The Queenstown property market is at a cyclical peak. However, the medium term outlook remains very positive, with some very strong trends continuing to drive the market.

That is the key finding of Colliers International’s 2017 Queenstown property market review and outlook report, which is being presented to Colliers’ clients and industry professionals in Queenstown today (June 16).

Colliers Queenstown valuation director John Scobie says Queenstown is still in the midst of an unprecedented real estate boom on the back of increased visitor and population growth. This positive mix is being supported by significant expansion of the commercial and residential construction sector.

“Queenstown is traditionally a volatile real estate market of peaks and troughs every eight to 10 years. The resort town has now matured with a growing permanent population, often driven by a lifestyle choice and perceived good employment opportunities. This is underpinned by a strong tourism dynamic which is boosting businesses and support industries,” says Scobie.

Colliers expects property values in Queenstown to remain at high levels in the short to medium term, mostly due to ongoing tourism growth, infrastructure development, economic growth and construction.

However this success comes at a price and there remains a supply and demand imbalance in the residential sector, driving up residential rentals for long term accommodation. Increasing land and construction costs and competition for housing is pricing many people out of the market, leading to the well-documented housing crisis.

Visitor accommodation is at a premium in the town as existing hotel, motel and budget accommodation struggles to accommodate the growing visitor numbers. Occupancy rates are now averaging approximately 70% over the past year, and private owners are making houses and apartments available for short stay accommodation through services such as Airbnb. Visitor accommodation tariffs have increased significantly on the back of this demand, with hotel room rates lifting by 15% over the year to March 2017 compared with the previous year.

Queenstown is in desperate need of new visitor accommodation supply in the form of hotel and motel rooms. The Ramada Hotel in Remarkables Park opened a year ago, bringing 59 furnished units to the market, while two further similar-sized developments are under construction in the town centre. A 227-room Holiday Inn Express is also mooted. But with an estimated additional 300 new rooms needed every year to meet projected growing demand, the current response is well short of market demand.

The construction boom across the commercial, residential and infrastructure sectors in Queenstown is expanding even further this year. By the end of 2017, over $546m worth of construction projects are expected to be underway. This is assisting local economic growth and creating jobs.

Commercial developments in Frankton Flats have created some oversupply in the medium to large format retail sector. However, downtown Queenstown still has some retail vacancy and strong retail growth is still in play as tentants compete for space when it comes available. Yields remain strong, Scobie says.

Annual visitor guest nights hit 3.5m over the year to March 2017, representing 5.2% growth compared with the previous year. Visitors spent a total of $2.1bn in Queenstown in the year to March 2017, a 7% increase over the previous year.

The rapid pace of tourism growth is giving developers the confidence to press ahead with key commercial and residential projects. It is also creating higher and higher demand for property as more people move to the town for employment, and investors scramble to buy property, particularly development land – but can the town’s infrastructure cope?

“The tourism boom has cast the spotlight on the major deficiencies of Queenstown’s infrastructure. While central and local government investment into infrastructure has increased, there is a critical balance that needs to be addressed. We want to attract more tourists and residents, but making sure our infrastructure, accessibility and housing market can cope with this unprecedented growth is a key priority. Creating additional residential supply may not necessarily be the answer,” says Scobie.

Colliers International’s overall projections for 2017 include:

• Property development and expansion in Queenstown and Wanaka continuing in the short term

• No vacancy in prime retail in Queenstown CBD, further upward pressure on rental levels

• Acute shortage of long term Queenstown rental accommodation keeping rents high

• Cost of construction and lack of funding squeezing Queenstown developers

• Queenstown high value housing to set new records, lower to medium value housing to consolidate

• Shortage of visitor accommodation in Queenstown

• Wanaka tourism and population growth driving the property market

• Further yield compression expected in the Dunedin investment market.

ENDS

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