Please disturb sign out in hotel sector

After a two-year hiatus due to pandemic flux, New Zealand’s commercial accommodation sector is waiting to be invigorated as international tourists and a hospitality workforce progressively enter the country without the weight of restrictions.

Wayne Keene, Bayleys’ national director hotels, tourism and leisure (HTL), says things can only get better for visitor accommodation providers after what has been a prolonged period of uncertainty and disruption.

“Operators have been treading water for too long, but I am quietly optimistic about the next financial year – it’s time to get cranking again,” he says.

“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.

“But there were highs and lows with data showing that Auckland’s series of rolling lockdowns had a significant impact on national occupancy figures – when Auckland was open, the rest of the country saw invigorated visitor activity.”

Keene says accommodation operators are relying on international travellers to return with dollars in their pockets and time on their hands.

“Our tourism marketing will need to have exceptional cut-through on the international stage to attract the emotional travellers here again – the ones with New Zealand on their bucket list.

“Given the continued Russia-Ukraine tensions, rising cost of fuel and the flow-on effect to long-haul fares, plus the ongoing COVID-related uncertainties, international travel still has handbrakes, but New Zealand remains an attractive destination.

“This country is seen as a safe haven with political stability, a good health system and outstanding natural features so while it is expected that Australia will again be our main market, it is hoped that the rest of the world will follow.”

Keene says with the contracts of all but a handful of managed isolation and quarantine (MIQ) hotels around the country ending, capacity will return to some semblance of normal after refurbishment programmes are completed.

“In talking to leading operators, there’s cautious optimism that the tide has turned and forward bookings are looking good – even in the hardest-hit centres like Queenstown.

“Once those direct route international flights and the long-haul market rallies, I am certain that Queenstown will recover quickly, confirming its jewel-in-the-crown status.

“However, 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 an issue that requires a long-term solution.”

Despite market volatility, a pipeline of new hotel development has progressed around the country with multiple high-profile hotel 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, with Bayleys’ HTL team 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, Christchurch and Queenstown.

“These strategic acquisitions represent confidence in the sector, and this sends a strong message to the investment market.”

In Auckland, a pipeline of new development work is still expected to go ahead and by 2025, there could potentially be 12,300 to 14,300 hotel rooms available around Auckland to cater to the visitor market.

“An oversupply of rooms? Who knows how the new narrative will play out,” says Keene.

SkyCity Entertainment Group is prioritising work on the New Zealand International Convention Centre (NZICC) 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, being built by Tainui Group Holdings (TGH), in partnership with Auckland Airport, is going ahead.

On the transactional front, Keene says 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.

“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 disrupted trading adds yet more uncertainty.

“Trading banks are residential-focused so those buyers with capital partners or extensive assets to secure against will always have a head start.”

While work continues on SkyCity’s NZICC, the conference and events sector nationwide is expected to take some time to regain traction, especially as other countries have opened ahead of New Zealand leaving us further down the international destination chain, and given the long lead times required in event planning.

“Auckland will be competing for business with the new Te Pae Christchurch Convention Centre and Tākina, the new Wellington Convention and Exhibition Centre,” says Keene.

“Strategic pitching will be required by the events sector to attract the international conference market back, particularly as corporates wrestle with their travel versus carbon footprint conscience.”

Keene says Christchurch epitomises a city that is doing things very well, and a wave of new hotels has emerged 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.

“As a city, Christchurch offers a point-of-difference and high levels of amenity and has positioned itself well to leverage 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 says those operators who have stuck 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.”

Upper end of the market

The $300 million, 195-room Park Hyatt Auckland on the city's waterfront opened in September 2020 becoming one of more than 1000 hotels in 68 countries under the broader Hyatt Hotels Corporation umbrella.

Hyatt currently has hundreds of new properties under development around the world, with the Asia-Pacific region high on the list.

Owned by Beijing-based investment company Fu Wah International Group, the flagship 5-star Park Hyatt Auckland sits on the former Team New Zealand base site in the Wynyard Quarter with a grandstand Viaduct Harbour position.

Recently shortlisted in the hospitality category of the 2022 Auckland Architecture Awards (winner to be announced in August), the hotel was designed by Singapore-based studio AR+D in conjunction with local firm Bossley Architects.

Brett Sweetman, general manager of Park Hyatt Auckland, says no one plans to open a significant luxury hotel offering in the midst of a global pandemic – but the hotel has traded well domestically regardless and is well-geared to meet and greet international guests.

“In the last week or two, there’s been a lot more positivity in the market and we’ve been able to benchmark our operation against Hyatt hotels in Australia.

“Auckland is around eight to 10 weeks behind Australia in terms of managing the outbreak with open borders and they’ve noted the corporate market returning, and significantly increased enquiry and booking levels.”

Sweetman says since opening, around 70 percent of Park Hyatt Auckland’s business has been weekend-focused, however he’s noting increased corporate business across the week.

“That’s a good sign but realistically, I believe Q4 will be when things are back on track.

“Forward bookings are looking good, with the North American and Southeast Asian markets preparing to travel again.

“I’m looking forward to walking through the lobby and hearing lots of different accents – that’s when I’ll know we’ve turned the corner.”

Download full article (PDF)   

Subscribe to receive the latest commercial news and insights from Bayleys Total Property