Critical shortage of tourist accommodation

September 14, 2016

An unprecedented tourism boom is placing New Zealand’s relatively small hotel and accommodation inventory under severe pressure says Dean Humphries, national director of Colliers International’s Hotels division.

“The massive increase in international tourists over the last three years - a 26% increase or nearly 700,000 additional visitors per annum - has caught many in the industry by surprise leading to a critical shortage of hotel rooms in some of New Zealand’s key tourism destinations.

“It would appear we simply don’t have the resources to build hotels at an adequate pace to satisfy the growing demand, and this is leaving the tourism industry in a precarious position.”

Nick Thompson, director of Colliers International’s newly created Tourism and Leisure division specialising in accommodation assets of under 80 rooms, says the major shortage across the accommodation sector is expected to reach peak levels with the onset of three major sporting events in New Zealand next year.

“New Zealand is seeing continued unprecedented growth in international tourist arrivals in the year to July 2016 increasing 11% to 3.34 million with more to come in 2017, due to a series of one off sporting events.

“The Rugby League World Cup, the Lions Rugby world tour, and the 2017 World Masters Games are all coming to New Zealand and will place the country’s accommodation services under even greater pressure,” says Thompson.

The shortage of rooms is most noticeable in Auckland and Queenstown, which will likely see their existing hotel inventory run at close to maximum occupancy during the upcoming 2016/17 peak summer period. Other markets including Wellington, Rotorua and Christchurch are also reaching capacity during peak periods and will require more rooms.

Humphries says the current booms in New Zealand’s residential, commercial and infrastructural property sectors is adding to the challenge.

“It’s getting harder and harder to find appropriate sites to develop new hotels,  and the cost of building them is rising rapidly on the back of an increasingly constrained building industry.

“Building costs for high quality hotels have escalated beyond $6,000/sqm and along with high land values and design/consent fees, the feasibility of new hotel developments is very marginal right now - despite the exceptional growth recorded in the hotel market over the last two years.”

New solutions need to be found says Humphries.

“These can include encouraging tourists to travel to regions that do have accommodation capacity or considering alternative building solutions such as modular or prefabricated construction techniques - a method being adopted in Asia and Europe particularly.

“Another option is converting secondary commercial buildings and inner city residential apartments to short-stay accommodation for those owners and investors looking to take advantage of the current tourism boom.”

Thompson says it is imperative that the tourism and accommodation sector is supported and we move fast to meet demand with supply as this industry is a key contributor to our national economy.

“According to the Ministry of Business, Innovation and Employment, the Monthly Regional Tourism Estimates (MRTEs) for July alone puts tourism spend at $1,758 million; $580 million by international visitors and $1,178 million by domestic tourists.

“Total tourism spend increased 4% from July 2015, with international tourism growing by 1% and domestic tourism growing by 6%. This indicates the urgency with which all accommodation typologies across the sector (hotel and motel) must move to house our growing number of visitors,” he adds.

Humphries says there are virtually no new hotels likely to open in New Zealand over the next 12 months, with less than 1,200 rooms under construction across the entire country. This is in stark contrast to the 9,700 new hotel rooms, as noted in a recent Ministry of Business, Innovation and Employment (MBIE) report, required over the next ten years to accommodate the anticipated growth of up to 4.5 million visitors per annum by 2025.

Humphries says that although Auckland recorded one of the world’s highest annual RevPAR increases of 28% over the last two years, this has been surpassed by two of New Zealand’s key leisure destinations - Queenstown and Rotorua - recording a staggering 44% and 32% growth in their respective RevPAR over the same period.

Surging RevPAR growth in recent months has translated into exponential increases in profitability for many hotels in New Zealand, with anecdotal evidence suggest many hotel owners have recorded 50% to 100% improvement in EBIDTA over the past three years in hotels located in the key tourism destinations.

Close to 3.5 million tourists are expected to visit the country over the next 12 months says Humphries.

 

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