Hotels springing up in New Zealand to close room shortage

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A rendering of the InterContinental hotel in Auckland, scheduled to open in 2022.

With Kiwi tourism hitting all-time highs, New Zealand has emerged as a hotbed for hotel development.

In Auckland alone, roughly 2,500 new rooms are slated to come on line in the next five years, with upscale Western brands like InterContinental, SO Sofitel, Ritz-Carlton and Park Hyatt among some of the city's high-profile projects.

While Auckland is New Zealand's most populous urban center and a major tourist gateway, the trend extends well beyond one city. Industry players welcome the supply influx, which is expected to help ease an ongoing hotel shortage in the country.

"Tourism has overtaken dairy as our No. 1 export, and although we have long forecasted this growth, we haven't been able to ensure that the infrastructure to support it has been in place," said Steve Armitage, general manager, destination for Auckland Tourism, Events and Economic Development (Ateed). Fortunately, he added, home-sharing platforms like Airbnb have helped close the accommodations gap in recent years.

According to the trade group Tourism Industry Aotearoa (Aotearoa is the Maori name for New Zealand), international visitor arrivals rose nearly 7%, to 3.7 million, in 2017. Though Australia and China have long accounted for the largest share of New Zealand tourists, Armitage said the U.S. is also contributing to the spike.

Recent government data from Stats NZ reveals that American vacation arrivals hit nearly 225,000 this year, versus roughly 211,000 in 2017. U.S. visitors are benefiting from increasing connectivity, with Air New Zealand, for example, set to begin nonstop service between Chicago and Auckland next month.

By 2025, Stats NZ predicts that total international visitor arrivals to New Zealand will reach 5 million. 

Virginia-based Travel Leaders adviser Mike King, an Australia and New Zealand specialist, said, "There's definitely an increase in interest in New Zealand. I have more demand for New Zealand travel right now than I usually see this time of year. Demand usually slacks off a little in the summer, but it has not slacked in the least this year."

A rendering of the SO Sofitel Auckland, scheduled to open in November.
A rendering of the SO Sofitel Auckland, scheduled to open in November.

King credits New Zealand's widespread recognition as the setting for the "Lord of the Rings" and "Hobbit" movie franchises as well as the country's wine regions and famous hiking trails with helping to stoke long-term interest in the destination. 

Hotel accommodations, meanwhile, have failed to keep pace with the rapid tourism growth. A 2016 government report projected that New Zealand would have a shortfall of more than 4,500 hotel rooms by 2025, a number exacerbated by the fact that the country is set to host both the America's Cup yacht race and the Asia-Pacific Economic Cooperation summit in 2021. 

With officials under increasing pressure to solve the hospitality crisis, New Zealand's Trade and Enterprise agency roughly two years ago launched Project Palace, an initiative designed to attract hotel investment. 

Armitage said, "Project Palace was introduced as a solution and included a series of international road shows, which provided a way to talk directly to developers about predicted visitor growth and existing capacity and demonstrate that there was a real need and opportunity to invest."

In the wake of Project Palace, hotel development in New Zealand has ramped up significantly. AccorHotels, for example, has partnered with developer CP Group for an official November opening of the SO Sofitel Auckland, a 130-room property in the city's downtown Britomart district. 

Kerrie Hannaford, AccorHotels director of sales and marketing for the South Pacific, said the opening will mark "the first SO Sofitel in the Pacific region, and that truly is a testament to Auckland. The city has really come into its own in the last seven to eight years." 

Other major developments include the expansion of Langham Hospitality Group's Cordis, Auckland hotel to some 650 rooms by 2020, making it the largest hotel in New Zealand. They also include SkyCity's New Zealand International Convention Centre development in Auckland, which is slated for completion in late 2019 or early 2020 and includes construction of the 303-room Horizon Hotel. 

Also of note is the recently announced InterContinental in Auckland, which is being developed by Precinct Properties and is expected to open by 2022. The 244-room InterContinental will be located on the waterfront as part of the city's new Commercial Bay mixed-use development, which will also feature retail and office space. 

Concurrently, InterContinental Hotels Group (IHG) has inked a deal with Australian developer Ninety Four Feet to open New Zealand's first Hotel Indigo in Auckland by 2021, and the company has also detailed plans to bring the first non-U.S. outpost of its wellness-focused Even brand to the city.

Abhijay Sandilya, IHG's senior director of development for Australasia, said, "Over the last five years, Auckland hadn't seen significant supply growth. Construction costs are some of the most expensive in the world, and historically, because of stagnant average room rates, development of new hotels just wasn't feasible. But now we are going into a cycle where [the average daily rate] in New Zealand is up by as much as 14% to 15%, so we're seeing a huge amount of activity."

Overtourism concerns

This rampant development, however, comes as New Zealand finds itself grappling with the threat of overtourism. Some residents and environmental activists have voiced concern over the country's sharp increase in visitors, which they say puts a strain on the country's infrastructure and endangers the pristine ecosystems for which New Zealand is known. 

In an effort to alleviate some of these worries, New Zealand recently announced it would levy a tourist tax, which is set to go into effect next year. 

Meanwhile, organizations like Ateed have linked with tourism partners to work toward sustainable growth of the country's tourism sector. Earlier this year, in collaboration with hoteliers, Auckland Airport, Air New Zealand, Tourism New Zealand and other stakeholders, Ateed launched its Destination Auckland 2025 strategy focused on building the city's tourism sector in a more measured, thoughtful way.

"We have to look after the product in a better way than we have at this point," Armitage said.

AccorHotels' Hannaford said, "The 2025 goal is about how we can sustain this beauty but also cater to the next phase of tourism."

Noting that Accor's strategy puts an emphasis on job creation, training and destination management, Hannaford said, "We know there's still room for a lot of growth, but we understand that we need to find a balance, and we're not going to overstep that."

In King's view, however, overtourism concerns in New Zealand might be somewhat overblown because, "In New Zealand, there's some balance. It's nowhere near as overcrowded as other popular destinations, like Iceland. Some areas, like the geothermal sites in Rotorua, are definitely crowded, but things aren't yet at a level that can't be controlled."

 

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