Unprecedented real estate boom underpinned by tourism
Unprecedented growth in the tourism sector, showing no signs of abating, is sustaining all sectors of the Queenstown property market at a cyclical peak.
That is the key finding of Colliers International’s 2018-19 Otago property market review and outlook report, which was presented to Colliers’ clients and industry professionals in Queenstown today.
Colliers Queenstown valuation director John Scobie says Queenstown is still in the midst of an unprecedented real estate boom on the back of strong increased visitor and population growth coupled with economic growth spurring commercial and infrastructure projects.
“Queenstown is maturing with a growing permanent population; this is underpinned by a strong tourism dynamic which is boosting businesses and support industries,” says Scobie.
Colliers expects property values in Queenstown to remain at high levels in the short term, however the report warns of potential consolidation in ‘affordable’ newer subdivisions being at risk of price correction. In addition some pockets of rental oversupply could cause historically high rental prices to stagnate.
Building costs have increased significantly over the last year, which, coupled with the high cost of land, is causing some buyers – particularly first home buyers – to seek out turn-key solutions or look to existing housing stock.
In addition, the government’s proposed Overseas Investment Amendment Bill could restrict flow of capital into the region if this comes into law.
“This may not result in Queenstown housing becoming more affordable," Scobie says.
"There is a risk the proposal will instead restrict the flow of capital into important developments for the area, including residential apartments, and in turn it has the potential to negatively impact the construction industry."
Visitor accommodation is at a premium in the town as existing hotel, motel and budget accommodation struggles to accommodate the growing visitor numbers, particularly in peak periods, with occupancy rates now averaging 71.2 per cent over the past year.
However, new hotel development is underway with potentially 2,405 rooms in the early construction or planning stages.
While this may appear to signal pressure easing on Queenstown’s hotel room supply, it is important to note it can take an extended period to bring a hotel to market. This means new rooms are more likely to come in stages, rather than flooding the market.
Private owners have been making houses and apartments available for short stay accommodation through services such as Airbnb, with approximately 14 per cent of the housing stock being utilised for this purpose.
The Queenstown Lakes District Council is proposing rules aimed at protecting the supply of long term rental houses. However, tourism growth projections will likely mean Airbnb remains a necessary alternative for Queenstown visitors into the future.
The Frankton Flats area is still booming with commercial projects, predominantly large format retail. However, downtown Queenstown still has nil retail vacancy and strong retail growth is still in play as tenants compete for space when it comes available. Yields remain strong, Scobie says.
In the industrial sector in Frankton Flats, demand has been strong with tourism and construction activity underpinning business growth and confidence for industrial occupiers.
Lack of stock in this area has pushed land values and rents higher, with some occupiers relocating to Cromwell. There is a shortage of yard based industrial with a new area earmarked for rezoning at the base of The Remarkables
“The tourism boom has cast the spotlight on the major deficiencies of Queenstown’s infrastructure," says Scobie.
"While central and local government investment into infrastructure has increased, there is a critical balance that needs to be addressed.
"Queenstown wants to attract more tourists and residents, but making sure our infrastructure, accessibility and housing market can cope with this unprecedented growth is a key priority.”
Find out more about our Queenstown office and our speciliast Valuation services.
Follow us on Facebook and Instagram.
Get the latest commercial real estate insights and property news.
Looking for commercial real estate? Try our property search or connect with expert commercial real estate agents today.
Need your real estate assessed? Work with our expert property valuation services team.