New Zealand's tourism industry risks losing its competitive edge unless the country's political leaders do more to encourage hotel development, property experts and tourism chiefs warn.

New Zealand's tourism boom, driven by the country's growing international appeal and the expansion of air services, is pushing up demand for hotels across the country.

High occupancy rates in Auckland and Queenstown are leading to significant price rises, and there is real concern that New Zealand could fast run out of accommodation space.

Government studies have highlighted needs to build an extra 4526 hotel rooms, above and beyond what is already planned, to be able meet demand by 2025.


Bayleys director of hotels and tourism Nick Thompson says these forecasts show New Zealand is ripe for a multibillion-dollar escalation in hotel development.

"To be able meet visitor demand by 2025, reports show New Zealand needs to build an extra 4526 hotel rooms, above and beyond what is already planned," he says.

"While we keep seeing domestic and international appetite for new development, hoteliers are very aware that new products need to be well located and therefore securing sites is key to a successful development.

"While some sectors of the real estate industry are starting to question if the market is reaching a 'peak' we can see nothing to interrupt the visitor demand and therefore growth in hotel values is set to continue for the foreseeable future."

The surge in international visitor arrivals, especially from China and Australia, has boosted the economy - with annual tourism revenue up from $28 billion in 2014 to $34.7 billion last year. It has also led to high occupancy rates and an increase in room rates: the average rate paid per night for an Auckland hotel room by international holiday-makers in December 2016 was $206, up from $176 in December 2015.

Faruk Balli, Associate Professor in Economics and Finance at Massey University, says the Government can do more to encourage hotel development such as offering tax breaks to developers or offering incentives for them to build in less high-profile areas of natural beauty, particularly in the South Island. "Hotels can create their own demand - if you build it, the tourists will come," he says.

Balli argues that though New Zealand is highly competitive in the global tourism market, "its infrastructure lags behind keys competitors, and this is becoming an increasing problem. Infrastructure is key to growing return visits. Hotels are important part of that, but tourism infrastructure also includes road and rail networks, airport facilities and retail."

The tourism industry as a whole has identified the shortfall in visitor accommodation as its number one infrastructure challenge. The shortage is particularly evident in Auckland and Queenstown, although accommodation providers in Rotorua, Wellington and Christchurch have also reported reaching capacity during peak seasons.

It estimated there was $1.1 billion worth of hotel projects under way or in the planning stages in New Zealand. Auckland accounts for 50 percent of new rooms from these projects, but 80 percent of the total spend (due to large-scale high-rise hotel towers). The stock of hotel rooms in Auckland is projected to increase by almost 20 per cent once all current developments, including the New Zealand International Conference Centre, have been completed.

Tourism Industry Aotearoa chief executive Chris Roberts says New Zealand is well on its way to growing annual tourism revenue to $41 billion by 2025, but called on Government leaders to do more to attract investment.

"Our challenge now is to encourage international visitors to disperse to all parts of the country, and to come to New Zealand in autumn, spring and winter," Roberts says. "However, we do need to invest for success. We need well-targeted investment in infrastructure so we can sustainably manage future growth.

"Government, both at a local and national level, needs to be far more imaginative in its response. People in other countries are intervening in the market to attract hotel developers and New Zealand risks being left behind."

Perhaps the most serious concern within the sector is a proposed bed tax in Auckland. The city's mayor, Phil Goff, wants to introduce a targeted rate on accommodation providers to help cover the cost of promoting Auckland to tourists.

The rate has been labelled unfair by not only hotel and tourism chiefs but also senior figures in business community.

Auckland's Chamber of Commerce chief executive, Michael Barnett, claims it will deter hotel development in Auckland while Roberts says it could force smaller motel, backpacker and holiday park operators out of business.

"In heaping $27.8 million a year in additional charges on commercial accommodation providers, the council is also failing to recognise the wider contribution this sector makes to Auckland through employment, sponsorship, community support, marketing and support for the city's business associations," Roberts says.