Hotels are bracing for tougher times as new hotels open and international visitor growth levels off

Wednesday, 4 September 2019

An artist's illustration of the Te Arikinui Pullman Auckland Airport Hotel which will be 5-star and offer 311 rooms. Construction began in August.

Hotels are bracing for more difficult trading as the growth in international visitor numbers levels off and hundreds of new rooms hit the market in the next few years.

Managing director of the largest local hotel group, Scenic Hotel Group, Brendan Taylor said overseas markets were looking softer at the beginning of the season but holding up into the high season and the tail of the season.

He expected the Chinese market to decline further on last season.

Occupancy rates have fallen to 81 per cent in Queenstown but average daily room rates have risen to $250 in the year to June 2019. Pictured, the lobby of QT Hotel in Queenstown.

'We are seeing a decline in the domestic markets due mainly to the decline in the economy and people tightening their belts.

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Sudima Hotel's $40m Christchurch boutique hotel recently opened in central Christchurch.

'We are expecting our competitors to start reducing rates in Auckland and Christchurch and to a lessor extent in Queenstown, and to an extent this has already happened.'

Christchurch was suffering due to the oversupply of rooms, with the winter months already showing dropping occupancies as well as room rates, Taylor said. Auckland was showing similar trends this winter as well.

'The future is looking like we are going back to difficult trading patterns, with still a lot of new rooms coming on line,' Taylor said.

Sudima Hotel chain founder and chief executive Sudesh Jhunjhnuwala is hoping new convention centres in Auckland and Christchurch will bring more tourists, international and domestic, to fill up a lot of new hotel rooms.

Real estate firm CBRE said in a new report on the hotel industry, Marketview, H1 2019, that falling international visitors in the year to June, though rising domestic tourists, had brought mixed fortunes for hotels in

New Zealand's top tourism spots.

In Queenstown, Rotorua and Wellington average daily room rates had risen in the year to June 2019 while in Auckland they had decreased and slightly also in Christchurch.

Queenstown remained the most expensive holiday destination with an average daily room rate of $250, up from about $240 a year ago, while Auckland had fallen 5 per cent to an average daily rate of $200. Queenstown had the highest average daily rate in Australasia.

In Wellington the average daily rate had risen 3.3 per cent to $180 while in Christchurch it has eased to just under $160, much the same since 2013. Rotorua's average rate rose to $141 despite falling international tourists numbers in the past year.

CBRE said the fall in the average daily rate in Auckland was due to new hotel beds coming on stream. With more new hotels opening and the number of hotel rooms growing faster than the number of tourists the decline in Auckland occupancy rates was set to continue in the short term.

Tourism and hotel consultants Horwath warned in June that the hotel industry was facing an uncertain 2019 and beyond as more than 3000 new hotel rooms hit the market in the next two years.

Sudima Hotel chain founder and chief executive Sudesh Jhunjhnuwala said Auckland and Christchurch markets had definitely flattened because of new hotel rooms opening, in Auckland a lot more than Christchurch.

'Until we get the convention centres going in both Auckland and Christchurch I don't see any reason for demand to increase.

'Luckily for Christchurch there aren't that many new rooms being talked about but Auckland there is definitely about 4000 new rooms coming so that's definitely going to put a lot of pressure on the room rate and the occupancy.'

Artist's illustration of the new Oaks Wellington Hotel on Courtenay Place opening in October 2019.

Auckland was expecting 4000 new rooms over the next four to five years and they were already under construction.

Jhunjhnuwala said hotels would need more guests, not only international but also domestic, to meet the challenge of a lot more room supply and hopefully the conventions centres would help drive more visitor numbers.

'At present the valuers are discouraging people and banks are not really encouraging developers to build new hotels.'

Sudima was about a year away from opening its new 194-roomn, 4.5 star central Auckland hotel across the road from the new convention centre. 'We are looking at July next year for opening.'

Queenstown and Wellington were short of hotel rooms but the cost of land and building in Queenstown was higher because of its location and in Wellington land was in short supply and seismic issues drove up the cost of construction, he said.

In Auckland big hotels like the 195-room Park Hyatt are expected to open this year and the 300-room Horizon Hotel next year.

In Christchurch the 80-room Ardern Hotel and The Novotel Christchurch Airport are expected to open this year.

CBRE hotel report, H1 2019

. The national average hotel occupancy rate fell to 79.7 per cent in the year to June 2019, almost 1 per cent down on the previous year.

. Auckland's hotel occupancy rate fell to 82 per cent from 84.5 per cent in 2018 and 87 per cent in 2017.

. Queenstown hotel occupancy eased to 81 per cent from 83 per cent.

. Wellington hotel occupancy rates edged up to 80 per cent.

. In Christchurch, despite an 11 per cent increase in hotel beds in 2018 and another 3.6 per cent increase in the first half of 2019, occupancy rates held at 77.6 per cent.

. Rotorua hotel occupancy, at 79 per cent, is likely to fall after the opening of the 130-room Pullman Rotorua by the end of 2019.