Tourism blow as NSW government rejects $800m Sydney CBD hotel

Plans for a new $800m hotel backed by Gladys Berejiklian in the heart of the Sydney CBD have been rejected by the NSW government, setting back plans for a revival of tourism.

Artists impression of plans by Built and Irongate for a hotel and apartment complex at 50-52 Phillip Street.

Plans for a new $800m hotel complex in the heart of Sydney’s central business district have been rejected by the NSW government, setting back plans for a tourism revival in the city.

The stop on the luxury project came after years of work by private developer Built and funds managed by listed property company Irongate and come as some major city hotels projects are struggling to get off the ground.

The hospitality industry is making a slow recovery in cities after the pandemic and is dealing with a spike in Covid-19 cases due to a new variant but has called for more new hotels to be open so the country remains competitive.

Sydney has seen few city hotels open and the W Hotel announced for the Ribbon development in Darling Harbour in mid-2018 has been beset by delays with the collapse of two builders, Grocon and Probuild. Another mooted CBD hotel site in Bligh Street is now being sold off as a revamped office block. Prior to the pandemic, local group Fortius and Singapore-based SC Capital explored pre-selling a proposed $700m hotel and office block on the property.

Built and Irongate proposed a redevelopment that would have seen a luxury hotel mixed use project rise at 52 Phillip Street and the adjacent heritage-listed building at 50 Phillip Street.

The plan hinged on Built’s unsolicited proposal to the NSW government for the leasehold purchase of 50 Phillip Street. It was submitted in 2017 and had gone to the second stage by October 2019 with the developers amending plans for the sensitive site where the hotel would adjoin the historic Chief Secretary’s Building.

But their proposal was quietly knocked back last year, prompting surprise after the same state process had previously been used to allow Crown’s casino complex at Barangaroo and Macquarie’s office towers above Martin Place metro station without tenders.

The proponents had worked closely with the government to craft their project around the area’s unique heritage elements and gained significant support from inside the government up to former premier Gladys Berejiklian, who had declared it needed to happen to show that Sydney was open to the world.

The hotel had the support of former premier Gladys Berejiklian.

But the quiet decision to reject the proposal effectively ended its hopes, leaving the developers with estimated costs of close to $5m and the international investors behind the project, as well as a trio of global hoteliers who were vying to run the project, hanging.

The proponents have declined to comment publicly on the project but there are concerns that hotel chains will be deterred from committing to Sydney due to planning uncertainty and international real estate investors may also factor in greater sovereign risk when investing in NSW.

An Investment NSW spokesperson said: “The proposal was assessed in accordance with the criteria set out for unsolicited proposals by the NSW government. It did not proceed past Stage 2 of the process.”

Industry players suggested the premier held concerns about the heritage considerations in the district as the hotel and residences would border the Chief Secretary’s Building but it was to be protected under the scheme. A 2021 report by former prime minister Paul Keating and former Sydney lord mayor Lucy Turnbull, who were commissioned by the NSW government to review how the area known as Macquarie Street East, has influenced planning around the area.

They argued the precinct should be revitalised into a world-class cultural destination on par with New York and London and the Chief Secretary’s Building should be returned to its original purpose as a government office.

Built’s plans had included careful heritage preservation and adaptive re-use of 50 Phillip Street, drawing on the firm’s unique skills in such projects and tapping heritage specialist Graham Brooks to advise.

The developer has a record in developing heritage projects including Sub Station No. 164 at 185 Clarence Street and is also delivering the redevelopment of the former Education and Lands buildings on Bridge Street. The project had included 240 hotel rooms, a rooftop pool and 16 luxury hotel-branded residences.

The federal government has been campaigning on the opening of international borders and state governments have declared that cities are open with hotels a key part of that strategy.

Some are opening up.

The country’s first Kimpton Hotel opened in Sydney last month, ahead of an expected national roll out of the luxury branded hotel chain, after new owner Pro-Invest picked up the hotel from China’s Greenland Group.

The Shenzhen-based owners of One Circular Quay are also readying to launch an apartment project, with a penthouse priced at more than $100m, and a luxury Waldorf Astoria ­Hotels and Resorts in the adjoining tower on the former Goldfields House site. The Bligh Street site now being sold as a $200m office block via McVay Real Estate and JLL had been billed as a 421-room hotel.