Strong demand pushing hotels to choking point
- Hotel occupancy rates highest in 10 years but flattening as revenue growth slows outside of Akld-
An increase in international visitors, strong economic growth and lack of supply has helped fuel a surge in hotel
occupancy and room rates, according to new research by the real estate firm CBRE.
Nationwide hotels achieved an occupancy rate of 80.9% in the year to June 2017, with average daily rates (ADR) up 11.7%
to $182.63 and a key indicator of commercial performance – Revenue Per Available Room (RevPAR) – increasing by 12.3%,
according to the report.
It comes as New Zealand experienced a 10.2% increase of international visitor arrivals in the last year with many
staying for longer. The research also indicates a recent influx in Chinese visitors is plateauing while there’s been a
26% increase in visitors from USA as a result of increased air capacity across the Pacific.
Peter Hamilton, Director – Hotels and Leisure at CBRE New Zealand says the strong growth in recent years has been great
for the industry and when looking across a 10-year period, it’s clear to see when the trend began, but how sustainable
it is another matter.
“If we look to the data in the first half of the decade post GFC we see a general theme in term of a decline in ADRs for
Auckland, Rotorua, Wellington, Christchurch and Queenstown. 2011 seems to be a key year for the market with the Rugby
World Cup and the Christchurch earthquake in their own way helping to trigger a surge in occupancy and rates witnessed
in recent years.”
“It’s clear though that we’re coming to the peak of this recent trend, with some regions there already, with future
sustained growth reliant on new stock to keep pace with the demand."
Auckland
In Auckland, the report notes occupancy nearing 95% up from around 76% five years ago with ADR also increasing
significantly from around $140 post Rugby World Cup to $200 in June this year.
Peter Hamilton says this has flowed through to increasing RevPAR with the current sustained growth being fuelled by
increases in international travel for tourism and events like the Lions Tour and World Masters Games, combined with the
general economic buoyancy encouraging domestic travel.
“In Auckland in recent years it’s been all about hotels being effectively full on regular occasions and future occupancy
growth potential appears to be limited. With new stock expected in coming years , there is a real possibility for
occupancy to plateau or decrease and further ADR growth will depend on hoteliers’ ability to hold strong on room rates
in the face of increasing competition.”
Rotorua
Rotorua hotels have enjoyed occupancy close to 80% in the last two years in a market which is usually dependent on
summer months to drive visitation but recently also benefiting from increased visitation in the low season, according to
the report.
Hamilton says like Auckland with the occupancy rate reaching capacity during the high season due to a lack of supply,
there is likely to be corresponding impact on revenue in the Rotorua market.
“While rate growth has been strong over recent years , the recent drop in occupancy may result in a subsequent
retraction in growth rates of ADRs. This could be offset by a new 130 room 5-star Pullman hotel recently announced for
Rotorua which would increase hotel supply by 8.4% but also increase the overall quality of hotel stock in the market.”
Wellington
In a market that is more dependent on domestic Free Independent Travellers (FITs) and the corporate sector, much of the
improved occupancy and ADR rates in Wellington recently is seen as being linked to broader economic growth which
translates into increased business travel.
Hamilton says similarly to Rotorua, the growth in Wellington RevPAR peaked about a year ago when the increasing
occupancy trend lost momentum.
“With new supply planned for 2018 as well as currently closed hotels reopening it is expected that the RevPAR growth
will decrease further due to occupancy declines.”
Christchurch
The hotel market in Christchurch is still feeling the impacts of the 2011 earthquakes which initially led to a sharp
increase in occupancy due to loss of stock and increased accommodation needs as part of the rebuild but more recently
has seen occupancy rates decreasing as more stock has become available.
Hamilton says while the current state of the market is flat with uncertain future demand and supply, projects like the
convention centre due to be completed by the end of 2019 as well as the overall city rebuild, are expected to
substantially increase the demand.
Queenstown
Queenstown has experienced strong occupancy and room rate growth in recent years, with ADR increasing from below $150 in
June 2012 to $210 ADR in June this year.
Hamilton says this is underpinned by the level of international visitors to what is positioned as the country’s tourism
mecca.
“Queenstown attracts the highest proportion of international demand, which tends to experience greater price elasticity
than domestic demand sources. Not surprising then that the growth in ADR comes at the same time Queenstown airport has
had an upgrade allowing for night flights and substantial increases in arrivals, especially from Australia.”
Hamilton says with the occupancy level peaking in June 2016, the current ADR growth rates in Queenstown aren’t expected
to last and recent RevPAR growth rates in excess of 20% p.a. are unlikely to continue.
ENDS