Article | Intelligent Investment

Melbourne office assets could hold hotel potential

December 21, 2021

The pandemic has shifted people’s working, shopping, residential and of course travel patterns, sparking property owners and occupiers to rethink their property strategies and use of space. From design and fit-out, size, amenities and location with many envisaging new ways to breathe life into older buildings, or to consider their assets for new multi-use purposes.

In this piece we take a deeper dive at the effects this has on the hotel market, and what property owners could consider when re-developing or re-positioning their assets, primed for new opportunities.

Anticipating new pressures when borders re-open

In Melbourne, a topic of conversation is the increased volume and entry of new hotels which are mostly all positioned in the 4 and 5 star market. Whilst it’s great to see this level of new investment, the adage ‘in with the new, out with the old’ might not be such a welcome notion to Melbourne’s hotel scene, especially when domestic and international borders begin to open more broadly.

With the entry of these shinier new hotels, it will likely put pressure on existing hotel assets competing for the same audience. Operators of these existing hotels will need to look at either costly refurbishments to compete or consider repositioning themselves altogether.

The pressures anticipated on the high-end hotel market is coupled with anticipated pressures on the budget accommodation market too. During the pandemic, due to lack of travellers and over-seas seasonal workers, Melbourne’s budget hotels and hostel accommodation took a hit. Smaller backpacker operations in King St and Flinders Lane in The CBD have closed as have many in St Kilda including the Bayview Hotel, with its 203 rooms on Queens Road, which was sold for redevelopment.

With many operators selling on, when the borders re-open there is expected to be a flood of people, but with fewer cost-effective accommodation options to stay.

The benefits of budget accommodation for multiple audiences

Melbourne’s budget and hostel accommodation industry provides the ideal steppingstone for overseas travellers and seasonal workers looking for a mid-term home. Many of these longer stay guests not only provide a work force for Melbourne’s hospitality industry but inject cash flow into the economy.

This accommodation type is ideal for transient travellers and seasonal workers as it provides a cost-effective home, no utility costs or need to sign lease agreements, therefore allowing flexibility to relocate.

But it’s not only travellers that utilise this form of accommodation. There is valuable year-round demand coming from school groups undertaking CBD education programs as part of their wider curriculum.

Re-positioning assets to meet the low budget hotel demand

Based on the current hotel market, there is going to be a big opportunity for property owners to fulfil the anticipated accommodation demands. One such asset, particularly in the CBD that could close the gap to meet the demand, is the use of vacant offices. Outdated office space is being sidelined by corporates needing to re-think their workplace design and use of space for hybrid working employees. Therefore, building owners are being forced to re-consider the potential their space could hold for other purposes or multi-purpose options.

We’re already receiving a new level of interest and enquiry from several operators, both national and international, on the potential to re-use older office space.

The exciting aspect for office owners to consider when reviewing the space of their assets and options for its use, is the potential scale across the low to mid budget accommodation. Amenities to consider include kitchen areas for food and beverage facilities, along with associated guest experiences such as roof top bars and even co-working areas, particularly useful for the hybrid-working crowd.