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New Zealand hotels set for ‘golden’ years

Sunset at Auckland Harbour Festival 2006. Viaduct Basin. Auckland. New Zealand

With bright international visitor and domestic economy prospects, New Zealand hotels should achieve 2-3 ‘golden’ years of increased occupancy, room rate and profitability according to specialist hotel and tourism consulting firm Horwath HTL Ltd, in its ‘Autumn 2014 Outlook’ publication.

The release of the Outlook coincided with the 8th New Zealand Hotel Industry Conference, held this week (June 5) at the Pullman Auckland and being co-hosted by Horwath HTL and Tourism Industry Association New Zealand.

Horwath HTL Director, Terry Ngan, said strong inbound and domestic visitation trends which should flow on to positive hotel demand, together with limited new hotel supply under construction, should allow hoteliers the opportunity to increase average annual occupancies and / or room rates in the high season in the next three years, and hopefully also in shoulder and low seasons.

Ngan said this should result in higher room revenues and significantly stronger bottom line profitability for hotels.

He said in the last few years, increased funding of Tourism New Zealand from Central Government, greater air capacity from China, Australia and domestically, aggressive regional destination marketing agencies, tourism marketing initiatives by international airports in New Zealand and an increasing focus on the Free Independent Traveller (FIT) market have placed the tourism industry in a strong position.

Ngan said hotels would be a big beneficiary of these initiatives, more so if the Tourism 2015 framework recently released by the tourism industry is embraced by tourism operators in their business planning.

Horwath HTL’s Outlook publication notes that average annual room occupancy for all hotel members of TIA (which comprises 17,638 rooms and 131 hotels, including of all the larger hotels in New Zealand) was 73% for the12 months ending March 2014 (“2013-2014”), up 2.3 occupancy points or 3% on the same period in 2013 and 4% up on 2012 which included the Rugby World Cup in September / October 2011.

For the year ending March 2014, the average annual room rate for TIA member hotels was $141 excluding GST, up $4 or 3% on 2013 and 10% above that of 5 years ago (although down $7 on 2012 due to the Rugby World Cup). RevPAR (Revenue per Available Room) for 2014 was $104, up $6 or 6% on 2013 and $16 or 17% above that of 5 years ago.

International visitors to New Zealand were up 6% in the year ended March 2014, the most significant increase in the last four years, including on 2012 which benefitted from the 2011 Rugby World Cup, due to strong visitor growth from Australia, China and USA.

In 2013-2014, with the exception of Christchurch, TIA hotels in all of New Zealand’s main tourism centres, Auckland, Wellington, Queenstown and Rotorua saw increased room occupancy over 2012-2013.

New Hotel Supply
Horwath HTL’s Outlook Autumn 2014 issue summarised new hotel supply that had recently opened and the latest new supply outlook for the main visitor destinations in New Zealand based on hotels under construction, public announcements and market research of developers and operators.

1,412 rooms have been publicly announced to be opened in New Zealand in the next 3 years or so, including seven new hotels and four expansions of existing hotels, according to Ngan. Some of the new hotels may possibly not proceed.

Key trends in new hotel supply for the next three years include:
-The new hotels could be staggered avoiding a ‘boom and bust’ scenario;
-Five of the eight new build hotels or expansions are 5-star;
-No new strata title hotels or serviced apartments;
-No new hotels for Rotorua and Queenstown;
-Two office conversions to hotels in 2013 with more planned; and
-Expansion of three hotels.

Horwath HTL identified four hotels opening in the past 12 months comprising of two serviced apartment hotels in Auckland managed by VR Group (162 rooms from office conversions), the Latimer hotel in Christchurch managed by Rydges (139 room new build) and the Hilton Residences in Queenstown (42 new self-catering apartments).

Auckland, where market wide occupancy reached 79.4% for the 12 months ending March 2014, was likely to see the largest new hotel supply – 743 rooms or 53% of the total nationwide new supply according to Horwath’s Outlook publication. This included an expansion of rooms at the Ibis near Auckland domestic airport and three new 5-star hotels. The latter included the 133-room Sofitel So opening in 2015 and the first two hotel developments by Chinese developers in New Zealand, by Furu Ding (a Ritz-Carlton) and Fu Wah (whose brand has not yet been accounced). These last tw0 hotels are not likely to open until 2017 or later.

CP Group is the developer and owner of the Sofitel So, the first 5-star hotel since the strata title Westin Lighter Quay opened in 2007, and also the 130 Sofitel So in Wellington, the first 5-star hotel since the Bolton opened six years ago. In Wellington a 165-room Hilton with a 2,000 capacity convention centre was announced recently by Wellington Council, which is planned to open in 2017.

Besides new hotel developments, the Copthorne Hotel Auckland Harbourcity is shortly to be rebuilt to a Millennium standard (4.5-5 star) according to Millenium and Copthorne Hotels New Zealand.

Other 2013-2014 hotel performance trends identified by Horwath HTL research included:
-The 5-star Auckland market achieved occupancy of 80% and room rate of $187, the highest results for five years (excluding the higher room rate in 2012 due to the Rugby World Cup);
-Wellington hotel occupancy reached a 10-year high of 75% with 4.5-5 star hotels achieving 75% occupancy;
-Rotorua hotel occupancy of 68% reached its highest-level post-GFC, but at the expense of room rate, which has fallen steadily since 2008 and at $100 excluding GST is now lower than it was 10 years ago. No new hotel supply in the next three years will help grow hotel occupancies but room rates need to be raised to achieve satisfactory ROI for hotel owners;
-Christchurch hotel occupancy dropped by 8% to 77% following new room supply in 2013, whilst the average achieved room rate continued to climb to $161 in 2014, the highest for any New Zealand region, reflecting the Christchurch rebuild;
-Queenstown hotel occupancy and room rate increased to a five year high of 68% and $147, coinciding with the first three years’ establishment period of the 276 rooms managed by Hilton in its two hotels which opened mid 2011; and
-New conference facilities announced for Auckland, Wellington, Christchurch and Queenstown should also increase hotel demand when they open, as early as 2017 if Central Government “comes to the party” in the case of each event venue.

HM was a proud Silver sponsor of the 8th New Zealand Hotel Industry Conference.

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