Next door at the Sapphire, the lights are coming on. The tower’s 325 luxury – many of them custom-designed – apartments are being sold. Marketing whiz-kid and multimillionaire Adrian Portelli snapped up a two-level, top-floor penthouse in Sapphire for a record $39 million last year.

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A person close to the Shangri-La’s developer, who was not authorised to speak publicly, said the hotel’s fitout before the COVID-19 pandemic had been budgeted at about $60 million.

Inflation and cost increases for materials and labour have since boosted that estimate to $80 million, they said. That puts a $580 million price tag on the fully furnished and fitted out hotel.

“Costs have escalated and therefore expectations on pricing may have gone up,” another person connected with the project, who was also not authorised to speak publicly, said. “It would be a record high price for the Melbourne market at that level by a substantial margin.”

Commercial property agency Colliers are managing the sale. The firm declined to comment on progress but confirmed the hotel was still on the market.

Colliers’ head of hotels and transaction services, Karen Wales, said Australia’s hotel market was performing well after the pandemic. “Coming out of COVID, hotels performed much better than expected. Given the levels of supply coming into the market, Melbourne has held up really well,” Wales said.

Domestic travel had recovered, corporate occupancy was at pre-pandemic levels, although inbound tourism had yet to fully recover, she said. Taylor Swift’s Australian tour helped boost patronage across the sector earlier this year.

Sydney’s hotel market is stronger according to Gus Moors, managing director and head of New South Wales investment sales at JLL. Trading fundamentals are solid, occupancy is generally above 80 per cent and average room rates are sitting at about $330 to $340 a night across the city, Moors said.

“There’s very limited new supply coming into the market, and we would expect as international markets fully recover, Sydney will just go from strength to strength,” he said.