” he says.

Similarly, the Crest Hotel in Sylvania, which sits on a 3,744 square-metre site, was purchased earlier this year by super fund ISPT, in a deal understood to be worth more than $19 million. The site is adjacent to the fund’s also-owned Southgate Shopping Centre.

“The owners have indicated development down the track,” Musca says. “With mix-use potential, it is one of those hybrid assets that offers value-add potential.”
He adds the site lends itself to a range of possibilities including three-star hotel accommodation, retail and residential apartments, so there was keen bidding from developers.

When asked if he thought the disappearance of iconic city hotels was inevitable, Musca doesn’t believe there is a threat.

“While we might see the repurposing of hotel sites, I don’t believe the fundamental hotel components are at stake,” he says.

“The needs of the patron have changed – we no longer see a requirement for large band rooms for example. Those spaces are clearly worth more when used alternatively.”


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