Melbourne's Shangri-La Hotel remains shuttered three years on as fit-out economics stall
Melbourne's Shangri-La Hotel is sitting vacant inside a completed 62-storey Exhibition Street skyscraper, its developer unable to bridge the financial gap needed to deliver the property to market.
The near-500-room luxury tower, developed by Malaysian property group SP Setia, has stood empty since its shell was finished in 2022 — lacking fittings, fixtures and, crucially, guests.
According to reporting by the Australian Financial Review, the estimated cost to complete the fit-out now runs to $150 million or more, a figure that has proven difficult to stack up against current market valuations.
The hotel forms one half of a twin-tower project alongside the Sapphire by the Gardens residential building, which has been fully operational since 2022. Of its 325 luxury apartments, 97 per cent had sold by the time residents began moving in — a commercial success that sits in stark contrast to its hospitality counterpart next door.
SP Setia originally acquired the site from Telstra for $101 million in 2016 before selling management rights to Shangri-La the following year. The operator, which runs two Australian properties in Sydney and Cairns, declined to comment on the project's future, as did developer SP Setia and builder Multiplex.
Long-time hotel transactions and development adviser Dean Dransfield told the AFR the project's scale was central to its difficulties. "Lots of project costs increase over time, but because the scheme was on such a grand scale, it just meant that there was a limited ability to raise finance to finish it," he said. "It's just very hard for people to meet the market in those circumstances."
The freehold was placed on the market with an asking price of around $500 million — roughly $1 million per room — though the asset has since remained unsold. A reported deal that would have transferred 50 per cent ownership ultimately fell through.
Even high-profile residents have grown sceptical. Billionaire Adrian Portelli, who made headlines when he craned a $3 million McLaren into his $39 million penthouse — still Melbourne's priciest apartment sale — told the AFR he doubts the project will ever proceed. "I'd be surprised if there ever is a Shangri-La," he said. "Yes, it's a shame, because many, including myself, bought with that in mind."
The news comes as Melbourne's broader hotel market performs strongly. Lord Mayor Nick Reece noted the city recently broke its all-time record for hotel bookings in January and called on the development to move forward. "We want to see people in Shangri-La," he said. "I remain optimistic we will soon see a builder take on this opportunity and complete the fit-out. No one wants to see incomplete developments in the city."
Hotel investor Paul Salter, managing director at Salter Brothers, offered a more measured outlook. "Obviously, its current status would indicate that those economics in today's market are not compelling," he said, adding that Melbourne continues to trail Sydney and Brisbane on revenue per available room. "But Melbourne remains a key market with strong demand fundamentals going forward."
Jonathan Jackson, 18th February 2026
