Dexus, Perron plan $1 billion project

International developers and local investors are jockeying to defy Sydney’s looming apartment bubble.

Dexus’s planned tower.

International developers and local investors are jockeying to defy Sydney’s looming apartment bubble with plans for one of Sydney’s tallest towers, combining an apartment complex and a six-star hotel. The listed Dexus Group and Perth billionaire Stan Perron have applied to develop a $1 billion apartment and hotel complex on the edge of Sydney’s Hyde Park, a mid-town location which has attracted scores of high-end unit towers in recent years.

The mixed-use development comes as a string of regulators have issued warnings over the nation’s toppish housing market, including a warning this week by the Reserve Bank that rapidly rising house prices in Sydney and Melbourne were putting financial stability at risk.

At the same time banks are becoming more cautious over lending to property investors, while pushing through a round of out-of-cycle interest rate rises to homeowners and slowing the pace of funds to investors.

According to documents ­obtained by The Australian, Dexus’s plans for 201-217 Elizabeth Street include a 51-level mixed-use building, with a premium unit tower spanning 27,990sq m coupled with a 350-room luxury hotel of similar size. Dexus argues the plans are in accordance with Sydney’s planning code.

Starwood sold one of Australia’s largest trophy hotels, Sydney’s Sheraton on the Park, for $463m in November 2014 to China’s Sunshine Insurance Group.

AMP chief economist Shane Oliver described multi-purpose property use as a way of diversifying risk.

“Years ago in Sydney when there was an oversupply of office accommodation, you put up a tower which would be part residential and office,” Dr Oliver said. “Now, of course, the motivation is the other way and there is an oversupply of residential so the motivation is put in hotels as a diversifier.”

Revenues per available room in Sydney hotels are growing at their second-highest level on record, behind only the records hit during the 2000 Sydney Olympics, when the city’s hotels were booked out.

Figures for February released by hotel researcher STR yesterday revealed Sydney’s revenue per available room, a key industry measure, topped $231.57 in the month of February.

CBRE residential projects chairman Justin Brown says apartments built with hotels are appealing to cashed-up owner occupiers given they can access the hotel’s services. “High value residents can get all the services of a five- and six-star hotel, they often live overseas or in Bowral or Palm Beach, they want the apartment fully stocked an it is often their second or third home.”

Hotel analyst Dean Dransfield, of Dransfield Hotels & Resorts, said it was a trend for institutions and landowners to put hotels into their plans for mixed-use sites.

“They are recognising that a hotel could be part of the highest and best use of the site and they can then onsell the building to a party that can develop it,” Mr Dransfield said.

Cbus Property and Scentre Group are also in on the act, redeveloping the historic David Jones building in Sydney’s Market Street, with their retail project to be capped by an apartment tower. Chinese-backed groups Aoyuan and Han’s Holdings Group also have mixed-use projects in the works adding hundreds of apartments to the city.