Hotel oversupply looming warns Horwath

Monday, 17 September 2018

24 hotels are in the pipeline for Auckland, amid fears it's too many

Some real estate agencies have been warning of 'critical' hotel room shortages, but Wim Ruepert of the Horwath HTL consultancy says there may be too many.

Ruepert said we can expect the same reports of shortages as the high summer season approaches with familiar calls for more hotels and acceleration of projects in Auckland.

For example, Colliers International expert Dean Humphries has highlighted the 'shortage' or rooms as a threat to the tourism boom.

This is what the 300-room, 5-star hotel at the International Convention Centre in Auckland will look like.

However, Ruepert said he was looking at the sector from the interests of investors and operators running an accommodation property.

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Queenstown hotels have more regular occupancies because of the number of visitors dropping in year-round.

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'We look at the perspective of when a hotel is opened, what makes a sustainable market that provides a return? Returns have been falling.'

There was no room for wishful thinking by developers assuming annual occupancy levels over the next decade would continue above 80 per cent, he said.

'There may be a need for more rooms during the high season or when there are special events like the Rugby World Cup. Auckland hotels are full in the summer but when you look at April through to August the occupancy drops significantly.'

Ruepert had identified 41 hotels in planning stages opening over the next five years with a total of 6500 rooms - an increase of 89 per cent of the current major hotel supply in Auckland.

Twelve were under construction, totalling 1800 rooms, increasing supply by 24 per cent.

'If we assume that only projects which have been announced will proceed, supply is expected to increase by 24 hotels, or 3900 rooms over the next five years.

'Such an increase of just over 50 per cent of existing major hotel supply would trouble most hotel investors in any city.

'If you're going to drop 3000 to 4000 new rooms onto the market it's going to affect returns.'

Auckland Tourism, Events and Economic Development did a great job creating events during winter but it couldn't necessarily provide sufficient patronage during the colder, bleaker winter months, he said.

Queenstown was in another category altogether because of its position as New Zealand's premier winter getaway ski area.

There were some low points during May and September in Queenstown but it generally had steadier occupancy throughout the year, Ruepert said.

'I'm not overly concerned about Queenstown because building is slower due to higher costs.'

For the eight months to August, the return per available room for the major Auckland hotels declined by 4 per cent compared with the same previous period.

The main factors were the absence of major events like the British and Irish rugby tour, and opening of more than 600 hotel rooms, equating to 9 per cent over the period.

Auckland hotel occupancy rates of 82.6 per cent might seem high, but were the lowest since 2014, and could slip, Ruepert said.

Auckland's new convention centre will generate considerable demand, but not nearly enough to absorb 3900 additional hotel rooms, he said.

To achieve average annual occupancy of 75 per cent the new hotels would need to sell 1.1 million room nights per year.

By comparison, the Ministry of Business Innovation and Employment projected increase in international visitor arrivals to the entire country over the next five years is just over 1 million, or 728,000 when excluding people visiting friends and family, Ruepert said.

Hotel managers needed to maximise rates during peak seasons and avoid excessive discounting at other times, he said.