Possibility of a new Whanganui hotel hampered by profit projections and construction costs

The Collegiate Motor Inn and its 60 rooms were purchased by the council's holdings company in 2020 to home New Zealand International Commercial Pilot Academy (NZICPA) students. Photo / Bevan Conley

The ability of a new Whanganui hotel to make a healthy return on investment has been cited as one reason for slow progress in attracting a developer to the city.

Whanganui & Partners chief executive Hannah Middleton said work was ongoing to attract a new hotel development to Whanganui - and the agency has been working alongside two real estate agents - but there had been limited interest so far.

“Unfortunately, what comes out is the return on investment is slow,” Middleton said.

“You’re looking at someone who is willing to invest for more reasons than just a cash return or a quick ROI [return on investment].”

Construction cost was one factor, along with sites of interest being listed as heritage sites.

“From a development point of view, that is something we’ll have to address as a district,” Middleton said.

A report commissioned by Whanganui & Partners last year concluded a four-star full-service hotel of 60 rooms was the optimal development for the city.

It said there had been a loss of approximately 150 rooms in Whanganui over the previous 10-15 years.

The most significant was the 60 rooms at Quality Inn Collegiate.

Councillor Charlie Anderson said Masterton had two hotels “side-by-side”.

“I don’t know how that works, but I would have thought some of these big chains would be looking at expanding,” Anderson said.

When quantity survey work was completed by a potential investor, it showed yield in Whanganui was too low to meet “hurdle rates”, Whanganui & Partners board chairman Pahia Turia said.

A hurdle rate is the minimum rate of return required on a project or investment.

Turia said that was likely to be the problem for any investor.

Deputy Mayor Helen Craig says the lack of a new hotel in Whanganui means events, conferences and the restaurant sector can’t grow. Photo / Bevan Conley

“I know there have been conversations around how we might be able to incentivise a developer to come here and build a hotel, and I’d really like to explore that when we have a workshop with the council.”

Whoever did take on the development needed to have a vested interest in Whanganui, Turia said.

Mayor Andrew Tripe asked why Kaikoura, Invercargill, and more recently, Palmerston North could justify an ROI for a four or five-star hotel but Whanganui couldn’t.

Palmerston North’s former central post office will eventually be restored and fitted with a Wyndham-branded hotel.

In that case, apartments would be built on top of the hotel so it wasn’t just a pure accommodation model, Middleton said.

“That’s the sort of thing we’ll potentially have to look at to make it viable.”

The subject of a new hotel had been discussed for a number of years, councillor Ross Fallen said.

“Is the reality we’re looking at now one or more smallish boutique-style hotels? Is that where we need to go now, as opposed to a 100 or 150-bed four-star hotel?”

Middleton said she thought there was room for both.

“The reason for a hotel is that it unlocks a whole lot of other economic opportunities - for example, the business visitor during the week who would look to come to a hotel with a conferencing facility.”

There would be some discussions in the new year about what it would take to get a new hotel in Whanganui, Deputy Mayor Helen Craig said.

Craig said the lack of a new development was one of the city’s biggest limiting factors.

“We can’t grow events, we can’t grow conferences, and our restaurant sector can’t grow and expand.

“There is some interest in the hotel sector, but we are going to have to bundle something together to make it happen.”