Coronavirus worries the hotel industry as hundreds of new rooms set to open this year

Thursday, 30 January 2020

Hotel owners and operators are worried about the impact of the coronavirus on their business coming on top of the opening of hundreds of new hotel rooms in 2020.

The Chinese Government has suspended all overseas tour group travel to prevent the spread of the coronavirus.

About 1660 rooms in 13 hotels are expected to open their doors this year, and 1080 of those are in Auckland in seven hotels.

Scenic Hotel Group managing director Brendan Taylor said the hotel market would be over-supplied. Scenic is the largest locally-owned and operated hotel group in New Zealand with 17 hotels here.

The coronavirus was having a big impact on everybody in the hotel market, Taylor said. It was impacting Scenic's hotels in Fox Glacier and Haast and would have a big impact in March and April on their Queenstown business, he said.

The 195-room Park Hyatt in Auckland's Wynyard quarter is expected to open mid 2020.

* Three star hotels outperform posher lodgings as occupancy rates flatten

* Cancellations grow as Chinese travel restrictions over virus start to hit NZ tourism

* A $2 billion hotel construction boom is in full swing

Stephen Hamilton, managing director of tourism and leisure consultants Horwath HTL New Zealand, says an increasing number of hotels will be competing for a diminishing number of guests with the addition of hundreds of new rooms and a slowing tourism market.

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

Chinese visitors form a higher proportion of the guests at hotels in Rotorua and Queenstown, than in other major hotel markets, shown in a Colliers International Hotel Market Update 2019-20.

Taylor said the company was quite relieved the Chinese Government had made the decisions it had - to suspend all overseas tour group travel to prevent spread of the disease over Chinese New Year.

The most important issue for hoteliers was for New Zealand to keep the borders clear of the virus. If that could be achieved tourists from established markets would return faster and the Government and Tourism NZ could promote that.

Dean Humphries, Colliers International's national director of hotels, says feedback from hoteliers was the impact of Chinese tour groups not allowed to travel had not been significant so far but they were concerned about occupancy in February and March, usually big months for tourists.

Hoteliers reacted quickly when the market became challenging during the Sars outbreak keeping spending tight. When the market turned soft hoteliers tended not to invest in their properties until profits rebounded. Hoteliers had to ride the ups and downs of the hotel cycle.

'The hotel industry is a long term game. It's not a short term game,' Taylor said.

'Hopefully it will be a short-term blip and the world will get back to normal again, similar to after the Sars virus.'

Tourism and leisure industry consultant, Stephen Hamilton of Horwath HTL, said more than 1000 rooms to be added in Auckland in a year was an 'unprecedented' amount and it would be challenging to absorb that many.

Growth in the numbers of Chinese tourists to New Zealand had been slowing in the past two years so the coronavirus was impacting on top of a reasonably entrenched pattern of softening Chinese demand and at a time when a lot of hotel rooms would be opening.

'There will be an increasing number of hotel operators competing for a diminishing number of guests.' It could lead to falling occupancy this year and that might soften room rates.

The new hotels were at the upper-end of the market and hotel operators would have been hoping for premium rates. It was only the beginning of new hotel room supply and quite a number of projects were already well advanced. Hamilton said in the next five years the number of hotel rooms was expected to increase 50 per cent.

The 227-room Holiday Inn Express is expected to open in central Queenstown this year.

Domestic travellers, who were a bit more price sensitive, might breath a sigh of relief if hotel room rates softened, he said.

Colliers International's national director of hotels, Dean Humphries, said feedback from hoteliers was that the impact of Chinese tour groups not allowed to travel had not been significant so far, but they were concerned about occupancy in February and March, usually big months for tourists.

'It's quite a resilient industry and used to dealing with things that happen,' Humphries said.

Fortunately it was the peak season and vacancies were highly likely to be filled by other tourists. Most hotels in Rotorua, Queenstown and Auckland were running at peak occupancy at this time of the year.

It was very early days in the coronavirus story and he was not getting feedback of mass cancellations yet.

In Auckland the 1080 rooms expected to open in 2020 was not till the second half of the year and the number included SkyCity's 303-room Horizon Hotel, near the New Zealand International Convention Centre damaged by fire last year. It was unclear if the Horizon would open this year.

If demand did not grow at the same rate as new supply 'we will see occupancies fall' Humphries said. In the short term there might be 'a correction' as new supply opened.

But more hotels rooms were needed when they had increased only 1-2 per cent a year for some time while demand had been rising 8-10 per cent.

Chinese visitors were about 10 per cent of the inbound travellers to New Zealand, just in front of visitors from the United States at 9 per cent.

Colliers hotel market update 2019-2020 shows Chinese tourists were 6 per cent of hotel guests in Auckland in 2019, 17 per cent in Rotorua, 1 per cent in Wellington, 4 per cent in Christchurch and 11 per cent in Queenstown.

Last year about 1057 new hotel rooms in 11 hotels were added to the country's supply and were 'generally well absorbed', Colliers said, but the extra supply was making the market cautious about further development.

Other major hotel markets like Queenstown and Christchurch would also have an increase in rooms but not to the same extent as Auckland.

Hotels expected to open in Auckland in 2020 included the 154-room Travelodge Hotel, 150-room QT Auckland, 195-room Park Hyatt, 104-room The Hotel Britomart and the 96-room Mercure.

In Rotorua, the 130-room 5 star Pullman Hotel is expected to open early this year and later the 41-room Silver Oaks Resort would re-open.

In Queenstown, there were four hotels (466 rooms) under construction but only one hotel was due to open in 2020, the 227-room Holiday Inn Express on Stanley Street in the central area.

HOTEL SUPPLY

Auckland

10,400 rooms

Under construction 2656

Proposed 1795

Wellington

4156 rooms

Under construction 60

Proposed 285

Christchurch

2909 rooms

Under construction 222

Proposed 701

Queenstown

3573 rooms

Under construction 466

Proposed 1257

Rotorua

1864 rooms

under construction 196

Proposed 174

Source: Colliers International NZ