Please disturb the disconnection in the hotel sector

As New Zealand’s borders reopen, allowing international travelers and a hospitality workforce to re-enter the country, the hospitality sector is primed for visitors – and investment opportunities.

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

“While acknowledging that the domestic market has made great strides over the past two years, it’s time to really reboot,” he said.

“Domestic tourism spending topped $10 billion for the first time in 2021 as people hungered to use accumulated and crippled leave for overseas travel options – while navigating continued lockdowns.

“Data showed that when Auckland was open, the rest of the country saw reinvigorated visitor activity, but accommodation operators are counting on international travelers to tangibly revive the sector.

“Let’s hope our tourism marketing has a stellar breakthrough on the international stage to attract emotional travelers here again – although Russian-Ukrainian tensions, rising fuel costs and continued COVID-related uncertainties will be hand brakes. “

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

“There is cautious optimism among major operators, and forward bookings look good – even in the hardest hit centers like Queenstown, which I am sure will recover quickly once direct international flights and the long-haul market will rally.

“However, there are also headwinds, for with the hopeful return of offshore workers to fill crucial positions in the hotel and hospitality sector in Queenstown, comes the ongoing headache of the housing these workers – this is a property issue requiring a long-term solution.”

Despite market volatility, a pipeline of new hotel developments progressed across the country with several high profile properties opening at the height of the COVID storm, and more soon.

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

“Bayleys HTL team responds to proactive requests from large international hotel groups looking for new assets, particularly in Auckland, to either add to an existing stable or consolidate a presence in the Asia-Pacific rim.

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

“These strategic acquisitions demonstrate confidence in the industry and send a strong message to the investment market.”

On the transactional side, Keene said that despite considerable pressure in the commercial lodging industry across all asset classes over the past two years, he has not seen any “fires” or hard sells.

“There have been well-considered exits from the market as investment portfolios have been reshuffled or priorities shifted, acquisition activity from well-known operators has expanded their portfolios and, surprisingly given the market uncertainties , a number of new market entrants are buying hosting companies.

“However, adding fuel to the COVID fire for new entrants is a disconnect between backers and a potential opportunity.

“Banks are notoriously risk-averse in the commercial lodging industry and tend to focus on residential, so buyers with financial partners or significant assets to secure will always be one step ahead.”

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

“Is this an oversupply of rooms? Who knows how the new narrative will unfold,” he said.

SkyCity Entertainment Group is prioritizing work on the New Zealand International Convention Center and the associated Horizon Hotel, with completion dates scheduled for 2025 and 2024 respectively.

Hotel developer Furu Ding still has plans to develop NDG Auckland Center on a long-vacant site in the CBD, while Precinct Properties’ One Queen Street mixed-use development with the InterContinental Hotel is progressing.

A 233-room hotel is planned at 65 Federal Street; the 200-room Voco Hotel will be built at the corner of Albert and Wyndham streets; construction work has resumed on the 225-room Hotel Indigo at 51 Albert Street, and Tainui Group Holdings’ 5-star Te Arikinui Pullman Auckland Airport Hotel, in partnership with Auckland Airport, continues.

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

“Christchurch offers a point of difference and high levels of amenity, and is well positioned to take advantage of a further upsurge in travellers, with the city’s $475 million convention center reportedly earmarked for host 150 events this year.”

Meanwhile, in the domestic motel market, Keene said operators aligned with the visitor market – as opposed to the long-term rental sector – are well positioned to capture the generally more economical segment of the traveler pie then that the borders relax.

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

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