Rotorua businesses fear they may lose out on a "spike" in Australian visitors because many city bed spaces are taken up by emergency housing and managed isolation.
And the impact is already being felt with some businesses finding domestic tourists are choosing to make day-trips due to a lack of accommodation.
Rydges Rotorua, Ibis Rotorua and Sudima Rotorua have been operating as managed isolation facilities since last year. Their contracts are up for renewal on April 30 but each provider has already indicated it wanted to continue as isolation facilities, a managed isolation and quarantine (MIQ) spokesman said.
A Ministry of Business, Innovation, and Employment spokeswoman said 487 rooms were used for returnees, but would not specify how many total usable rooms the hotels had.
Hospitality NZ accommodation sector Rotorua vice-chairman and Aura Accommodation owner Nick Fitzgerald said the guest capacity of the city had changed in the past 14 months due to rooms being used for emergency housing and MIQ.
"There's a heck of a lot of capacity that's no longer there."
Fitzgerald estimated the combined number of rooms across the three isolation facilities was around 600, which would be "at least 1000 people".
"That's a real concern, we're missing out on opportunities to have people stay and spend money in our region."
He said the lack of rooms meant there would be fewer people in town which flowed through the local economy — reducing numbers at tourism attractions and at food, beverage and retail outlets.
"There's a lot of things we don't have immediate control over, but there needs to be a priority in that we can get real quality accommodation to the market quickly."
For his own motel, Fitzgerald said after the travel bubble announcement there had been a lot of bookings from Australia for October and November but nothing immediately after the borders open.
"It's lost opportunity if someone goes to book in Rotorua and can't find accommodation and choose to stay elsewhere, that is a real concern."
Adventure tourism operator Peter Waerea Kingi said a few hundred people were through their attraction, which he did not want to be named, each day over Easter with some saying there was no accommodation and to book in either Taupō or Tauranga and make day trips.
Kingi said visitors he spoke to were not aware of the three large hotels being used for managed isolation and some motels offering emergency housing.
"I do understand why these hotels and motels are doing this ... if it wasn't for these situations a lot of businesses would be closed so they have had pretty much no choice."
Hospitality NZ Bay of Plenty branch president and Hennessy's bar owner Reg Hennessy said the lack of accommodation put other businesses in hospitality and tourism at risk if there was nowhere to stay.
Volcanic Air Safaris director Tim Barrow agreed and said the issue had been raised by the operators.
He said there were concerns around security and safety on Fenton St, and it was a "balancing act" with managed isolation facilities, which the country needed.
"It's important that the accommodation offering in Rotorua is of quality."
Barrow said the important thing was rebuilding and the company was "very excited" to welcome Australians back in.
Prior to the pandemic, international visitors made up 94 per cent of their market, and while Australians were not a huge part of that, it would be "significant" and he was developing a plan to promote the business to that market.
There was a lot of uncertainty around how the bubble would play out in these early stages, and it was a wait-and-see situation to evaluate demand as they head into their winter off-season, he said.
"We're confident Australia will see New Zealand as a tourist destination."
Todd McClay, MP for Rotorua, said the lack of accommodation was "a really serious concern and needs to be addressed quickly".
"The travel bubble opening could be a lifeline for businesses in Rotorua who have struggled and face closure."
He said this relied on Rotorua being marketed to Australia and having places for tourists to stay.
McClay said he spoke with visitors during Easter who either could not find a place to stay or did not feel safe where they stayed in and around Fenton St, and were "forced" to have a day trip instead.
"We'll only benefit from the Australian dollar ... if visitors can actually come and get the accommodation experience they desire."
He said the Government and Rotorua Lakes Council needed to return the city to a tourist town and "stop using it as a dumping ground for homelessness".
Ministry of Social Development regional commissioner for social development Mike Bryant said the organisation did not proactively relocate people to Rotorua, and it was "extremely important" that no one had to sleep rough.
"We are committed to ensuring that people who come to us in urgent need have somewhere to stay.
"Ideally, no one in Rotorua would be homeless, but when they are, we are here to help with emergency accommodation while longer-term options are explored."
Bryant said they would "continue to monitor the situation and work closely with moteliers to understand their capacity".
A spokeswoman from Destination Rotorua said there was "an immediate increase" of 4.5 per cent on their website from Australia after the announcement of the bubble.
Heavy-weight tourism operator Te Puia said there was a "definite spike" on their website from Australia after the announcement.
Chief executive Tim Cossar said news of the transtasman bubble brought relief and excitement as Australians, who always made up a good chunk of their total visitors, were crucial to their future success.
Te Puia has kept its doors open since reopening in July, continually working on refining and innovating experiences for Kiwis, he said, which will continue when Australians arrive.
Around 20 staff made redundant during the worst of the pandemic had been reemployed since reopening in July, and there were currently 56 full-time staff.
Rotorua Economic Development interim chief executive Andrew Wilson said the city had always been able to accommodate both domestic and international visitors.
He said they anticipated those who opted to work at a reduced capacity over the past 12 months will increase their number of beds available to cater for the influx of visitors.
Mayor Steve Chadwick said the council shared the community's concerns about the use of motels for emergency accommodation.
"Addressing Rotorua's housing crisis and community safety concerns are central to our draft 2021-31 Long-term Plan, which is currently out for consultation.
"Everyone agrees the current emergency housing situation is untenable, but as many will also understand, the housing crisis is extremely complex and can't be resolved overnight.
"We are not sitting on our hands doing nothing. We continue to work closely with Te Arawa and central government agencies on housing solutions for our district and will continue to lobby hard on behalf of our community.
"We have been extremely clear that Rotorua cannot be a homeless 'dumping ground' and that motels can absolutely not be a medium or long-term solution to our housing issues.
"I look forward to the meeting Todd said he would have with me following his public meeting to discuss what came out of that."
The fire took place around midnight and took firefighters three hours to control.