As Auckland braces for another bumper accommodation summer, one expert is warning a rash of hotel building projects is threatening profits for investors.
Wim Ruepert, director of the Horwath HTL consultancy, says returns have been falling despite calls for more accommodation to satisfy the capital’s booming tourist demand.
Ruepert told stuff.co.nz he was looking at the sector from the viewpoint of investors and operators running an accommodation property.
“We look at the perspective of when a hotel is opened, what makes a sustainable market that provides a return? Returns have been falling.”
He says a staggering 41 hotels are on the drawing board for the city over the next five years, with developers scrambling to complete projects before the upcoming APEC summit and America’s Cup and to take advantage of burgeoning Asian demand.
It means Auckland will see another 6500 rooms added to its total inventory – an increase of 89 percent of the current major hotel supply. Twelve projects are currently under construction, totalling 1800 rooms.
“If we assume that only projects which have been announced will proceed, supply is expected to increase by 24 hotels, or 3900 rooms over the next five years,” Ruepert told stuff.co.nz.
“Such an increase of just over 50 per cent of existing major hotel supply would trouble most hotel investors in any city.
“If you’re going to drop 3000 to 4000 new rooms onto the market it’s going to affect returns.”
In April, the New Zealand Herald reported nationwide hotel occupancy at an all-time high – a trend created by demand outstripping supply, according to Colliers International.
The Herald said: “New Zealand accommodation providers hosted a record number of guest in the year to the end of February, reinforcing suggestions the sector could do with more capacity”.
But Rueperts predicts Auckland’s annual occupancy levels over the next decade will fall below 80 percent.
“When you look at April through to August the occupancy drops significantly,” he said.
For the eight months to August, the return per available room for the major Auckland hotels dropped by four percent compared with the same previous period as 600 new rooms opened across the city. While occupancy rates sit at an impressive 82.6 percent, they are the lowest in four years.
Ruepert warns that the capital’s accommodation businesses need to maximise rates during peak seasons and avoid excessive discounting at other times in order to bolster returns.