Mixed use hotel developments – an alternative option for developers

10 September 2018

With tourism figures reaching new heights and migration to Melbourne soaring, developments that offer multi-purpose utility, provide a much-needed solution to accommodate the increasing influx of people in the nation’s cultural capital.

The number of people in Melbourne is increasing at an exponential rate, currently home to over 1.8 million households, this number is estimated to grow to over 2.4 million by 2036, surpassing Sydney as Australia’s biggest city by 20301.

Rigby Cooke Lawyers hotels and accommodation industry group lead partner Michael Gough said mixed use hotel developments can be an innovative alternative to the traditional single use accommodation model.

“Mixed use developments differ from traditional single-use residential and hotel properties by offering a tailored combination of hotel rooms, apartments, retail spaces or office spaces,” said Mr Gough.

“Melbourne, and Australia in general, has not seen a huge volume of mixed-use residential and hotel properties in the past, however emerging trends show the growing attraction of these developments for investors looking to diversify and de-risk their portfolio.

“Councils and project financiers are also proving to be more attracted to mixed-use developments than conventional apartment development projects given the reduced level of risk offered by the diversified nature of these investments.

“Because these properties combine an assortment of uses and residents, investors and developers can better safeguard themselves against major vacancies when compared to single-use apartments or hotels.

“Such developments can solve floor layout issues which have traditionally hindered residential sales. Instead of locating apartments on lower floors that have a less desirable view and ultimately a lower price tag, developers can use this space for hotel rooms or student accommodation, office space, parking or other amenities.”

Mr Gough these types of investments capitalise on limited space and offer developers multiple revenue sources within the convenience of one structure.

“Even though mix use developments tick multiple boxes, the consequence of these tri-fold commercial spaces create more complicated legal and planning arrangements for developers,” said Mr Gough.

“Developers tend to opt for separate owners’ corporation (OC) and amenities, however it’s imperative that project sale contracts clearly define the shared services as well as maintenance and insurance responsibilities.

“Further, the value of apartments may be positively or negatively impacted if the hotel management agreement with the operator ceases, and a new hotel brand enters. Understanding this and ensuring that it is addressed in any development contracts with apartment purchasers, OC’s and hotel operators is vital to the success of these projects.

“Despite these more intricate planning and legal considerations as the property development sector continues to grow in Australia, we are likely to see an increase in mixed use developments throughout our major cities.”

 

[1] Invest Victoria, April 2018, Greater Melbourne demographics

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