Build, Buy or Hold: Where Hotel Capital is Going in 2026

Supply constraints and booming demand will drive a growth in hotel yields, according to sector specialists. The shortfall of keys available in Australia is unlikely to ease in coming years, with hotel development unable to match inbound and domestic tourism numbers. Transaction volumes and values, room rates, and occupancy are all likely to remain strong over 2026, but some sub-sectors are expected to emerge as winners in the near future. Colliers head of hotel transaction services Karen Wales points to Blackstone’s $1.2-billion acquisition of Hamilton Island and Wentworth Capital’s purchase of the Darling Harbour Novotel and Ibis (with a combined 781 rooms), as evidence that investors are on the hunt for hospitality assets. “That’s providing a good start for the year from a transaction volume point of view,” Wales says. While the year ahead for capital markets globally is looking increasingly unpredictable, the fundamentals in the Australian hotel market are strong and investors are sitting by with dry powder ready. “Hotel investment or hotel values are driven by performance. It’s not purely based on on the tourism markets, but from a capital allocation point of view there’s been a shift post-Covid. Quite a bit of capital has been raised to invest into hospitality,” Wales says. Australian institutions have traditionally been less eager, due to structures that make it difficult to directly own and operate assets. About two-thirds of funding historically cames from international sources, Wales tells The Urban Developer . But family offices and private wealth, who can be “a bit more nimble”, are actively looking. ▲ The Novotel and Ibis anchor the hotel offering in the tourism and event-focused Darling Harbour. McVay Real Estate managing director Sam McVay agrees, telling The Urban Developer that, while interest is high across all investor classes, “we see private groups move first”. “Then the institutions come after, typically once it’s been de-risked, and they’re the ones with the really deep pockets,” McVay says. In 2026, heavyweights are becoming increasingly interested in the investment thematic of “urban living”, according to McVay. “If you look, the biggest asset class in the world has a bed in it. The major global investors are wanting exposure to living, and they want to be in every single part of that, this convergence of hospitality and living coming together.” That means blending hotels with other living sectors, which can take place at the portfolio level, or in mixed-use assets or precincts. It can even mean new or hybrid single-use assets that combine characteristics of accommodation or residential. “If you’re moving into a build-to-rent, for instance, or a co-living building, there needs to be a level of hospitality there. Whether it’s a concierge, whether it’s just decent service,” McVay says. ▲ Investors are warming to a paradigm that blends hotel with living sectors within portfolios, precincts, or assets. “The benefits of combined residential and hospitality include shared community and amenity. Hotel guests could participate in the local run club or movie night, while residents get access to a five-star hotel pool, for example. “What that means for the owner of that building is that you’ve now got these customers that love your product, love your building, and love being part of that community. “There’s not 100 groups doing it, but there’s a lot of capital that’s already been allocated… It’s still early days, but you can now feel the scale that’s coming to the market. “There were some things that needed to fundamentally change in our market, and one of them was that the rents needed to go up. And now the rents have gone up. That means that these projects now work [as development or investment assets].” Business and leisure travellers (or “bleisure”) are also being catered to. “The old business warrior, who used to walk around with their briefcase and check into the hotel and go to dinner late at night and leave in the morning: that’s changed. “People are now wanting to be in an active lobby, with a co-working space. They want a really good gym…so having that flexibility is going to be really important to cover the widest possible market. Supply unlikely to boom Wales says that, despite government ambitions to increase hotel rooms, the supply-demand mismatch is going to be sticky, with tourism numbers back to pre-Covid levels. “Obviously, given where construction costs are at across the sectors, new development is largely not feasible…you can’t reasonably expect much new supply to be built in the capital cities in the near term. “You’re really left with: what’s your beliefs around the demand side, to determine the assets that are likely to outperform over the coming cycle?” McVay said that capacity “is a problem. It’s a handbrake”. “There’s no new supply coming into Sydney, really. There’s 2 or 3 per cent being added into a market that really needs hotel rooms.” ▲ The record-breaking sale of the Waldorf Astoria in Sydney shows that existing assets will return yield, while new developments may struggle. McVay’s 2023 sale of Sydney’s Waldorf Astoria to Andrew “Twiggy” Forrest collected $575 million for the owners Lendlease and Mitsubishi Estate Australia at $2.35 million per key , an Australian record at the time. “But next door is a residential tower that’s selling at $90 to $100,000 per square meter,” McVay says. “So if you have a site, a piece of land, your first thing you’re doing on it is residential, and then you’re doing student accommodation, or co-living, build-to-rent, and you’re looking at all these other things. “And then you’re doing offices or hotels. They just sit at the lower end of that spectrum when it comes to development.” Wales says that governments should focus on stimulating demand, and supply will follow. “Because if investors and developers think there’s a reasonable chance of success, that they’re going to make money, they will develop. ▲ Upgrades to Brisbane and Melbourne airports and the opening of the Western Sydney International Airport come as tourism recovers to pre-Covid levels. “But the things that investors can’t do is bring more aviation capacity into a country, or make visa processing faster, because they’re the things that sit with government. “Government often needs to be the one that is either investing in or, you know, attracting major events, and it brings significant inbound economic value to a country and or a state.” Seasonal demand and event spikes should support performance in existing assets. McVay cites a Melbourne hotel that pushed rates from a year-round average of $650 to $3500 during the F1 event. “If you go back pre-Covid, the idea of Lady Gaga selling 100,000 nights in a night, at Homebush, for three nights in a row at those sort of ticket prices would have been unheard of,” McVay said. “Our hotels are just too cheap and we’re seeing that when people are coming from America. They’re coming out on the US dollar and they’re staying like rock stars. “Sydney, I think, will be one of the best performing hotel markets in the world in the next five years, both from a rate growth and occupancy standpoint.”

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