Under the deal, IHG has signed a 20-year management agreement with Franze Developments to open and operate Holiday Inn and Suites Geelong, the largest hotel in the regional Southern city.

This comes as Australian capital cities and regional areas are still short of hotel rooms.

According to Michael Simpson, the managing director, hotels at Savills, the dearth of existing hotels for sale is fuelling investor appetite for new hotel development opportunities.

"It appears that continued capitalisation rate compression is isolated to upscale/luxury hotels in key city locations, which shows no signs of slowing despite the slowdown of Chinese capital and the counter cyclical opportunities in Perth and Brisbane are becoming increasingly popular," Mr Simpson said.

"Sydney continues to outperform Australian markets with a revenue per average room rate (RevPAR) gap of $40-plus over the next best market performer, Melbourne."

Aside from Geelong, the InterContinental has also recently opened a new hotel in Perth.

In Geelong, Franze Development paid $7 million for a 2700-square-metre site at 44 Ryrie Street, in April 2017 and lodged plans for a $150 million to $200 million mixed-use development that will include a hotel, 90 serviced apartments and office and retail space.

Opening in 2020, the 190-room property will be the first new hotel in Geelong in more than 20 years, signalling a renewed outlook for the vibrant Victorian coastal city. It's also IHG's first Holiday Inn hotel in Australia to include 40 suites, intended for the longer stay segment.

Franze Developments plans to build Geelong's largest mixed-use development with a gross floor area of over 33,000 square metres, including more than close to 10,000 sq m of retail and office space, 24 residences, co-working space, and the flagship Holiday Inn hotel.

The hotel itself will boast an all-day dining restaurant and bar, swimming pool, gym, parking and a 300 sq m of meeting facilities including a function room for 250 people.

The last hotel to open in Geelong was the Four Points Sheraton in 2001, which was rebranded the Novotel Geelong in 2014, after Accor acquired the management rights. Earlier this year, the Mercure hotel was bought for $25 million by Event Hospitality and Entertainment and was rebranded as a Rydges Hotel.

Karin Sheppard, IHG's chief operating officer for Australasia & Japan, said, in Australasia, IHG has 20 Holiday Inn and Holiday Inn Express hotels already open and nine in the pipeline, mainly in large cities and airport locations.

"Now we are thrilled that forward-looking owners like Franze Developments see even further opportunities for affordable, enjoyable hotels in satellite cities like Geelong," Ms Sheppard said.

Paul Franze, founder and managing director at Franze Developments, he was "excited to partner with IHG as we move into the hotel development space".

"Geelong welcomes around 2.2 million overnight visitors annually, but is dramatically under-represented by quality hotels. With a prime CBD location in close proximity to the station, hospital, university, offices and government entities, I am confident that Holiday Inn and Suites Geelong is going to be a story of success."

IHG currently has 47 hotels operating under four brands across Australasia: InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn Hotels & Resorts and Holiday Inn Express, with a further 15 in the pipeline including Hotel Indigo and the lifestyle brand, EVEN Hotels.