New report forecasts a shortfall of 26 hotels in next decade, above what's already being built

Tuesday 24th May 2016

An estimated 26 hotels above what is currently being planned and built will be needed over the next decade to meet expected tourism demand in New Zealand’s five major tourist centres, according to New Zealand Trade & Enterprise research released today.

The research is part of “Project Palace”, a programme aimed at speeding up new private sector investment in New Zealand hotels led by NZTE and the government’s Investment Attraction Taskforce.

The five centres - Auckland, Rotorua, Wellington, Christchurch and Queenstown, currently have just over 20,000 hotel rooms. The research suggests that by 2025, 5,171 additional rooms will be built, leaving a shortfall to predicted demand of 4,526 rooms – or 26 hotels the size of Auckland’s Sofitel Viaduct.

The biggest investment opportunities are in Auckland which has an estimated shortfall of up to 1,782 rooms and Queenstown, with an estimated shortfall of up to 1,421 rooms. Both have consistently had high occupancy rates of over 80 percent throughout the year and one of the main complaints by inbound tour operators at this year’s Trenz annual trade event for the tourism industry was a lack of available rooms in both places at peak times.

The Regional Hotel Market analysis and forecasting report found there was a current shortage of hotel rooms during high demand periods, particularly summer and autumn and when major events are on. The forecasts suggest demand for hotels will outstrip supply in the next ten years in all regions as occupancy rates continue to grow.

International visitors will be a major driver of hotel demand with growth in their numbers of 5.4 percent annually, particularly from China and Australia, and domestic demand by 2.5 percent a year to 2022. The latest international arrival statistics out today show the 3.27 million visitors for the year ended April 2016 was up 10.6 percent on the previous year.

The report says hotel owners have a positive growth outlook for the average daily rate (ADR) they can charge for rooms as a resulted of the limited new hotel supply and the new hotels were also likely to command a market premium. Queenstown ADR is predicted to grow most strongly over the next decade, from $168 in 2015 to $278 in 2025 while in Auckland it's likely to rise from $152 to $220 over the same period.

In Rotorua, where the mayor has called for government help in attracting investment in a new five-star hotel, room rates are expected to trend upwards but less than other main tourism regions because of the large tour and group visitors it attracts and an ageing hotel inventory. Annual ADR is projected to increase from $110 in 2015 to $139 by 2025.

The new Tourism 2025 update released this month highlighted the need for more infrastructure investment to ensure New Zealand has the facilities needed for sustainable tourism growth and to meet the industry’s targeted $41 billion revenue by 2025.

Tourism Industry Association chief executive Chris Roberts said the NZTE report identifies opportunities for new investors but also notes the danger of over-supply if too many hotels enter the market at the same time.

He points out Sydney’s hotel occupancy rate across the year is 88 percent and the average room rate $254 compared to Auckland’s occupancy rate ranging from the 70’s to 84 percent and the ADT still only $152.

“The ability to deliver additional hotels is heavily dependent on managing a number of constraints, including financial feasibility, site availability, resource and building costs, finance and timing delays,” he said.

At Trenz Roberts said the lack of year-round occupancy remains an issue for new investors and the government would have to start to be more imaginative in the way it attracted offshore investment in hotels with other countries offering things like periods of rates relief on designated sites or accelerated depreciation.

Government officials, the TIA, local government and the private sector are working together to identify available locations for additional hotels in each of the five locations and to attract new investment. The government has a target of attracting an extra $160 billion to $200 billion of capital in the next ten years and also to boost regional economies.

Historical preferences indicate demand for four-star and above quality hotels will be strongest in the next decade but the TIA’s Roberts said a range of accommodation will be required and the free independent travellers New Zealand is targeting are also keen on motels, providing they’re of the required standard.

Gary Paterson, director of the AOT Group, said some of the peak accommodation shortages in regional areas outside of the main tourist hotspots could be alleviated if our national chain of motels were given an upgrade.

BusinessDesk.co.nz

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