The original Australian Hotel, leased to John Murray, was situated at 116 Cumberland Street on land contained within the Observatory Hill Resumed Area. In 1907 plans were made to realign Cumberland Street which included the demolition of the hotel. In 1911, Murray made an application for the erection of a new hotel, to be built be either by the Government or himself.
The site on the corner of Cumberland Street and Gloucester Street was chosen. In 1912, Murray was granted a lease for the new hotel, operative as of 1 January 1913. On 8 May 1914 the Municipal Council approved the construction of a two storey hotel plus cellar and two shops adjoining (one in Cumberland Street and one in Gloucester Street)