Construction catches up on hotel room shortfall

"Typically most people would rather spend their money on activities and experiences than on the cost of a bed."

Michael Pusinelli of Horwath HTL

A forecast shortage of hotel rooms is rapidly shrinking as new investment kicks in, and some areas could end up with an oversupply.

Colliers International’s hotel division estimates there are 2900 rooms under construction in Auckland, Rotorua, Wellington, Christchurch and Queenstown, with a further 8400 mooted.

That level of activity prompted Project Palace, a New Zealand Trade and Enterprise (NZTE) initiative to stimulate hotel investment, to update its forecasts for the five main tourist centres.

A predicted shortfall of 4526 three to five-star rooms by 2025 has now been revised to 2390.

NZTE general manager investment Dylan Lawrence said the change was partly due to more hotels being built, but also because increased demand from domestic visitors was lower than projected during peak times when Auckland and Queenstown were near capacity.

NZTE’s latest hotel report said high occupancy rates had led to significant price increases in most regions.

The average daily room rate in Queenstown had shot up 30 per cent over the past two years to $199 for the 12 months to the end of March, while the ADR for Auckland was $180.

Colliers national director of hotels Dean Humphries said the level of development in Auckland had doubled in the past year but there was little occurring outside the main tourist hot spots.

Queenstown desperately needed more hotel rooms, but the scarcity of land and the lengthy consenting process made it a challenging place to build, he said.

High building costs were prompting developers to consider options such as converting office buildings, or using cheaper and faster modular designs.

Hotel consultant Michael Pusinelli of Horwath HTL said the challenge would be avoiding a glut of hotel rooms in certain areas.

‘‘If we chuck another 800 or 900 rooms into the Auckland market, and we’re halfway there already with what’s under construction at the moment, we’ve got to make sure we don’t go into oversupply.’’

Christchurch was also heavily dependent on the completion of its new convention centre which will not open until early 2020.

‘‘What a lot of people tend to forget is that, prior to the earthquakes, Christchurch hotels were running at about 65 per cent occupancy … if everything [lost] had been simply replaced, they’d have gone straight back into oversupply,’’ he said.

‘‘So how that they bring the new inventory into the market now is quite critical to the success of the hotels.’’

Pusinelli also cautioned developers against going overboard on 5-star hotels – ‘‘it’s a status symbol for a lot of them’’ – and said hotels should reflect the airline mix of business and economy class seats.

‘‘Typically most people would rather spend their money on activities and experiences than on the cost of a bed.’’

Regional Tourism Organisations New Zealand head Charlie Ives said he expected new accommodation in the regions to be smaller hotels of about 50 beds.

‘‘Ten years ago a 3-star might have been pretty average, but now with new building techniques and new ways of designing rooms they can be pretty nice.’’