Hotels stay the distance

With New Zealand’s usually porous borders closed to tourists for the foreseeable future, the hotel sector faces unparalleled disruption – but there are glimmers of light.

Hotels, Tourism and Leisure - Issue 2020/2021

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Less than a year ago, tourism was New Zealand’s number one export earner on the back of soaring numbers of visitor arrivals.

It is sobering to look at those arrival numbers in the midst of a global pandemic, with our borders closed to everyone except returning Kiwis.

For the month of June over the 2010- 2019 period, overseas arrivals averaged 177,883, peaking in 2017 with 230,088 arrivals. According to NZ Customs data, this dropped to just 11,270 arrivals in August 2020.

Naturally, this has translated into significant drops in hotel occupancy with an average 20.31 percent decline in average national occupancy for the year ending August 2020, according to Hotel NZ data.

Unsurprisingly, the greatest drop off was seen in the traditional tourist hotspot Queenstown – down 26.4 percent, while the lowest decline was for central New Zealand including Taupo, Taumarunui, Ruapehu, Gisborne and Hawke’s Bay, down an average 10.4 percent. Likewise, revenue per available room (RevPAR) has declined most in Queenstown, and least in central New Zealand.

A raft of new hotels are expected to launch in Auckland this year despite the uncertain times, including Hotel Britomart, Park Hyatt Auckland, Travelodge Wynyard Quarter and QT Auckland.

SkyCity's long-awaited International Convention Centre in Auckland is now expected to be completed by mid-2023, and its associated Horizon Hotel has deferred opening until mid-2022.

Accommodation providers have been side-lined in the Government's $400 million Tourism Recovery Package and there have been calls for some of the Covid Response and Recovery Fund to be allocated to the accommodation sector.

Bayleys’ director hotels and tourism Paul Dixon, says the 32 hotels designated as Government-run managed isolation and quarantine facilities throughout the country used exclusively for people who have recently arrived in New Zealand, will have welcomed the guaranteed income.

“It’s allowed these hotels to cover overheads and mitigate some of the losses that other hotels might be experiencing, but in the bigger picture, it’s a small proportion of accommodation stock.

“During the first two weeks of lockdown in New Zealand, it was very clear that hoteliers would be facing some tough times as the impacts of COVID-19 began to become more apparent.

“I spent many hours assisting hotel owners and companies in their liaisons with the Ministry of Business, Innovation and Employment and the Ministry of Health to provide data on hotels that could be utilised as isolation facilities and this was a valuable community service at that time.”

Dixon says pre-COVID-19, the domestic market made up around 55 percent of New Zealand hotel occupancy, but that was underpinned by a pretty strong economy.

“A push for New Zealanders to support local and see more of their ‘backyard’ went some way to providing business to hotels once the country went to level 1, with occupancy levels improving in the South Island to around 35 percent and even better in Northland, Rotorua, Bay of Plenty and Auckland.

“Hotels in Queenstown have certainly worn the brunt of the international tourist tap being turned off and Auckland’s return to level 3 lockdown had a major impact on the South Island ski season trade across the board.”

While both Australia and New Zealand remain committed to establishing travel bubbles as soon as it can be safely done, a second wave of the virus centred on Melbourne followed by Auckland’s resurgence, has turned the clock back.

“The country definitely needs a trans- Tasman bubble if we are to see some sort of normality return to the hotel and tourist market,” says Dixon.

“As Australians may not be able to visit Asia, the UK or Europe for some time yet, New Zealand will be an appealing option.

“Until a vaccine is developed or a new way of approaching the issue of borders is addressed, the current reality will be with us for some time and it will be hard to sustain the value in hotel property for the immediate future.”

New Zealand’s inherent tourism credentials will still be there once the pandemic is under control and Dixon says investors and owners recognise this.

“Offshore funders and investors are looking to invest in New Zealand thanks to our well-managed pandemic health response and knowing that the country will rebound.

“Meanwhile, proactive hotel owners and managers have used the pause in the market to reassess and forward-plan to help them become more sustainable and more resilient.”

Bayleys national director of valuations and advisory, Carl Waalkens, says a two-tiered market may emerge post-COVID, with regional tourism assets such as budget and motel accommodation being better positioned to withstand value decline due to stronger levels of domestic tourism.

“On the other hand, hotels positioned towards international tourism are receiving little reprieve in regard to reduced tourist numbers and this is resulting in challenging investment parameters.

“As such, valuers will be contemplating reduced cashflow forecasts and occupancy rates while perhaps applying deferral periods until normal trading may resume.”

Privately-owned New Zealand family business Safari Group, has been successfully developing and building mixed-use hotel/apartment complexes and stand-alone hotel projects around New Zealand for 25 years.

Director of the Safari Group of companies, Damien Taylor, says it currently has three hotel/mixed-use developments under construction – Ramada Newmarket, Ramada Wellington and LQ Kawarau River Queenstown – and there has been minimal, if any, disruption to the delivery dates.

“Because we were tracking ahead of programme before COVID-19 struck, we have been able to absorb the delays caused from the level 4 lockdown and have really only lost a handful of days against the overall programme,” he says.

“Since COVID, we have also committed to two further developments – going unconditional on a site in Ellerslie for a $150 million hotel and apartment development and committing to a $35 million existing heritage building in Wellington for conversion to a 5-star Tryp by Wyndham hotel.”

“We have parked the proposed Tryp by Wyndham Queenstown for a small breather so we can give Queenstown time to recover, but in short, Safari Group is still very much charging ahead.

“COVID-19 is a short-term blip in a very long-term proposition for us.”

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