OPINION: ‘Don’t ease up on hotel development’

4:49 PM Friday May 11, 2018 True Commercial

An artist’s impression of the 300-room, five-star International Convention Centre hotel under construction in the Auckland CBD. Photo courtesy of Sky City. Photo / Supplied

New Zealand can’t afford to ease up on new hotel development, Nick Thompson, Bayleys director of hotels and tourism warns.

Thousands of more new hotel rooms are set to come on stream within the next seven years as a result of increased levels of hotel construction activity but New Zealand is still at risk of being left behind by other tourist friendly countries, Thompson says.

“There has been significant build activity in the country's main tourist centres, but the industry is still struggling to keep pace with New Zealand’s popularity as a tourism destination. Current inventory won't be able to cope with the number of visitors forecast,” he says.

“The boom in international arrivals has resulted in high occupancy rates and rising room prices — a good problem to have but one that, if left unaddressed, could curb further growth in New Zealand’s biggest export earner.”

International arrivals have grown 28.8 per cent between 2014 and 2017, hitting 3,734,000 in the year ending December 2017, and are forecast to hit 4.9m a year by 2023. Australia remains New Zealand’s largest tourism market, accounting for 39 per cent of arrivals, with China second, accounting for 11 per cent of arrivals.

The tourism industry’s goal is to increase its total annual revenue — $35.9 billion in 2017 — to $41b by 2025, and hotel accommodation is widely seen as critical to growing the tourism economy.

Thompson says while accommodation spend accounts for just 10 per cent of total visitor spend, the accommodation sector has a huge influence on the wider tourism economy.

“If the accommodation sector has a capacity constraint, then every other tourism-related business has a capacity constraint. If tourists can’t find accommodation, they’ll choose to spend their money in other markets.”

Two years ago, New Zealand Trade and Enterprise (NZTE) warned that Auckland, Rotorua, Wellington, Christchurch and Queenstown would need 4526 new hotel rooms, over above those already planned, to cope with projected visitor demand by 2025.

NZTE has since revised its shortfall forecast from 4526 rooms to 2390 for the main tourist centres.

Auckland is to get more than 500 rooms this year, about 1500 in 2019, and nearly 3000 rooms between 2020 and 2025.

The bulk of new rooms for Queenstown, Christchurch, Rotorua and Wellington — about 4000 — will come on stream between 2020 and 2025.

Thompson says new developments under construction include Accor’s 130-room SO Sofitel and the 300-room SkyCity Convention Centre Hotel, both in central Auckland, while those still on the drawing board stage include Christchurch Casino’s $85m, 4.5-star 200-room hotel The Peterborough and the $60m 227-room Holiday Inn Express in Queenstown.”

NZTE is reported to be working with regional authorities and developers to identify about 20 potential sites for new hotel infrastructure around New Zealand. It has also presented to groups of prospective investors, both domestic and overseas, and reports there is interest in a number of the opportunities.

“At this stage an international investor has purchased land in central Christchurch for a potential new hotel and is working through the development stages. There are about four further potential new hotel developments in various stages of negotiation across New Zealand,” NZTE says.

Tourism Minister Kelvin Davis is quoted as saying he is “hugely supportive” of the work NZTE is doing to encourage new hotel development.

“In terms of growing the sector, Government is focused on spreading visitors out so that businesses and communities around the country benefit. We want travellers exploring less-visited regions and coming at quieter times of year, as well as during the peak summer season,” he says.

“By smoothing out the peak season and encouraging a more even flow of international visitors, the industry can make better use of its capital, provide more stable employment opportunities; and investors will look more favourably on developing new infrastructure and amenities.”

Thompson says pressure to provide new stock has built to such a level that development activity is inevitable, with the market creating its own development pipeline and strengthening the existing one.

“The biggest road block is the imbalance between construction costs and the value of the development. As this imbalance improves and smart design is used, we are seeing increased activity, as evidenced by some of the prices that have been paid for Auckland CBD sites by hotel developers, who can now justify paying a little bit more than what they've been able to in the past,” he says.

“The most significant players in the New Zealand accommodation market right now are international hotel developers, with Bayleys selling two of the most significant development sites to come onto the market in recent years — on the corners of Wyndham and Albert Sts and Albert and Wolfe Sts in Auckland CBD — to international developers.

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Nick Thompson, Bayleys