New Zealand’s hotel industry is big business these days, with tourism numbers breaking records and showing no signs of slowing down. But these numbers are also causing a shortage of hotel products, especially in the country’s biggest cities of Auckland, Wellington, Rotorua and Queenstown. Over the past month, local industry insiders have lamented the lack of hotel openings across New Zealand and bemoaned the increasing presence of foreign hotel investors.
According to sources, 12 major hotels changed hands in the last 12 months. “Typically only a couple of big outfits change hands a year,” e-commerce manager Mike O'Donnell wrote in a recent op-ed piece. “We are running at 600 percent of normal.” Recent sales include the Travelodge Wellington, Chris Parkin's Museum Hotel and the Heartland Hotel at Auckland Airport. Five sales were completed in the first three months of 2016 alone, with an expected total cost of $114 million. Colliers national director of hotels Dean Humphries predicted that the total value of sales this year would break the previous record of $378 million in that long-ago pre-recession year of 2006. (The total value of those 12 big sales is estimated between $350 million and $400 million—although not all prices were disclosed.)
Offshore Buyers
And while many asset owners are taking advantage of increased demand to “swap concrete for liquidity,” not everyone is pleased with the market. Colliers estimated that about half of these hotels have gone to international buyers, and locals are not pleased.
Winston Peters, leader of NZ First and the MP for Northland, gave a speech at a public meeting in Pukekohe, Auckland, yesterday, lamenting the growth of foreign hotel purchasers and the lack of new developments. "While tourist numbers are soaring, foreigners are buying up existing hotels, which does nothing to add to the supply of hotels,” he said. “Just swapping owners does not create new accommodation; it just means the profits from the tourist boom go overseas. Given the amount of tourism infrastructure owned offshore, the money from many tourists will get back home before they do."
The Holdup
So why is increased demand not driving any new supply? Humphries said that the availability of appropriate sites and financial concerns were causing a development slowdown. "It is incredibly expensive to build a hotel," he said. "There are also constraints in construction with the rising costs of building."
In Wellington, no new hotels have been built since 2009. And in Queenstown, the only new properties in the pipeline are a 59-room Ramada Hotel at Frankton (slated to open in June) and a smaller hotel in central Queenstown. A boutique property has been proposed as well, with a possible opening in late 2017.
Christchurch, however, is bucking the trend, with investments from local owners and several new hotels in the pipeline. Southland businessman Geoff Thomson, who owns Distinction Hotels, paid $8.6 million for the former Millennium building, which is scheduled to be renovated and rebranded. Auckland-based Sarin Group paid $1.5 million for a vacant lot, and plans to spend $25 million to $30 million on a new-build hotel there. (An as-yet unnamed “international company” is expected to operate the hotel when it opens in two years.)
While hotels poised to open in two years may not help the influx of visitors today, the locals who are investing in their own country's tourism infrastructure will help New Zealand reap more benefits from these boom times.