The Melbourne luxury hotel that needs just one thing

The Shangri-La luxury hotel tower, tall enough to cast a shadow over Melbourne’s Carlton Gardens, is vacant despite a strong recovery in Australia’s hotel market. Its 500 rooms are empty shells without fittings or fixtures, as it struggles to find a buyer.

The 61-level hotel is one half of a $600 million twin-tower structure at 308 Exhibition Street that was completed by builder Multiplex in August last year.

SP Setia’s twin towers in Melbourne.Credit: Luis Enrique Ascui

Its neighbour, a 59-level residential tower called Sapphire by The Gardens, is connected to the empty Shangri-La tower by an arching bridge on level 46.

“Constructing two towers simultaneously takes exceptional planning and management, especially when facing construction and engineering complexities like the iconic sky bridge,” Multiplex said last August, once it had finished works.

The complex’s gleaming glass towers cover half a city block at the northern end of Melbourne’s CBD, near RMIT’s university campus and opposite the gardens that house the historic Royal Exhibition Building, the site of Australia’s first parliament.

In 2022, the incomplete hotel was offered for sale in a blaze of publicity on a “fund through” or “turnkey” basis – either as an under-development structure or a fully finished product.

Malaysian conglomerate SP Setia, which developed both towers, set an asking price of $500 million for the empty Shangri-La edifice – effectively $1 million for each room key.

Neither option flushed out a buyer and the landmark tower stands empty.

Setia sold the management rights for the hotel complex to the global luxury 5-star brand, Shangri-La, in 2017, and has been looking for another investor to purchase the building’s freehold. The company was contacted for comment about the sale and its intentions for the building, but it did not respond by deadline.

Next door at the Sapphire, the lights are coming on. The tower’s 325 luxury apartments – many of them custom-designed – are being sold. Marketing whiz-kid and multimillionaire Adrian Portelli snapped up a two-level, top-floor penthouse in Sapphire for a record $39 million last year.

A person close to the Shangri-La’s developer, who was not authorised to speak publicly, said the hotel’s fitout before the COVID-19 pandemic had been budgeted at about $60 million.

Inflation and cost increases for materials and labour have since boosted that estimate to $80 million, they said. That puts a $580 million price tag on the fully furnished and fitted out hotel.

“Costs have escalated and therefore expectations on pricing may have gone up,” another person connected with the project, who was also not authorised to speak publicly, said. “It would be a record high price for the Melbourne market at that level by a substantial margin.”

Commercial property agency Colliers are managing the sale. The firm declined to comment on progress but confirmed the hotel was still on the market.

Colliers’ head of hotels and transaction services, Karen Wales, said Australia’s hotel market was performing well after the pandemic. “Coming out of COVID, hotels performed much better than expected. Given the levels of supply coming into the market, Melbourne has held up really well,” Wales said.

Domestic travel had recovered, corporate occupancy was at pre-pandemic levels, although inbound tourism had yet to fully recover, she said. Taylor Swift’s Australian tour helped boost patronage across the sector earlier this year.

Sydney’s hotel market is stronger according to Gus Moors, managing director and head of New South Wales investment sales at JLL. Trading fundamentals are solid, occupancy is generally above 80 per cent and average room rates are sitting at about $330 to $340 a night across the city, Moors said.

“There’s very limited new supply coming into the market, and we would expect as international markets fully recover, Sydney will just go from strength to strength,” he said.

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