Stark warning for Auckland’s hotel developments

Stark warning for Auckland’s hotel developments

Date: 17. September 2018

As first published in the NBR by Dane Ambler 17 September 2018

An industry report has warned there is a “significant risk” of strong occupancy decline in Auckland’s hotels and cautioned developers not to make investment decisions based on current occupancy rates.

Horwath HTL’s Auckland Hotel Market Outlook identified 41 hotel projects in various stages that are planned to open over the next five years with a total of 6500 rooms. If all these projects proceed, Auckland’s hotel supply will increase by 89%, it says.

Twelve projects are already under construction, totalling 1800 rooms, increasing major hotel room supply by approximately 24%. Three projects are already well advanced, with construction expected to start soon and will increase supply growth to 31%. The remaining 26 projects have been announced or are under consideration.

Horwath HTL director Wim Ruepert says it is “wishful” to think occupancy rates will continue above 80%. He says based on the number of new hotel projects under construction, announced or being considered, annual hotel occupancy levels could slip “significantly.”

Mr Ruepert says if developers are basing their decisions on the market’s current occupancy rate, they “may be disappointed.”

“We’ve been saying for a long time that there’s a shortage of hotel rooms and developers have obviously caught on to that and a lot are keen to build new hotels.”

Mr Ruepert says a lot of the “pressures” in the Auckland market are predominantly in the high season but, from April to August, there are a high number of unoccupied rooms.

“An extra 3000-4000 rooms will upset the market a bit. Developers will need to reconsider if they will still get a return on their investment.”

He says the council needs to try to reduce the seasonality.

“The council and ATEED have done some good work in the past to create more events in the offseason and the New Zealand

International Convention Centre (NZICC) will help that as well.

“But, if you’re going to have more rooms in the market, you need to cover the offseason, so you need more events.”

Mr Ruepert admits there is uncertainty over how many of the 41 will get off the ground.

“Of the 41, 24 have been announced, and even if they’re announced it doesn’t necessarily mean they will come off.  Construction costs are high and it’s hard to fund.”

He says the number of construction companies is limited and the costs are going up, putting some of the projects in doubt.

But Colliers national director Dean Humphries says the report’s forecasting is “overstated.”

He says only a fraction of the 41 projects will go ahead.

“While there are a lot of hotels on the drawing board, a lot of them will never happen. A, because some of them will not be feasible and B, it’s almost impossible as everyone knows, to find anyone to build anything at the moment.”

Additionally, he says getting funding from banks has never been easy for hotel developments.

Mr Humphries says based on MBIE’s forecast that New Zealand will have to cater to almost five million tourists by 2023, demand for hotel rooms will remain strong.

He says because there has not been any new supply of hotel rooms, a lot of the demand has been picked up by short-term providers like Airbnb, which in Auckland alone has over 12,000 listings. As Airbnb becomes more regulated more people will delist their properties, he says.

“That demand is going to fall back on hotels and motels.”

He says there are only 9500 hotel rooms in Auckland, which lags far behind other major cities. Sydney and Melbourne have over 40,000 rooms combined.

“Even if New Zealand does get another 3000-4000 rooms, that’s not a lot of rooms from a comparable point of view and as a gateway city we need those rooms.”

Contact:  Wim Ruepert