Capital Markets: More room at the inn?

Construction is soon to start on the $200 million Park Hyatt on Auckland's waterfront.

New Zealand is filling up fast, as annual tourism growth has risen from 3-4 per cent to 10 per cent, reports Anne Gibson

New hotels worth hundreds of millions of dollars are desperately needed throughout New Zealand to solve our critical accommodation shortage.

Dean Humphries, Colliers International's national director of New Zealand and South Pacific hotels, said international and local investors would build that new stock.

"In the past 18 months the investment split has been close to 50/50," he says.

Just how many new hotels are needed will be revealed in the New Zealand Trade and Enterprise initiative, codenamed Project Palace.

NZTE is trying to sell hotel projects to investors in Asia, the Middle East, pockets of the United States and Europe,

Humphries says Auckland and Queenstown have critical supply shortages.

"Based on forecast unconstrained tourism demand, we will need a large number of new hotels in most of our main centres, most particularly Auckland and Queenstown.

"Government forecasts suggest increasing tourist numbers will continue as New Zealand is growing fast in popularity due to its safe environment, attractive exchange rate and many attractions.

In 2017 alone, we have the World Masters Games, Lions (rugby) tour and Rugby League World Cup.

"This means we are now on the global radar as one of the most attractive places for hotel investment in the Asia-Pacific region," says Humphries.

Further excitement was generated last month when it was announced 10,000 Chinese Amway agents would come in groups of about 500 to Queenstown in the shoulder seasons of around 2017/18.

Humphries says the big tourism upswing has taken operators by surprise.

"We have gone from annual growth of 3 to 4 per cent to in excess of 10 per cent. Conversely, over the same period we have had virtually no new hotel rooms built, so New Zealand is filling up fast. In the past 12 months we have seen an additional 320,000 international visitors come to New Zealand. This is nearly the size of the city of Christchurch. In 2012, we had 2.5 million international tourists and in the year ending March 2016, we had 3.216 million.

"This is an increase of more than 700,000 new visitors in the past three years," Humphries says. "I believe it caught everyone in the industry by surprise."

"There is no silver bullet. However, Project Palace is a key initiative by a number of Government departments to assist with the critical shortfall in hotel rooms.

"We also need a wide range of other initiatives from the public and private sectors," he says.

This means we are now on the global radar as one of the most attractive places for hotel investment in the Asia-Pacific region.

Dean Humphries

Humphries' latest report on the sector found the surge in visitors has translated into record occupancy levels with the majority of key markets operating at or near full capacity during the peak summer period.

"Record occupancy levels have created highly favourable conditions for hoteliers to aggressively drive room rates, which has resulted in double digit or close to double digit average daily rate growth in the majority of our centres led by Queenstown, up 19.5 per cent in the March 2016 year, Auckland up 9.6 per cent and Rotorua up 13.1 per cent," his report showed.

"Buoyant trading conditions have contributed to increased property values with strong level of investment activities recorded in 2015 -- 11 sales totalling over $300 million.

"In the March 2016 year, five hotels had been sold for $114 million.

"Despite positive trading conditions, new supply anticipated to come online in main centres in the short term remains low," Humphries says.