A $2 billion hotel construction boom is in full swing

Thursday, 24 October 2019

The biggest hotel construction period in New Zealand is in full swing with about $2 billion of construction completed and underway.

The opening date of SkyCity's Horizon Hotel is up in the air following the huge convention centre fire.

In the past 12 months just over 1000 new hotel rooms have opened with 440 of them in Auckland, 380 in Wellington, 170 in Queenstown and 86 in Christchurch, a Colliers report said.

Another 3900 are under construction, two thirds in Auckland, the Colliers report said. That includes the 300-room Horizon Hotel, being built alongside the under-construction New Zealand International Convention Centre for SkyCity. The hotel's opening date is up in the air following the huge fire at the convention centre.

SkyCity said this week there would be a 'further material delay' to the completion dates for the convention centre and adjoining Horizon Hotel.

The 226-room Oaks Wellington Hotel in Courtenay Place, the capital's entertainment precinct, has recently opened.

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Sudima opened an 86-room boutique hotel in Christchurch's city centre mid 2019.

Colliers International hotels specialist Dean Humphries said new construction had started in the past 18 months after 10-15 years of an investment drought in the hotel sector. The tourism boom of 2013 to 2017 was the catalyst for the investment surge.

'We certainly need new rooms. International visitors demand that. '

Much of the country's hotel stock was dated with many built in the late 1960s and early 1970s.

He puts the building cost per hotel room conservatively at about $400,000 on average but some would be much higher. The Park Hyatt in Auckland had been rumoured to cost more than $1 million a room to build but other hotels were closer to $300,000 to $350,000 a room depending on what star-grading was targeted.

International visitors expect quality hotels, Colliers International hotel specialist Dean Humphries says.

'It's great news for the industry and it's a massive amount of money being invested by the private sector.'

Existing hotels were also being updated and refurbished because times were better and owners were able to reinvest in their hotels. One of those was the former Copthorne Hotel on the Auckland waterfront that had been gutted and retrofitted.

'Lots of hotels are being repositioned and refurbished like the Grand Mercure in Wellington.'

There was also a big pipeline of projects that had been announced but construction had not started particularly in places like Queenstown.

'For the region that probably needed it most outside of Auckland, it's been quite disappointing how many hotels have actually commenced construction.'

However, it was expensive to build in Queenstown and securing consents was challenging.

Humphries said he had been in the industry for thirty years and the last wave of development was in the late 1980s and early 1990s 'but that was nothing like this'.

'This is the biggest cycle we've seen.'

International visitor numbers - the main driver- had soared in the past 20 years from about 2.4 million to nearly 3.9 million in the year to July 2019. With demand outstripping supply and occupancy rates soaring the industry earned some bad press over high room rates in 2017.

The new hotel stock would address that.

'At the end of the day platforms like Airbnb have had to soak up a lot of that demand. If we didn't have them we wouldn't have actually had the people in. Now hopefully the hotels are fighting back and they are going to get some territory back and market share back.'

The opening of the 195-room Park Hyatt on Auckland's waterfront has been delayed until March 2020.

Few, if any of the hotel projects, are talking about building sustainably to achieve Green Star certification.

'I think they would love to but the cost to build hotels is so high that most of the new developments at best are marginal. There is very little profit at all in these developments so to add layers would probably make it cost prohibitive,' Humphries said.

But hotels were getting rid of plastic products and consumables and implementing operational efficiencies through more energy-efficient lighting and heating.

'The whole green side of course adds another whole layer of cost which would make hotel development cost prohibitive at the moment.'

New Zealand hotel investment though was much smaller than what was taking place in Australia, Asia and in many parts of the world.

'The whole world is undergoing a phenomenal increase in hotel inventory but that's because global travelling numbers are growing every year by about 200 million people. '

Last year about 1.7 billion people travelled around the world and New Zealand hosted a tiny proportion of them. Even domestic travel was growing with more and more people travelling for leisure and business, Humphries said.

Hotel openings and those under construction

Auckland

The 131-room Ramada on Frankton Road, central Queenstown, opened this year.

In the first nine months of 2019 about 200 rooms had been completed in Auckland and some of these were extensions to hotels or small hotels that had been completed. The Hilton Hotel had added 21 rooms on the top floor and The Quest Hotel at Highbrook Business Park 58 roomss, doubling capacity, Colliers said.

Two new hotels were the Ramada Manukau with 85 rooms and the Ramada in Victoria Street with 48 rooms.

In total about 2640 rooms were under construction in Auckland and 1080 of them in seven hotels were scheduled to open in 2020.

Rotorua

The 160-room, five-star Pullman Hotel, was soon to be completed and was expected to open early 2020.

Wellington

The 134-room Rydges Wellington Airport hotel opened this year and the Oaks Wellington Hotel in Courtenay Place with 226 rooms opened a few weeks ago.

Planned for the capital and scheduled to open later in 2020 was a Ramada Wellington to consist of 93 hotel apartments and 24 residential units.

Christchurch

The boutique Sudima Hotel with 86 rooms opened mid year in the central city. The Novotel at Christchurch Airport with 200 rooms is scheduled to open in late 2019.

Planned are smaller hotels - a 48-room hotel in Colombo Street in the CBD and a 71-room boutique hotel in Victoria Street in the central city.

Queenstown

The Ramada Hotel in Frankton Road with 131 rooms opened in 2019 and also a 40-apartment hotel at Nugget Point, Colliers said.

Opposite the Ramada in Frankton Road a Holiday Inn Express with 227 rooms was expected to open in the first quarter of 2020.

Earthworks for Ramada Kawarau River Hotel and Suites had started. It would have 87 hotel suites and 97 residential apartments and was scheduled to open in 2022.

Auckland 2020

Scheduled to open in Auckland in 2020 were the 195-room Park Hyatt on the waterfront, as well as the Travelodge in the Wynyard Quarter with 154 rooms, the boutique 104-room Hotel Britomart about mid-year and the 150-room QT Auckland in the Viaduct.

The 300-room Horizon Hotel, being built alongside the New Zealand International Convention Centre development, had been scheduled to open in 2020 but its opening date was unclear following the convention centre fire.

The former Waldorf Stadium Hotel, sold last year and renamed the Nesuto Stadium Hotel, was adding 78 rooms to be completed probably in the second half of 2020, Colliers said.

The new Mercure Hotel in Queen Street with 96 rooms was scheduled to open towards the end of 2020.

Auckland 2021

The Cordis Hotel, formerly The Langham Auckland, was building a new tower of 250 rooms and would be the biggest hotel in New Zealand with 659 rooms when the tower was completed, Colliers said.

The new 194-room Sudima Hotel in the central city opposite the convention centre was due to open in 2021, as was the DoubleTree by Hilton with 120 rooms being built in south Auckland at Karaka.

Auckland Airport was planning to open a 144-room hotel from the conversion of an office building there, while a Ramada Hotel of 63 hotel rooms opposite the new Westfield Newmarket centre was also scheduled to open in 2021.

Auckland 2022

Te Arikinui Pullman Auckland Airport Hotel with 311 rooms is being developed by Auckland Airport and Tainui Group Holdings for a scheduled opening in early 2022.

The other major hotels under construction in Auckland were the Holiday Inn Express and the EVEN Hotel which together would have 490 rooms. The 37-level building would have the Holiday Inn Express on the lower floors and EVEN hotel on the upper ones and was scheduled for a 2022 opening.