Hotel investments target rise in tourist numbers

CAPITAL BEDS: Wellington's Sofitel Hotel development in Bolton St, developed by the Auckland-based CP Group.
CAPITAL BEDS: Wellington's Sofitel Hotel development in Bolton St, developed by the Auckland-based CP Group.

Tourism growth is encouraging more investment in the hotel sector and developers are working on 17 new hotel proposals, according to hotel brokerage specialists JLL.

This has the potential to boost New Zealand hotel room numbers by 3000 or about 12 per cent.

The agency's national director of hotels, Stephen Doyle, said six of the 17 projects were either under construction or gaining significant momentum.

And three of those were in Wellington - the 130-room Sofitel Wellington in Bolton St, a proposed 125-room airport hotel and a 165-room new Hilton to be built in conjunction with the city's proposed convention centre.

Doyle said investors were encouraged by rising overseas tourist numbers, higher occupancy rates and rising room tariffs.

Overseas visitor numbers last year rose 6 per cent to 2.7 million.

Auckland, Rotorua, Wellington and Queenstown had all seen an increasing demand and hotel performance indicators for the start of 2014 were likely to boost the confidence of owners and operators.

Doyle said researchers had identified new hotel proposals in Wellington, Auckland, Christchurch, and provincial areas such as New Plymouth, Havelock North and Whangarei.

"Projects outside of CBD locations are also being actively investigated, although most of these surround key infrastructure assets such as airports, sports stadiums, golf courses and business parks."

Offshore developers were interested in investing here but few prime hotels were available for sale.

"This has led to many active investors, particularly those with existing hospitality properties in the Asia Pacific region, seeking to secure sites for new hotel development."

Developers were looking to bring new hotel brands, like the Ritz Carlton, to New Zealand, and also looking to target the fast- growing Chinese tourist market.

Doyle said it was notable that all currently committed new hotel projects were either office conversions, extensions or partial rebuilds.

"These projects have shorter timeframes for completion than other more ambitious new-build projects and offer much greater certainty of cashflow performance.

"Hotel assets in New Zealand were historically perceived as risky assets by comparison to other CBD investments such as office towers and retail centres, but as the yield spread between hotels and these other asset types has narrowed, hotels have become a viable option for diversifying investment portfolios."

The optimistic outlook is backed by hotel and tourist consultants Horwath HTL, which forecasts a golden run for hotels with more guests, higher room charges and bigger profits.

Prospects over the next two to three years were bright for international visitors and the New Zealand domestic economy, said Horwath director Terry Ngan.

Strong overseas visitor numbers and New Zealanders staying away from home should mean greater demand for hotels.

Together with a limited number of new hotels being built, hoteliers should be able to lift average occupancy rates and/or how much they charged for rooms.

"This should result in higher room revenues and significantly stronger bottom-line profitability for hotels," said Ngan.

Hotels have benefited from more tourists arriving from China and Australia, following more government funding for Tourism New Zealand.

Average occupancy for hotel members of the Tourism Industry Association hotels was 73 per cent in the year to March 31, 2014.

That was up 3 per cent on the same period a year ago and 4 per cent on the previous year, which included the Rugby World Cup period.

For the March year, the average room rate for association members' hotels was $141 a night excluding GST, up $4 (3 per cent) on the year before.

The average rate was down $7 a night compared with the high rates charged during the Rugby World Cup year.

The Dominion Post