Why Sydney is a prime target for Marriott

(Four Points By Sheraton Sydney, Central Park)

Thanks to an influx of Chinese visitors, Australia's hotel industry has acquitted itself well—and Sydney is one of the top cities in the country for investment. And with Marriott charting careful growth plans, the country's largest city is poised to see substantial development from the world's largest hotel company.

By the Numbers

Last year, Sydney's supply increased by 3.6 percent, demand increased by 4.8 percent, occupancy grew by 1.1 percent to 82.1 percent, ADR increased by 7.8 percent to $219.31 and RevPAR grew by 9 percent to $180. 

Marriott has 15 hotels operating across Australia and another 18 in the pipeline. In the long run, Marriott is poised to expand its portfolio in Sydney to anywhere between 30 and 40 hotels. According to the Australian, a new-build 400-room hotel in Sydney's central business district will soon be announced, and the city also has another Marriott property in the pipeline.

So how will Marriott get to 40 hotels in Sydney? Craig Smith, Marriott International's managing director and president, Asia-Pacific, denied rumors that the company was planning to acquire the local Mantra Hotels company, which controls six hotels in and around the city. “It is not true today,” he said, a sentiment echoed by Mantra in a statement: "Whilst it is Mantra's policy not to comment on rumor or media speculation, Mantra confirms that it is not in discussions with any potential buyers...Mantra is aware of and will update the market in accordance with its continuous disclosure obligations." 

Still, Smith's comment was certainly qualified (he said that the rumor is not true "today"), and while the company may not be planning to acquire Mantra right now, the possibility of future M&A is ever-present, especially given Marriott's reputation for careful expansion through partnerships. "Our options are always open," Smith said. "We are a large company looking to grow." 

New Buyer for Sydney Four Points

With the growth in tourism in Sydney, Marriott's existing and upcoming assets in the city have also become more valuable. For example, Melbourne-based funds manager Impact Investment Group is expanding into the hospitality business with the purchase of an in-development Marriott property. The Group will buy Sydney’s Four Points by Sheraton, Central Park and some associated office space in a deal worth an estimated $190 million.

Under the deal, IIG will buy the 297-room hotel and an office complex known as One Hundred Broadway. The vendors and IIG have agreed terms and are believed to be finalizing what could be Sydney’s largest hotel sale this year.

The Four Points was announced last year and is scheduled to open in May 2018. The hotel, built as part of a joint venture with partners Frasers Property Australia and Sekisui House Australia, was designed by British architects Foster + Partners.

The hotel deal alone is expected to lift IIG’s property portfolio to more than $800 million worth of assets, and could lead to future investment from the corporation.