Ongoing tourism boom driving up hotel returns

New Zealand’s ongoing tourism boom is continuing to drive unprecedented growth in hotel occupancy and room rates, new research from Colliers International shows.

The latest New Zealand Hotel Market Snapshot, released today, shows Queenstown and Auckland are continuing to outperform the hotel sectors in other regions.

In the year to date to March, Queenstown delivered occupancy of 90 per cent at an average daily rate (ADR) of $240 – a 15 per cent increase over the same period in 2016.

Auckland recorded occupancy of 91 per cent and an ADR of $225, an increase of 16 per cent.

Moderate to strong ADR growth was also recorded in other regions, although occupancy rates appear to have generally plateaued in most main centres.

Dean Humphries, National Director of Hotels at Colliers International, says the second quarter of 2017 is also likely to be a record breaker, with strong demand anticipated.

“Auckland has been hosting the World Masters Games, which has helped to drive up occupancy rates with the 25,000 participants visiting the city,” he says.

“This will be closely followed by the upcoming British and Irish Lions Tour in June/July.

“More than 20,000 fans are expected to visit our shores during the month-long tour, which will create a 'spike' in hotel performance, as last witnessed during the previous Lions tour in 2005 and the Rugby World Cup in 2011.”

Humphries says strong market fundamentals, along with high profile international events, will set up the New Zealand hotel sector for potentially its best performing year on record.

“On the back of this exceptional performance, it is not surprising that we are seeing an increasing number of investors and developers reviewing the possibility of new hotel projects,” he says. 

However, a number of key challenges such as site availability, protracted approval processes, lack of development funding and constraints in the construction sector still make many projects difficult to convert.  

The proposed targeted rating increase for Auckland hotel owners is also concerning many developers as this directly impacts their feasibility.    

“We’re also seeing strong interest from global hotel operators, who are attracted by further growth in the region.”

A recent example is the world’s largest hotel operator, Marriott Group, being appointed to manage its first hotel in New Zealand – the 255-room Four Points by Sheraton to be located at 396 Queen Street.  

Humphries says that despite some of the development challenges faced at this current point in time, investor sentiment remains strong, based on a recent roadshow to Asia promoting the One Market Square hotel development.

“This opportunity to build a 165 room hotel on a prime waterfront site in the heart of the Viaduct Harbour and has attracted significant offshore interest to date,” he says.

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