Here's why there is an uptick in new supply in New Zealand

Crowne Plaza Christchurch, New Zealand (New Zealand's five key markets have already broken ground on 22 hotel projects.)

A hotel development boom is well underway throughout New Zealand, new research from Colliers International shows, pointing to second-quarter data. Colliers' New Zealand hotel database recorded that there are 2,900 new guestrooms in 22 projects across the five keys markets of Auckland, Rotorua, Wellington, Christchurch and Queenstown currently under construction. Another 8,400 guestrooms across over 55 projects are being planned. 

Dean Humphries, national director of hotels at Colliers International, said in a statement that the country is experiencing the highest level of development activity in its history as investors look to take advantage of the ongoing tourism boom that started in 2013. “Auckland, our country’s international gateway city, is leading the way with nine projects currently under construction, totaling about 1,400 guestrooms. We are also aware of at least 30 pipeline projects currently in early planning/design and feasibility phases, representing over 3,500 additional guestrooms. This level of hotel development activity is unprecedented in the New Zealand context and is a reflection of the exceptional growth in hotel trading conditions over the past four years. Latest market indicators to the year ended June 2017 show Auckland reached an average occupancy rate of 87 percent at an average room rate of $200,” Humphries said.

According to Humphries, other metropolitan markets throughout the country outside of Auckland are also undergoing a flurry of development activity. Five projects with a total of about 600 guestrooms are under construction in the Wellington region, two of which are existing hotels undergoing repairs. In Christchurch, the 204-guestroom Crowne Plaza Christchurch was recently completed. Three other hotels with some 470 guestrooms are also under construction in Christchurch. “Surprisingly, Queenstown, New Zealand’s leading tourism destination and the region needing new hotel inventory the most, only has three small hotels under construction totaling just 200 guestrooms,” Humphries said. “However, no fewer than 15 projects totaling just below 2,500 new guestrooms are currently on the drawing board.”

Auckland's SkyCity Convention Center Hotel with about 300 guestrooms currently has the most guestrooms under construction in New Zealand, followed by the 200-guestroom Novotel Christchurch Airport. The Amora Wellington comes in third with 192 guestrooms, with the 190-guestroom Park Hyatt in Auckland following close behind. Meanwhile, the M-Social in Auckland comes in last with 187-guestroom.

Some notable proposed or mooted projects include the Holiday Inn Express & Even in Auckland with about 490 guestrooms, the Novotel Auckland City with about 310 guestrooms, the Ritz-Carlton Auckland with about 265 guestrooms, the Peppers Resort and the Kawarau Falls Station Hotel with about 260 guestrooms each and the Pullman Auckland Airport with about 250 guestrooms.

According to Colliers International, Auckland has the most hotel projects currently under construction in New Zealand.

Humphries added that while demand fundamentals are strong in most regions throughout the country, there are many barriers preventing investors and developers from entering the market. These barriers include high construction and land costs, an often lengthy and complex consenting process, availability of development funding, and in the case of Auckland, the newly implemented Accommodation Provider Targeted Rate, which has created an additional impediment to project feasibility. “Furthermore, developers looking to build over the short term are also having to deal with resource constraints within the construction sector,” Humphries explained. “For instance, Auckland is highly constrained with limited capacity to build new hotels over the next few years due to construction resources being tied up with significant infrastructural and private sector developments, such as the New Zealand International Convention Center, City Rail Link and Precinct Properties’ Commercial Bay development. To summarize, it is evident that there is now significant interest in the development of hotels to cater for medium term demand. As such, it is now a case of pulling together the required resources to actually build these hotels.”

The Colliers International report also cautioned the booming hotel and tourism sectors, noting in particular the growth in Chinese inbound visitors has now stalled after multiple years of double digit growth. Humphries further noted that an overabundance in new supply, particularly in regions where demand is less pronounced, will likely have a negative impact on hotel performance and asset values. He cited overseas examples, such as Brisbane and Perth, which are now suffering from a glut of new hotel rooms that are driving down occupancy and room rates. “In this regard, we need to keep a close eye on all of New Zealand’s key tourism markets to ensure the balance in demand and supply does not tilt too far towards the supply side,” he said.