Demand Is Increasing But Motels Aren’t

Australia’s population has boomed over the past few decades, surging from around 15 million in 1995 to more than 26 million by 2025 — a 73% increase in just 30 years. You would expect this extraordinary population growth to drive a corresponding increase in accommodation supply, particularly motels, which have historically provided affordable and convenient accommodation for travellers, workers and families across regional Australia.

Yet despite the population boom, the number of motels across Australia has barely increased.

The neon-lit roadside motel remains an iconic part of the Australian landscape, but genuinely new motel developments are surprisingly rare. While apartment towers, hotels and short-term rentals have proliferated, traditional motels have largely stagnated.

This raises an important question: if Australia’s population, tourism activity and regional economies have all expanded significantly, why haven’t more motels been built?

The answer lies largely in economics. The soaring costs of land, construction, labour and development have made building new motels increasingly difficult to justify financially. In many cases, the cost of constructing a new motel now materially exceeds the cost of purchasing an existing one.

At the same time, demand for regional accommodation continues to grow — driven not only by tourism, but also by infrastructure projects, regional workforce growth, mining activity, healthcare expansion, logistics networks and renewable energy developments.

The result is a growing imbalance between increasing demand and constrained motel supply.

The Population Boom vs. Motel Stagnation

Since the mid-1990s, Australia’s population growth has been driven by immigration, urban expansion and steady natural population growth. Cities such as Sydney, Melbourne and Brisbane have sprawled outward, while many regional centres have experienced strong growth as industries decentralise and regional living becomes increasingly attractive.

Logic suggests this should have sparked a motel-building boom.

More people generally means more travel, more business activity and greater demand for accommodation. Domestic tourism has remained strong, particularly following the pandemic recovery, with regional travel benefiting from Australians increasingly taking road trips and short regional holidays.

At the same time, regional Australia has experienced substantial growth in workforce-related accommodation demand. Infrastructure projects, renewable energy developments, mining operations, forestry industries, logistics hubs and healthcare expansions have all increased demand for temporary accommodation in regional towns.

In many areas, motels now accommodate not only tourists, but also contractors, engineers, healthcare workers, transport operators and project staff working across regional Australia.

Yet despite these expanding demand drivers, the total number of motels nationally appears to have remained relatively stable for decades. While precise historical figures are difficult to determine, industry reports and anecdotal evidence suggest Australia has continued to hover around approximately 2,000–3,000 motels nationwide with little net growth.

That stagnation becomes even more striking when compared with the scale of Australia’s population growth and economic expansion over the same period.

The Cost Barrier: Land and Construction

The primary reason for this stagnation is the dramatic increase in development costs.

Building even a modest motel today involves two major expenses: land acquisition and construction.

According to the Urban Development Institute of Australia’s (UDIA) 2023 State of the Land report, the national median lot price reached $391,546 in 2022, while Sydney’s median lot price climbed to $716,381 per lot.

For a motel requiring approximately half an acre (around 2,000 square metres) of land, acquisition costs alone can easily exceed $1 million in many regional centres and potentially $2–3 million closer to metropolitan markets.

Importantly, motels are relatively land-intensive assets. Unlike apartment developments that maximise density vertically, motels require substantial land for parking, drive-up access, landscaping, circulation areas and reception facilities. As land prices rise, motel feasibility deteriorates rapidly.

Construction costs have also escalated significantly.

CoreLogic’s Cordell Construction Cost Index (CCCI) shows residential construction costs have increased by 30.8% since the onset of COVID-19, with commercial accommodation developments facing similar pressures.

Labour shortages, supply chain disruptions and rising material prices have all contributed to the increase. Timber, steel and concrete — all critical motel construction materials — experienced double-digit price increases following the pandemic. Although annual construction cost growth slowed to 3.4% in 2024 according to the CCCI, costs remain materially above pre-pandemic levels.

Industry benchmarks suggest constructing a relatively basic motel in 2025 costs approximately $150–$200 per square foot.

For a modest 20-room motel averaging around 300 square feet per room including common areas, that equates to roughly 6,000 square feet of building area. This places direct construction costs alone at approximately $900,000–$1.2 million.

However, construction is only part of the equation.

Once site preparation, parking, landscaping, professional consultants, council approvals, infrastructure connections, permits and contingencies are included, the total development cost for a new motel can quickly rise to between $2.1 million and $4.5 million depending on location and project specifications.

Development timelines also continue to lengthen. Council approvals, zoning restrictions, environmental assessments and infrastructure requirements can stretch motel developments to 18–36 months before the first guest even checks in.

For many owner-operators and small investors — historically the backbone of the Australian motel industry — these upfront costs and delays create a significant barrier to entry.

Buying Existing Motels: The Cheaper Alternative

When compared with the cost of developing a new motel, purchasing an existing motel often becomes the far more attractive option.

Real estate listings throughout 2025 show operational 20-room motels in regional Australia — in centres such as Tamworth or Mildura — commonly selling for between $1.5 million and $2.5 million including land, buildings and an operating business.

Even in stronger coastal or metropolitan fringe markets such as the NSW Central Coast or Queensland’s Sunshine Coast, prices may still remain below the upper end of equivalent development costs.

These properties also come with established occupancy, operational infrastructure and immediate cash flow.

Rather than spending years navigating approvals and construction risk, investors can acquire an existing motel with an established customer base and trading history.

Even after allowing for renovation costs — perhaps $200,000–$500,000 to modernise rooms, improve presentation or upgrade facilities — the total investment may still remain materially cheaper than building a comparable property from scratch.

A 2023 sale reported by AccomNews highlighted this dynamic clearly. A 25-room motel in regional Victoria reportedly sold for approximately $2.1 million, while developers estimated a comparable new build in the same area would cost closer to $3.8 million.

That represents a difference of approximately $1.7 million.

This widening gap between acquisition prices and replacement costs has become one of the defining characteristics of the regional motel sector.

In many regional markets, existing motels now trade below their theoretical replacement cost — meaning it may cost substantially more to build a comparable new property than to purchase an existing operational asset.

Why Costs Continue to Rise

Land prices have outpaced inflation for decades, particularly near growing population centres.

The UDIA reported Sydney’s median lot price increased by 31% in 2022 alone, driven by limited land supply and strong demand. Regional markets have also experienced major price increases, with greenfield sites in locations such as Toowoomba and Bendigo reportedly doubling in price since the early 2000s.

Construction costs continue to face structural pressure as well.

Australia’s construction sector has struggled with labour shortages, rising wages and ongoing material supply constraints. Financing costs have also increased substantially as higher interest rates reduce development feasibility and increase holding costs.

At the same time, developers often pursue alternative asset classes offering stronger projected returns on expensive land. Apartments, industrial developments, retirement living and mixed-use projects may provide better land utilisation and higher profit margins than traditional motel accommodation.

As a result, many developers simply choose not to build motels at all.

Long-Term Implications

The imbalance between rising accommodation demand and constrained new supply has important long-term implications for regional Australia.

Population growth continues. Tourism remains resilient. Regional infrastructure investment is accelerating. Renewable energy zones, transport projects, healthcare developments and industrial expansion continue to increase workforce accommodation demand across many regional markets.

At the same time, the economics of new motel development remain extremely challenging.

Without a substantial reduction in land prices, construction costs or development barriers, motel supply growth is unlikely to materially accelerate in the near future. In fact, some older motels may eventually be redeveloped or repurposed entirely, potentially further reducing accommodation supply.

Australia’s motel sector increasingly reflects a broader economic reality: demand is increasing, but new supply remains heavily constrained.

Despite population growth of more than 70% over the past three decades, the cost of building new motels has risen even faster. Until those economics shift, existing motels are likely to remain significantly more attractive than developing new ones from scratch.

And that may continue to support the long-term value of existing regional motel assets.