The construction of Sydney's first five-star hotel in nearly two decades at Darling Harbour won't spur a wave of standalone, luxury hotels in the city because most development sites stack up better for residential use, says Accor Asia Pacific boss Michael Issenberg.

"In Sydney of all places, its very hard to make these big, luxury hotels stack up from a highest and best-use perspective. The return is usually higher if you do something else," Mr Issenberg told The Australian Financial Review following Thursday's symbolic concrete-pouring ceremony to mark the official start of construction of the $360 million Sydney Sofitel Darling Harbour Hotel.

"As pure [standalone] major hotels go, you won't see too many of them in Sydney but you will see some smaller hotel developments as part of mixed-use projects," he said.

The 600 room hotel, designed by Sydney architect Richard Francis-Jones, will tower 35 stories above Darling Harbour, encased in a lacework glass facade, topped with a rooftop pool deck.

Developed by Lend Lease and to be owned by hotel investor Jerry Schwartz once completed in 2017, the hotel forms part of the $3.4 billion redevelopment of Darling Harbour's International Convention Centre complex.

Mr Issenberg said the Sydney hotel sector was in a strong position with some of highest occupancy rates and room rates in the region, but would, along with Melbourne, face more competition from online disrupter Airbnb given the potential glut of apartments coming and most owners looking for a return.

STRONG SECTOR WITH HIGHEST OCCUPANCY

"When you [as a hotel operator] are trying to get $600 to $700 a night for a 22 square metre hotel room, all of a sudden you can go on Airbnb and get an apartment for $300."

Jonathan Emery, managing director of urban regeneration at Lend Lease, said the company was thrilled to be developing the first new major luxury hotel in the Sydney CBD since the 2000 Olympics, while NSW Tourism Minister Stuart Ayres said the hotel would firmly cement Sydney's position as the number one convention city in Australia.

The last five-star hotel to be built in the Sydney CBD was the 415-room Amora Jamison – originally called the Le Meridien Hotel – developed by Singaporean electronics manufacturer and hotel investor Eddie Foo, which opened in 1999.

A surge of new hotel projects, many of them part of mixed use developments, is expected to add thousands of hotel rooms over the next decade with the City of Sydney in receipt of 25 new applications for visitor accommodation worth over $1 billion since the beginning of 2014.

Among the projects in the pipeline is the addition of 230 rooms to the Four Points by Sheraton in Darling Harbour by Singapore's M&L Group, China's Wanda Group's proposal to build a 160-room luxury hotel as part of its $1 billion mixed-use project on Alfred Street and Crown's lodged plans for its Barangaroo hotel.

Patricia Forsythe, executive director of the Sydney Business Chamber, said the new Sofitel hotel would enhance Sydney's status as a global city.

Source: Australian Financial Review, Larry Schlesinger, July 30^th 2015
Originally published as: Sofitel Sydney not the start of a luxury hotel wave, says Accor boss