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New Zealand’s development boom

Winter scene in the snow, Queenstown. New Zealand.

By Terry Ngan, Horwath HTL New Zealand Director and NZHIC organiser

In Auckland, Wellington and Christchurch there are plans for new hotels – and in some cases construction has commenced – a good sign of long term investor confidence in the New Zealand tourism industry according to latest market research by specialist hotel and tourism consulting firm Horwath HTL Ltd.

And so it should be, with Central Government recently announcing an additional $NZ158 million over 4 years funding of tourism infrastructure. The Prime Minister and Tourism Minister John Key’s announcement, mostly for destination marketing by Tourism NZ, is designed to grow business events including conferences, high value luxury tourists, emerging markets such as China and New Zealand’s traditional inbound markets (whose growth has stagnated in recent years). A new Tourism Growth Partnership is to be set up with Government contributing up to 50% to each new business innovation initiative.

The New Zealand Government also signalled plans for extended visitor visas for Chinese tourists and 3 year multiple business visas. China is now the second largest overseas market for New Zealand with 200,000 visitors in the last 12 months ending 31 March 2013, up 30% on 2011 – 2012. China’s GDP is forecast to grow 6% to 8% per annum in the next 5 years, continuing the trend of increasing personal incomes and significant outbound travel growth.

The New Zealand Government’s initiatives, in conjunction with domestic marketing, will provide a sound basis for visitor growth, increased hotel occupancies and hopefully upward room rates in the next 3 – 5 years.

The current new wave of hotel investment generally does not include strata title hotels and serviced apartments, which was a key source of new hotel supply developed prior to the Global Financial Crisis beginning in 2008. Most of the new hotel supply is from the conversion of office buildings, a trend which could continue in the short to medium term as long as development costs remain lower than new build costs.

It is pleasing to see five new hotel development and expansion plans emerging in Christchurch, in conjunction with the re-opening of 8 hotels in 2012 – 2013 which were damaged in the devastating earthquake in February 2011 and currently undergoing repair

Christchurch hotel supply by the end of 2013 is forecast to be 1,535 rooms or 40% of the level just prior to the 2011 earthquake. The eagerly awaited new convention centre, with two adjoining hotels, is at the stage of development of a business plan for Central Government’s consideration and shortlisting of 5 consortia following an EOI in late 2012.

Auckland is the largest city and economic hub in New Zealand contributing 36% of the country’s GDP and its population of 1.4 million is 33% of the country’s total. In Auckland 4 new hotels comprising 570 rooms are being planned, 3 of which are conversions of office buildings with work underway.

This new supply has been driven by the rise in average annual occupancy for major hotels ie: members of the Tourism Industry Association New Zealand (TIA) in the last 3 years which has risen to 76% for the 12 months ending 31 March 2013, the highest level since 2004, led by above average occupancy in 4.5-5 star hotels.

5-star hotels have been the star performer in Auckland for the last three years, with 2012 – 2013 occupancy in line with the market average and room rate of $183, up $32 or 21% on the level 10 years ago of $151. This contrasts with 4.5 star hotels whose room rate in 2012- 2013 was $131, the same level as 10 years ago. The key opportunities for Auckland hotels include increasing 4.5 star room rates and growing the upper market visitor market as they are prepared to pay higher value room rates.

Auckland hotel performance

Auckland hotel performance

Waterfront Auckland’s Request for Expressions of Interest for mixed use investment opportunities in the Wynyard Quarter (which closes 14 May 2013) includes a 5 star 220 – 270 key hotel opposite the Viaduct Events Centre. The hotel is being planned to open in 2017 when the NZ International Convention Centre proposed for Auckland – hosting at least 3,500 delegates – could also open.

Central Government is negotiating with SkyCity to fund and build the venue at a cost of $NZ350 million, which is eagerly awaited by Auckland hotels to help improve occupancies in the low winter and shoulder seasons.

Work has begun on the conversion of the Reserve Bank building on Customs Street owned by CP Group (opposite Britomat) into a “5 star plus” 130 room hotel opening in 2014, which could set a new standard for upper scale hotels in Auckland as the Hilton Auckland did when it opened 10 years ago.

This has followed in 2012 the re-opening of the 172 room luxury Sofitel Auckland Viaduct Harbour.
Other hotels planned for Auckland include a midscale 100 room hotel conversion behind the ANZ Centre on Albert Street for which consent has been issued and work started, and also a 90 midscale serviced apartment hotel converted from an office building on upper Queens Street to be leased to VR Group.

Rotorua plays an Important role in providing authentic Maori cultural experiences and unique geothermal activities (geysers, mud pools and thermal springs) to international visitors.

No new hotels are currently planned for Rotorua which is good news for the hotel industry as average hotel room occupancy for TIA member hotels of 66% for the year ending 31 March 2013 was 7 occupancy points below that 10 years ago and average room rate of $102 excluding GST was at its lowest level for the same period.

This trend is underpinned by the market segment mix of Rotorua hotels – group tours comprise up to 50% of hotel room nights sold in Rotorua, much higher than in major city destinations and also resorts (like Queenstown up to 38%) and the low proportion of corporate business in Rotorua (4%).

Wellington’s hotel market wide occupancy of 73% and $141 has remained relatively steady for the last 10 years, due its status as the capital city of New Zealand and despite three strata title hotel openings in the last 10 years.

However, that may be about to change with a new 130 room 5-star Sofitel opening in 2014 near Parliament which is under construction, and also the completion of a full refurbishment of guest rooms and public areas at the centrally located InterContinental Wellington in late 2014 / early 2015.

Wellington hotel performance

Wellington hotel performance

Bill Edwards, IHG’s Director of Operations for Australasia said: “Wellington is a key city destination and an important part of our network of InterContinental Hotels and Resorts. We’re delighted the owner of the InterContinental Wellington is undertaking the refurbishment as this will ensure it remains one of the top hotels in New Zealand and a great example of our global brand.”

The Christchurch hotel industry is now firmly in a building recovery mode with the high market wide occupancy and room rate, and slower than forecasted re-opening of damaged hotels and reinvestment of demolished hotels, driving the beginning of new hotel investment.

The 24 new hotel rooms at the Copthorne Commodore, rebuild of the 124 room Latimer hotel and an additional 42 rooms at the Sudima Christchurch Airport are examples of positive investor confidence in Christchurch hotels.
Another example is the good progress being made with planning for the replacement of the demolished 176 room Grand Chancellor hotel with a smaller hotel – which all going well will open in late 2015.

A consented 4-5 star 60 room hotel (with additional 60 rooms being applied for) is being developed at Clearwater Resort, Canterbury’s premium lifestyle resort with lake and international golf course, near Christchurch Airport. An operator and investor search is currently being undertaken for the hotel which is planned to be open in late 2014.

There is still uncertainty as to the extent of work required and time frame to repair the Rydges, Heritage, Millennium, and both All Seasons hotels.

Christchurch’s 8 major hotels comprising rooms 935 rooms (including 5 hotels with 504 rooms in the central and wider CBD) have achieved average occupancy of 82% and $155 excluding GST in the year ending 31 March 2013. These hotels will be joined by 7 hotels (with 600 rooms) re-opening during 2013. This will bring the total hotel supply in Christchurch to 15 hotels (1,535 rooms) by the end of 2003, 40% of the 3,983 major hotel rooms supply (26 hotels) just prior to February 2011.

Expressions of interest have been received by CERA (Canterbury Earthquake Recovery Authority) to develop the proposed new 2,000 delegate Christchurch Convention Centre (planned to open by 2017) and 2 adjacent hotels. 5 international and New Zealand consortia have been shortlisted with a business case to Central Government being developed by CERA.

Building specifications to a higher standard of earthquake protection and upgrade of the New Zealand building code have resulted in higher construction costs in Christchurch.

New Zealand’s “jewel in the crown” resort destination is in the process of absorbing the 178 room Hilton and 98 room Kawarau hotels at Kawarau Village which opened in early 2011 and the 42 apartment Hilton Lakeside Residences in early 2013. This precinct added 23% to the Queenstown 4.5-5 star hotel room supply.

Despite this new supply, 2012-2013 market wide occupancy of 65% was the same as 4 years ago in 2008-2009 due to significant domestic and overseas visitor growth and, increased air capacity. Average room rate rose by 6% in the same period and 24% in the past 10 years, the strongest growth of all main visitor destinations in New Zealand.

Queenstown Hotel Performance

Queenstown hotel performance

No major new hotels or serviced apartments are under construction or confirmed for Queenstown, allowing absorption of recent new supply. In this regard, the proposed $50 million convention centre for Queenstown catering up to 1,000 delegates, for which a preferred consortium (led by Ngai Tahu Property and Morrison and Co) and site has been selected in February 2013 following a contestable process by Council in 2012-2013, could greatly assist the hotel industry.

A 28 storey $100 million luxury hotel has been announced for the Dunedin waterfront by a Chinese developer and is currently in resource consent stage.

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