Following a record year of hotel sales in New Zealand, the industry is set to take another step forward after the recent government announcement signalling a gradual reopening of the border in 2022, according to the latest Hotel Market Snapshot Report from Colliers.
New Zealanders can return to Aotearoa later this month with travellers from other parts of the world able to enter New Zealand from no later than July.
National director of hotels at Colliers Dean Humphries says this will provide an incredible shot in the arm for the hotel industry, which has faced considerable challenges during the COVID-19 pandemic.
"Hotel operators are ready to welcome international arrivals, including leisure travellers, people visiting family, friends and relatives, and business travellers, with open arms again and this will allow them to continue on the road to recovery that should gather momentum as the year progresses," Dean says.
"Despite international travellers not being able to travel to New Zealand, we have witnessed a significant increase in domestic demand since the pandemic took hold in March 2020, although this has been impacted to some degree by a number of lockdowns. The recent outbreak of the Omicron variant has again stalled momentum, which is likely to further impact demand for the remainder of the first quarter of this year."
While 2021 presented headwinds, hotel occupancy improved in three of the five main regions across New Zealand.
The average daily rate also continued to show resilience, with all regions (except for Queenstown) witnessing an increase on 2020 levels, led by Rotorua and Christchurch. This growth was underpinned by strong domestic demand and a large cohort of hotels contracted to the MIQ system.
On the sales front, more than $400 million of hotel deals were settled in 2021, representing a staggering 33 per cent increase on the previous highs of 2010 and 2015 that saw $300 million of sales recorded each year, and nearly three times the 10-year average of $150 million per annum.
The sales included high-profile assets such as the five-star Sofitel Queenstown, 280 room Rydges Wellington, and the recently completed luxury lifestyle hotel QT Auckland.
"Factors contributing to the increase in activity vary but the pandemic is the main driver of activity in the market," Dean says.
"Whilst there have been very few distressed sales, some owners have been more motivated to sell, especially if a buyer presents a fair, non-distressed offer.
"More than 80 per cent of hotel transactions were to domestic purchasers, due largely to the inability of international investors to enter New Zealand due to border closures. In the five years preceding COVID-19, international buyers made up 50 per cent of all transactions.
"Existing hotel investors remain the most active in the market, looking to grow existing portfolios both geographically and by segmentation."
One of the big players to emerge in the past three years is NZ Hotel Holdings, a strategic partnership between the $60 billion NZ Super Fund, The Russell Property Group, and Lockwood Property Group.
This entity remained the most active investor in 2021, purchasing three strategic assets worth more than $250 million. Since the commencement of the partnership in 2019, the portfolio has now amassed a total of seven hotels comprising close to 1400 rooms and is now the fourth largest hotel investor in the country by room count.
Dean says hotels remain a highly appealing investment opportunity and confidence is high among buyers as they believe the future is bright.
"Investors are looking at counter cyclical opportunities to expand their existing portfolios and new investors are looking to enter the market.
"In almost all cases, these investors predict tourism will rebound strongly post COVID-19 and so will investment returns. Hotel yields also remain above other key asset classes offering attractive post-COVID-19 stabilised returns of six to eight per cent."
