New Zealand

NZ hotel sector now on a clear recovery path

But capital and high inflation impacting investment

One of the key talking points in the New Zealand accommodation sector has been the exceptionally strong room rates being achieved right across the country despite occupancy levels remaining in recovery phase,  according to a newly-released New Zealand Q2 Hotel Market Report.

Our latest AccomNews print issue is available now! Read it HERE.

Compiled by professional services and investment management company Colliers, the report shows that average room rates for the quarter ending June 2022 were above the same period in 2019 (pre-COVID) for four out of the country’s five main centres.

The main mover was Rotorua where room rates rose by a substantial 40.2 percent followed by Christchurch (9.6 percent) and Auckland (4.5 percent).

However, on the flip side of the equation, the report said the investment market has been impacted with a fresh set of headwinds in the form of the increasing cost of capital and high inflation.

Despite a number of hotels being offered to the market and robust levels of international and domestic enquiry, this sees many investors taking a more reflective approach while they reassess their own internal return requirements and review the current global investment environment.

The good news, however, is that investors typically pivot toward tangible assets in times of high inflation so revenue and profitability can be protected.

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This, the report said,  is particularly relevant with hotel assets that have the ability to quickly pass through higher costs and protect profits and investment returns as has been recently seen with increased room rates right across the country.

It is hoped the sector will see more investment activity in 2022 as inflationary pressures start to ease and the short/medium term cost of capital stabilises.

In summary, the report said the New Zealand hotel sector is now on a clear recovery path with forward bookings for the forthcoming peak season (Q4 2022/Q1 2023) looking exceptionally strong.

Accommodation Association NZ Chair and Hospitality NZ Board Member, Troy Clarry said as is the case with Australian hotels, the increases in room rates  had been driven by an increase in the operational costs with hotels passing on the increase where they can.

However, he said, there are also other drivers to average rate citing a rate recovery from a drop in average rates over the COVID period due to less travel and a lack of international tourists

These drivers, he said, included high demand with domestic travel and international visitors coming back, in the main VFR traffic, and longer stays pushing rates up.

“Revenge travel is definitely  driving demand and also driving hotel extras with guests looking to spend more money for upgrades and add-ons that make their stay more enjoyable such as dining in, spa and similar treatments, and upgrades to Club levels,” he said.

“Some hotels are not operating at full occupancy, due to staff shortages, leading to less rooms in the market driving up prices and therefore average rate, however REVPAR had  not recovered.

“Interestingly some hotels are experiencing improved profitability operating with less rooms and improved  efficiencies due to further cost savings,” he said adding some regions will see these average rates level out when more supply comes into the market.

“Auckland will see this with new hotel openings over the next 18 months and quarantine hotels refurbished and reopened.”

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