New Zealand’s premier holiday destination has recorded the biggest decline in occupancy rates in the country. Queenstown has recorded double digit declines in visitor nights for four months in a row ranging from 12% in September to 11% in December.
In July 2007 I wrote of the unusual situation of ‘Visitor nights increase despite high New Zealand dollar’. Now we have an exchange rate that is nearing historic lows and falling visitor arrivals and visitor nights. A perfect storm is brewing over Queenstown.
New Zealand’s property boom has changed the face of Queenstown in recent years as developers scrambled to relieve mum and pop investors of the added equity built up in their private homes.
Banks flush with overseas money propped up developers who had little trouble in pre-selling investments to people wanting a piece of the action. These developments have manifested mainly as apartment hotels offering the golden carrot of the ‘guaranteed return’.
The number of rooms available in the resort has greatly increased due to this property boom. The development of these new apartment hotels has been based exclusively on demand by mum and pop investors and not on a demand for more Queenstown visitor accommodation. Simply, more venders trying to sell more stock to less customers.
The influx of this relative new type of self catering accommodation has resulted in a new type of traveller. The self-catering visitor now ‘eats in’ more than dines out. This has had a profound effect on the local restaurant industry.
The resorts restaurant and bar industry has also been crippled by increased competition, rentals and a colloquial city council that has restricted their operating hours in a bid to tackle Queenstown’s growing alcohol fuelled petty crime rate.
Commercial developers have also been busy in the resort. Many thousand of square metres has been added or nearing completion. Leasing agents have pre-leased most space to international or national chains that like the property investors are keen to volley for a piece of the boom town.
Chains have been specifically targeted for their ability to pay high per metre rentals. Most chain stores are accustom to paying Westfield Mall type rentals. This has resulted in record rentals being struck in the CBD. Many long established business have relocated to fringe positions as the large chain stores out bid them for lease renewals.
Most leases are based on the Auckland District Law Society Lease that has a clause that does not allow rental reductions that may be required in times of economic downturn. As new valuations are done to support rent reviews, long standing strong businesses are facing increases that are economically unviable and unavoidable for the length of the lease term.
But what has that got to do with a down turn in tourism. Simply put, national and international tenants can run stores at exceptionally high occupational costs that results in artificially high rentals setting a precedent that most retailers can not support. Many tourist operators in Queenstown are smaller businesses and will struggle to survive resulting in a decrease in services to travellers. As a commercial landlord I should personally welcome this increases in my investment yields, however only if it is through sustained growth and not through a boom then bust cycle.
Another aspect to an influx of chain type brands is the lack of a unique experience for the visitor. Australian clothing stores line Queenstown’s streets for Australian visitors, go figure.
On the positive side, Queenstown is fighting back by heavily targeting the resorts largest visitor group. Air NZ has increased its trans-Tasman service. This could be however a repositioning of planes from less profitable routes rather than a jump in demand. I have previously written with my views on this marketing plan. See ‘NZ not immune’
Either way seats will be aggressively marketed and rooms will need to be occupied. The winner will be the travelling public that will undoubtedly get bargain deals.