Hotels yield interest for developers

LEADING PROJECT: A planned five-star hotel on Auckland's waterfront will be funded by Chinese developer Fu Wah International.
LEADING PROJECT: A planned five-star hotel on Auckland's waterfront will be funded by Chinese developer Fu Wah International.

A wave of new hotels is expected in New Zealand to capitalise on the industry's rosy long-term outlook and growing Chinese tourist numbers.

At least 16 new hotels or mixed accommodation projects are on the drawing board, adding nearly 2900 rooms, or 12 per cent of the hotel sector's current capacity, if they all go ahead.

Commercial real estate consultants JLL said almost a third of the projects were being proposed by foreign developers with no previous hotel interests in New Zealand. They included luxury hotel brands Ritz-Carlton and Four Seasons, which were both understood to be looking for sites in Auckland.

JLL hotel specialist Stephen Doyle said investors' interest had been piqued by good fundamentals such as record tourism numbers, rising occupancy rates and a shortage of fresh accommodation.

Hotels had previously been regarded as a risky investment compared to office and retail buildings but the yields were becoming more attractive.

However, investors had to "build new".

"There's a select group of investors who hold probably the majority of the stock, and the gains they've experienced over recent years means they're fairly reluctant to dispose of them unless they can get a premium price," Doyle said.

JLL said the only new accommodation in the Auckland market since 2011 had been four Quest serviced-apartment hotels providing 178 rooms.

This had pushed up Auckland room occupancy rates to just under 79 per cent, rising 3.8 per cent between 2012 and 2013.

Room rates had also risen 3.4 per cent to an average of $140 a night.

The new projects were a vote of confidence in the sector's long-term future, but they were also actively targeting New Zealand's growing Chinese visitor Doyle said.

Chinese guests had more than doubled from about 100,000 in 2009 to more than 230,000 people in 2013.

Doyle said there was good reason to focus on the Chinese.

"The Australians may not spend as much as the Chinese visitor and they may not stay as long, and they may have different preferences in terms of their hotel accommodation," he said.

The 16 proposed hotels JLL was aware of spread beyond Auckland to Christchurch, New Plymouth, Whangarei, Havelock North and Wellington.

In Christchurch, Doyle said there were plenty of new projects but they had to be careful not to clash with hotel rebuilds already under way.

The city's Novotel, Rendezvous, George and Ibis hotels have reopened since the earthquakes, as have The Quest apartments and Hotel 115 and part of the Heritage. A new five-star boutique hotel will open on the site of The Pavilions complex in Cranmer Square, the Former All Seasons will reopen in a new form, and Latimer Lodge has been rebuilt as Rydges Latimer.

Others such as the demolished Grand Chancellor will not be rebuilt on their sites, while the future of others remains in the balance.

The Whangarei and New Plymouth projects were new builds aimed at gaps in the business market, while key projects in the Capital were the 125-room Wellington Airport hotel and the 130-room Sofitel Wellington.

Leading projects in Auckland were the NDG Centre (266 rooms), the Fu Wah (200 rooms) and Sofitel So (133 rooms). The Sofitel had progressed the most with works already underway.

One notable omission was the 165-bed Hilton hotel in Wellington, announced this month as part of the city's proposed new convention centre. JLL had not known about it when the report was compiled, Doyle said.

Not all the projects would necessarily go ahead, he added.

"Some of the projects that have been touted have really been scaring other developers from contemplating similar projects."

However, he understood Ritz-Carlton had signed a management contract with the NDG Centre.

JLL said New Zealand's uptick in the hotel trade had been mirrored across the Asia-Pacific, bolstered by low interest rates, plentiful capital and increasing regional confidence.

However, Auckland was expected to be the most sought-after market in 2014, "followed closely by other gateway cities exhibiting growth in their hospitality markets".

The timing of projects would be important if the market was to avoid periods of oversupply, it warned.