Record numbers of Chinese visitors to Australia are driving up hotel occupancies and returns in Sydney and Melbourne to unprecedented levels, according to the latest hotel figures.

Global research firm STR Global said occupancies averaging nearly 88 per cent across Sydney and Melbourne hotels over the 12 months to September as visitor numbers to Australia hit a record 7.1 million, according to Tourism Research Australia. 

Hotel returns are up seven per cent in Sydney, with an average daily room rate of $232 a night and up five per cent in Melbourne to $202 a night, according to STR Global.

Driving it all has been inbound tourism and in particular record number of visitors from China, with Tourism Research Australia forecasting a 22 per cent rise in Chinese visitors in 2014-15 reaching 928,000, or 13 per cent of the total international visitor market.

New Zealand remains Australia's biggest tourism market (18 per cent of all arrivals) but by 2020 the Kiwis will be surpassed by China with almost 1.5 million visitors.

By 2025, Australia will receive almost two million Chinese visitors annually, with overall visitor numbers to climb to 10.6 million, the forecasts show.

Surging occupancy and room rates are not just confined to the big five star hotels, the STR Global figures show, but have spread out to Sydney airport hotels and the mainly corporate hotels in Ryde and Parramatta.

"Sydney's hotel sub-markets are also experiencing unprecedented trading conditions," said commercial agents JLL.

JLL said increased airline capacity, a weakening Australian dollar and improved economic conditions of key inbound source markets were behind the surge in tourism. This is helping to rebalance the economy away from resources and as some of the heat comes out another economic driver, housing.

Melbourne and Sydney have been the primary beneficiaries, with Australian Bureau of Statistics figures showing over 60 per cent of overseas visitors spent the majority of their time in New South Wales and Victoria during the first 8 months to August 2015.

It's not just Chinese visitors which are coming to Australia in record numbers, but rising visitors from UK, United States, Singapore, South Korea and India.

Indian visitors numbers are forecast to double over the next 10 years reaching 405,000 annual arrivals.