Please Disturb Sign Out In Hotel Sector

As New Zealand’s borders reopen allowing international travellers and a hospitality workforce to enter the country again, the hotel sector is geared up for visitors – and investment opportunity.

Commenting in Bayleys’ latest Total Property portfolio, Wayne Keene, Bayleys national director hotels, tourism and leisure (HTL) said operators have been treading water for too long, but he’s quietly optimistic about the next financial year.

“While acknowledging that the domestic market did some heavy lifting over the past two years, it’s time to really get cranking again,” he said.

“Domestic tourism spending exceeded $10 billion for the first time in 2021, with people hungry to use up accumulated leave and hamstrung for offshore travel options – all while navigating rolling lockdowns.

“Data showed when Auckland was open, the rest of the country saw invigorated visitor activity, but accommodation operators are relying on international travellers to tangibly reignite the sector.

“Let’s hope our tourism marketing has exceptional cut-through on the international stage to attract emotional travellers here again – although Russia-Ukraine tensions, rising fuel costs, and ongoing COVID-related uncertainties will be handbrakes.”

Keene said with nearly all managed isolation and quarantine (MIQ) hotel contracts ending, capacity will return to the visitor accommodation market once refurbishment programmes are completed.

“There’s cautious optimism among leading operators, and forward bookings are looking good – even in the hardest hit centres like Queenstown, which I am certain will recover quickly once direct route international flights and the long-haul market rally.

“However there are headwinds too, as with the hopeful return of offshore workers to fill crucial roles within the hotel and hospitality sector in Queenstown comes the perennial headache of accommodating those workers – that’s a property issue requiring a long-term solution.”

Despite market volatility, a pipeline of new hotel development has progressed around the country with multiple high-profile properties opening during the height of the COVID storm, and more soon to open.

“International brands continue to scope out New Zealand for both development and acquisition opportunities,” said Keene.

“Bayleys’ HTL team is fielding proactive enquiry from major international hotel groups looking for new assets, particularly in Auckland, to either add to an existing stable or cement a presence in the Asia-Pacific rim.

“There has also been notable institutional investment in the country’s hotel sector, with NZ Hotel Holdings, a partnership between the NZ Super Fund, Russell Property Group, and Lockwood Property Group, recently acquiring hotel assets in Auckland, Wellington, Queenstown and Christchurch.

“These strategic acquisitions demonstrate confidence in the sector and it sends a strong message to the investment market.”

On the transactional front, Keene said despite considerable pressures in the commercial accommodation sector across the asset classes over the past two years, he hasn’t seen any “fire” or distressed sales.

“There have been well-considered exits from the market as investment portfolios have been rejigged or priorities changed, acquisition activity from known operators as they’ve expanded portfolios and, surprisingly given market uncertainties, a number of first-time entrants to the market purchasing accommodation businesses.

“However, adding fuel to the COVID-related fire for new entrants is a disconnect between funders and a prospective opportunity.

“Banks are notoriously risk averse in the commercial accommodation sector and tend to be residential-focused so those buyers with capital partners or extensive assets to secure against will always have a head start.”

Keene said pipeline analysis shows that by 2025, there could potentially be 12,300 to 14,300 hotel rooms available around Auckland to cater to the visitor market.

“Is that an oversupply of rooms? Who knows how the new narrative will play out,” he said.

SkyCity Entertainment Group is prioritising work on the New Zealand International Convention Centre and associated Horizon Hotel, with completion dates expected to be 2025 and 2024 respectively.

Hotel developer Furu Ding still intends developing the NDG Auckland Centre on a long-vacant site in the CBD, while Precinct Properties’ One Queen Street mixed-use development with InterContinental hotel is progressing.

A 233-room hotel is planned for 65 Federal Street; the 200-room Voco hotel will be built on the corner of Albert and Wyndham Streets; building work has recommenced on the 225-room Hotel Indigo at 51 Albert Street, and the 5-star Te Arikinui Pullman Auckland Airport Hotel by Tainui Group Holdings, in partnership with Auckland Airport, is going ahead.

Keene singles out Christchurch as a thriving city with a wave of new hotels emerging including The Mayfair in Victoria Street to be opened in June and run by Mayfair Luxury Hotels Ltd, and Sarin Hotel Group’s The Observatory in the Arts Centre now open.

“Christchurch offers a point-of-difference and high levels of amenity, and has positioned itself well to leverage off a new resurgence of travellers, with the city’s $475 million convention centre reportedly booked to host 150 events this year.”

Meanwhile in the nationwide motel market, Keene said those operators aligned with the visitor market – as opposed to the long-term rental sector – are well-placed to capture the generally more-budget friendly segment of the traveller pie as borders relax.

“There’s the will and the want in the motel sector with identified capacity in the market for new motel developments, but the challenge is finding the right sites, and even when that happens, there are construction sector hurdles to navigate now.”

© Scoop Media