Queenstown market runs red hot - but at a price

5:47 PM Wednesday June 1, 2016 Colin Taylor

The downside to Queenstown’s growth is increasing land and construction costs and competition for housing

Queenstown is experiencing an unprecedented real estate boom supported by significant expansion of the commercial and residential construction sector, says Colliers International’s 2016 Queenstown Property Market Review and Outlook report.

“The already red-hot Queenstown property market is approaching historic highs but we expect expansion to continue for the foreseeable future due to strong fundamentals underpinning the current bull market,” says John Scobie, Colliers Queenstown’s valuation director.

“We anticipate Queenstown property market’s growth and expansion to continue for the next two to three years, boosted by very strong tourism and net migration trends, low interest rates, ongoing supply constraints and residential rental growth driving investor returns.”

Scobie says Queenstown is traditionally a volatile real estate market of peaks and troughs. “The town has significantly matured with a growing permanent population, often driven by a lifestyle choice and supported good employment opportunities, fundamentally underpinned by a strong tourism dynamic growing businesses and support industries.

“However this success comes at a price and there remains a supply and demand imbalance in the residential sector, driving up residential rentals for long term accommodation, and the value of real estate to new highs.

“The downside to growth is increasing land and construction costs while competition for housing is pricing many people out of the market, leading to the well-documented housing crisis.”

Scobie says visitor accommodation is at a premium in the town as existing hotel, motel and budget accommodation struggles to accommodate the growing visitor numbers. Peak months are now at 100 per cent occupancy, with the shoulder seasons also seeing increased occupancy levels. Private owners are making houses and apartments available for short stay accommodation through services such as Airbnb.

Visitor accommodation tariffs are increasing significantly on the back of demand, with backpacker bed rates lifting by more than 20 per cent per night over the past 12 months, and long term workers competing for beds in some hostels.

“Queenstown is in desperate need of new visitor accommodation supply in the form of hotel and motel rooms,” says Scobie. “The Ramada Hotel in Remarkables Park is nearing completion bringing 59 furnished units containing 74 beds to the market. But with an estimated additional 300 new rooms needed annually to meet projected growing demand, the current response is well short of market demand.”

A number of sites suitable for hotel development have been purchased over the past two years, with others under contract, and Colliers expects to see new hotels being built in the medium term, on the back of such strong demand.

Colliers’ Queenstown Property Market Review and Outlook report says further expansion in the Queenstown property market will be based on investor confidence and speculative activity, due to the rapidly growing tourism sector and growth in rental returns

“Around $400 million of commercial and residential construction projects are underway in Queenstown, with further increases in construction forecast over the next two to three years. This is assisting local economic growth and creating jobs, further increasing the residential daily population.”

Annual visitor guest nights hit 3.3 million in 2015, representing 29 per cent growth since 2010. Two thirds of guest nights are made up of international visitors, among which the biggest spenders are Australians, Chinese and Americans. Total visitor spend in Queenstown was $1.7 billion in 2015, up 17 per cent on 2014.

“The rapid pace of tourism growth is giving developers the confidence to press ahead with key commercial and residential projects. It is also creating higher and higher demand for property as more people move to the town for employment, and investors scramble to buy property,” Scobie says.

“With accommodation and infrastructure in Queenstown bursting at the seams, questions need to be answered around how many tourists are too many? There is a critical balance between attracting more and more tourists and residents, and making sure our infrastructure and accessibility can cope with this unprecedented growth.”

Scobie says the Queenstown property market is likely to continue to climb over the short to medium term, unless there is a major unforeseen market shock.