New investment, set to combat New Zealand’s hotel room shortage forecast, could possibly create an oversupply in some areas.

Colliers International's hotel division estimates there are 2900 rooms under construction in Auckland, Rotorua, Wellington, Christchurch and Queenstown, with a further 8400 projected. 

Project Palace, a New Zealand Trade and Enterprise (NZTE) initiative to stimulate hotel investment is set to revise its forecasts for the five main tourist centres. The expected shortfall of 4526 three to five star rooms by 2025 has been revised to 2390.

More hotels are being built, but estimated demand by domestic visitors was lower than expected during peak times when Auckland and Queenstown were near capacity, according to NZTE General Manager Investment Dylan Lawrence.

NZTE's latest hotel report said high occupancy rates had led to significant price increases in most regions.

Queenstown’s average daily room rate jumped 30 percent over the past two years to $199 for the 12 months to the end of March, while the ADR for Auckland was $180.

Colliers National Director of Hotels, Dean Humphries said despite not much happening outside the main tourist areas, Auckland’s development had doubled in the past year,  with demand driven by the international convention centre due to open in 2019, and the 22,000 delegates expected to attend the APEC summit a couple years later.

Queenstown, with its scarcity of land and long approval processes, makes it difficult to fill the urgent need for more hotel rooms, but there are currently 200 rooms underway and more than 2400 proposed.

Converting office buildings, or using cheap, fast, cheap modular designs are options for developers to consider to help with the high building costs. 

Hotel consultant Michael Pusinelli of Horwath HTL said, "If we chuck another 800 or 900 rooms into the Auckland market, and we're half way there all ready with what's under construction at the moment, we've got to make sure we don't go into over supply."

"What a lot of people tend to forget is that, prior to the earthquakes, Christchurch hotels were running at about 65 per cent occupancy . . . if everything [lost] had been simply replaced, they'd have gone straight back into oversupply," he said.

"So how that they bring the new inventory into the market now is quite critical to the success of the hotels."

Pusinelli also suggested developers to consider the market when planning so many 5-star hotels – "it's a status symbol for a lot of them" – and said hotels should offer the equivalent to airlines’ mix of business and economy class seats. 

"Typically most people would rather spend their money on activities and experiences than on the cost of a bed."

"Ten years ago a three star might have been pretty average, but now with new building techniques and new ways of designing rooms they can be pretty nice," said Regional Tourism Organisations New Zealand head Charlie Ives.

Contact Dean Humphries of Colliers International to discuss the hotel outlook in New Zealand.