Hotel sector springs back to life

9:52 AM Wednesday October 1, 2014 Colin Taylor

Palmerston North's Travelodge Hotel sold in the first half of the year.

Construction projects will add 1117 rooms.

There are increasing hotel sales and new hotel construction activity, with the industry showing signs of renewed optimism that is expected to continue into 2015, says Dean Humphries, national director of hotels at Colliers International.

"The trend has been noted right across the country, based on strong tourism and trading fundamentals creating record occupancy and room rates in many of our major capital cities and tourist destinations," Humphries says.

"Despite media attention being focused particularly on the Chinese property investment market, domestic investors still comprise the main players in the hotel market at present," he says.

Auckland is leading the charge, followed closely by Christchurch and Wellington. A number of new hotels are under construction in the three main centres and many more are in the pre-development phases.

Some of the larger projects under construction are the 130-room Sofitel in Customs St, Auckland; a 73-room extension to Ibis Budget at Auckland Airport; the 130-room Sofitel, Wellington; a 270-room hotel for 165 Cashel St, Christchurch; a 200-room hotel for Victoria Square, Christchurch; a 100-room Novotel for New Plymouth; a 44-room Ramada Suites for Christchurch; a 40-room extension to Sudima Hotel in Christchurch; and the 130-room Distinction Hotel in Dunedin.

The Ibis Budget extension is scheduled for completion this year while the remainder of the hotel projects have openings next year - except for Victoria Square, Christchurch, which has a 2016 opening.

The total number of rooms that will be added by these projects is 1117.

Humphries says that, in addition to the construction activity, there has been a twofold increase in sales this year over the same period last year.

"This is yet another signal that the hotel sector is showing signs of recovery. While transactional levels remain significantly below 2010 to 2012, when over $468 million of hotel assets changed hands, there are increasing inquiry levels and activity in the market which is encouraging," Humphries says.

Hotel sales recorded in the first half of 2014 included:

The former 283-room All Seasons hotel at 165 Cashel St, Christchurch, to the Russell Group of Companies. This hotel was closed after the February 2011 earthquake and is being repaired and will reopen towards the end of next year as an internationally branded hotel.

Travelodge Palmerston North, a four-star 85-room hotel with some of the largest conferencing and food and beverage facilities in provincial New Zealand, sold to the Distinction Hotel Group for a price believed to be between $7 million and $8 million.

The 90-room Shotover Lodge in Queenstown sold for $6.7 million.

The Forsyth Barr Tower in Christchurch has been sold to a local consortium which is converting the building to a 4.5-star upscale hotel of about 200 rooms.

A large tranche of units in the Quba Apartment Complex, Quay Park, Auckland, has been sold to the Russell Group of Companies and will be converted from residential apartments to a 130-room, 4.5-star internationally branded apartment hotel, due to open next year.

Humphries says while there are suggestions the Hilton Hotel at Kawarau Falls, Queenstown, has been sold to offshore interests, details have not been confirmed. He says despite the improvement in the market, many hotel owners remain reluctant to sell their assets while profitability and capital values are improving.

"Existing hotel owners are benefiting from significant increases in revenue and net profitability which is translating to higher property values, particularly in the main cities and this is also starting to flow into provincial New Zealand."

However, a number of offshore investors are considering their divestment options to take advantage of the strong New Zealand dollar, with Colliers International Hotels recently being exclusively appointed to sell the 3.5-star Kingsgate Hotel in Wellington for its overseas owners.

"This purpose-built 108-room 3.5-star hotel, located close to Parliament, is expected to receive considerable inquiry given its strategic location and the shortage of hotels currently on the market," Humphries says.

"We are seeing increasing levels of interest in hotels in New Zealand both from domestic and international investors, who view our country as a strong growth play over the short- to medium-term. This should lead to some investors reviewing their divestment strategies."