Checking in on the hotel sector

With New Zealand’s tourism star continuing to rise on the global stage, and the three million visitors a year milestone having been reached recently, the squeeze is coming on the hotel accommodation sector to keep pace.

In Bayleys’ latest edition of Total Property magazine, the challenges for New Zealand’s hotel sector are examined, with industry commentators putting the growing tourism numbers into perspective. 

Bayleys’ national director commercial real estate, John Church says having a vibrant, relevant and customer-centric hotel sector will ensure New Zealand cities can leverage off the consumer dollars that will filter into the economy as this country’s tourism credentials gain more momentum.

“Infometrics senior economist Benje Patterson said recently that the tourism sector looks set to overtake dairy by the September quarter as New Zealand’s biggest earner of export dollars, which is encouraging for accommodation providers and the cities they are anchored in,” says Mr Church.

“However, our agency business along with tourism and hotel industry spokespeople have identified significant chasms in the hotel room supply chain with a game of ‘catch up’ underway.”

Mr Church says the shortage of good-quality hotels in good locations is proving frustrating for cashed-up investors.

“Feedback received by Bayleys from offshore investors confirms that New Zealand needs more premium hotel stock.”

He says that, with some major international chains not yet represented in New Zealand and a shortage of hotel capacity in key destinations such as Auckland and Queenstown at peak times like Chinese New Year, there are some compelling opportunities for potential investors in the hotel sector.

Tourism Industry Association of New Zealand (TIA) hotel sector manager Sally Attfield says the association is seeing increased levels of reinvestment and investment in hotel stock around the country as the result of upward trends in visitor numbers to New Zealand.

“A number of hotels have been refurbished – like the recently-completed InterContinental in Wellington and the Sudima Christchurch Airport Hotel,” explains Ms Attfield.

“All Mercure properties are being refurbished and the Copthorne Hotel Auckland Harbour City has closed for major refurbishments.

“In addition to this, investor interest in hotel developments – existing and new – around the country is higher than we have seen for quite some time, with many large international brands looking to expand their New Zealand presence and others looking to enter the market.”

Campbell Consulting hotel and tourism strategist Gordon Campbell says there are numerous gaps in this country’s hotel sector that need plugging to heighten New Zealand’s appeal on the global tourism stage both in geographical terms and in the quality of offerings.

“Christchurch needs more 3.5 to 4-star hotels to accommodate future tourism and corporate market demand and, if the city’s convention centre proceeds, more hotels will definitely be required,” says Mr Campbell.

“There is also a need for hotels at the more affordable and accessible end of the scale in unique destinations such as Waitomo in the King Country, which needs a budget 3-star hotel.”

Mr Campbell says Auckland certainly needs additional major new hotels and stresses that most hotel chains/brands are not interested in acquiring physical property in New Zealand but rather rely on securing hotel management contracts for investors.

“The proposed 190-room Park Hyatt at Wynyard Central west of the CBD will be attractive to tourists and the corporate market,” says Mr Campbell.

“However, another major hotel offering up to 250-300 rooms is required to futureproof Auckland’s tourism growth – and that is in addition to the new 5-star, 300-room hotel planned for the New Zealand International Convention Centre (NZICC) at SkyCity in the CBD. 

“Two smaller hotels each of around 125-150 rooms will also be needed for expected corporate market growth.”

Auckland Tourism, Events and Economic Development (ATEED) tourism manager Jason Hill says there is compelling data underpinning necessary growth in Auckland’s hotel sector.

“Just over one million international visitors arrived in Auckland in the last six months, up 9% on the same period last year,” Mr Hill says. 

Based on the Auckland Visitor Plan 2021 forecasts, Auckland will need up to 3400 new hotel rooms in the next six years if it is to hit the aspirational high growth targets outlined in the report – equivalent to 1.44 new 275-room hotels each year.

Positively Wellington Tourism’s chief executive, David Perks, says latest data showing Wellington hotels had the second-highest annual occupancy rate in the country in the June financial year at 75.85% suggests there is potentially room in the region for additional capacity. 

 “We’re certainly in favour of investment in Wellington’s tourism sector, including appropriate hotel development,” he says.

Hotel consulting company Horwath HTL’s director, Stephen Hamilton, says there is currently strong offshore interest in investing in New Zealand hotels, especially in Auckland, but the pickings are slim.  

“Investors generally prefer to buy existing hotels with demonstrated cashflows – especially if the hotels are selling at a discount to replacement cost – rather than to invest in new hotels which are usually seen as being more risky,” says Mr Hamilton. 

<Read the full article Room Service in Bayleys’ latest Total Property magazine>

Jody Robb writes for Bayleys Real Estate