New Zealand can't afford to ease up on hotel development

Thursday, 10 May 2018

New Zealand cannot afford to ease up on new hotel builds, a real estate agent warns.

Nick Thompson, director of hotel and tourism at Bayleys, said thousands of new hotel rooms were set to come on stream within the next seven years.

Despite this, New Zealand was still at risk of being left behind by other 'tourist friendly countries', he said.

'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.

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'The boom in international arrivals has resulted in high occupancy rates and rising room prices, [which is] a good problem to have, but one that, if left unaddressed, could curb further growth in New Zealand's biggest export earner,' Thompson said.

Hotel accommodation was widely seen as crucial to growing the tourism economy, Thompson said.

'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.'

The biggest 'road block' to any new hotel development was the imbalance between construction costs and the value of the development, he said.

'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.'

The most significant players in the New Zealand accommodation market were international hotel developers, Thompson said.

'There is a long list of brands that want to be here or to expand their footprints here.

'The key to moving forward is finding the right site for the right developer and pairing them with the right operator.'

New Zealand Trade and Enterprise general manager of investment Dylan Lawrence said about 20 potential sites for hotel development had been identified by working with regional authorities and developers over the past two years.

To date, one site had been bought by international investors, while another three sites were in various stages of negotiation, he said.

Tourism Industry Aotearoa chief executive Chris Roberts said there had been 'quite a bit of movement' in the development market, and the outlook for the sector was more positive now than it was two years ago.

'Much of this is down to the financials stacking up.'

There needed to be a steady stream of developments, Roberts said.

'It can take a long time to approve a hotel and a long time to build one.

'The level of activity we're currently seeing needs to be maintained over the next 10 years, otherwise the sector will fall behind again.'

The sector still faced headwinds, such as rising construction and labour costs and increased competition for land, he said.

'It doesn't take much for a large-scale hotel project to become uneconomical.'