The government is sounding a dire warning about Queenstown’s hotel shortage. Queenstown editor David Williams checks in.

Queenstown and Auckland hotels will not be able to meet demand by 2020 if occupancy rates continue to grow at their present rate, a government report says.

The Business Ministry (MBIE) “Tourism Infrastructure” report, released in August, says “a sustained pipeline of added hotel capacity is needed to meet increasing projected demand”.

Auckland’s problems might be short-term — almost 1700 hotel rooms are in planning or already being built — but only 216 rooms are in the pipeline for Queenstown, a 7 per cent boost on the existing 3145 rooms.

Tourism Industry Aotearoa (TIA) boss Chris Roberts isn’t panicking, saying it is still possible the market would respond.

But hotel operators are bracing themselves for what is expected to be another frenzied summer, with the Ramada Queenstown’s 54 rooms being the only addition.

“We do anticipate accommodation prices to continue to rise in Queenstown and that’s really not going to change unless there’s a significant number of additional rooms added,” Roberts says.

TIA figures show the resort’s hotels were close to full in February.

Average occupancy was 94 per cent, up from 87 per cent in February two years ago, while average room rates have shot up from $165 a night in February 2014 to $220 in February this year.

Roberts says the price rises probably shocked New Zealanders but the resort is now more in line with international prices — making it a drawcard for investors.

Queenstown is competing with the rest of New Zealand and the world for investors looking for somewhere to spend that next $100 million.

“New Zealand is quite an expensive place to acquire land. Building in New Zealand’s quite expensive, being a Western country with reasonable wages our workforce is more expensive than in some other locations.”

“So there’s still a lot that has to happen to convince an investor that, yes, they’d love to build that five-star, 200-room hotel in Queenstown.”

Novotel Queenstown Lakeside general manager Jim Moore says hotels are being built and several parties have signalled their intention to build.

“It is unlikely that there would be no new hotels by 2020. The report sounds as if it is looking at a worst-case scenario that no building happened in the next four years.”

There are still hotels with “less than ideal returns” in the quieter months, he said, “… we do not want this to be worsened by a building glut.”

What Queenstown needs is sustainable growth, Moore says.

“This includes the provision of services including roads, parking, affordable and reliable public transport and also housing for staff.”

Marketing body Destination Queenstown (DQ) has spent years trying to push tourists into the ever-diminishing shoulder periods, while Tourism New Zealand is spending all of its $80 million budget on promoting autumn and spring.

And a ram-jammed summer might push price-sensitive tourists to other seasons or elsewhere in the region.

Does a full and expensive Queenstown carry a reputational risk?

DQ chairman Matt Hollyer says no — so long as people are getting value for money.

“If we get a sense that the customers are not happy with that sort of pricing I’m sure it’ll come back in the survey results. But at the moment there’s a high satisfaction rating so there doesn’t seem to be an impact at the moment. But absolutely, as a marketing organisation we’ve got to watch that stuff.”

The MBIE report comes at a time when tourism infrastructure is in the spotlight. Government agency New Zealand Trade and Enterprise, working with TIA, MBIE and Tourism New Zealand, has embarked on a global mission to woo hotel investors, dubbed “Project Palace”.

A government-commissioned report released in May estimated the country would need a further 26 hotels over the next decade to soak up rocketing tourist numbers.

In May, after a spike in tourists freedom camping, the Government announced a $12m fund to help small councils with infrastructure.

During a Queenstown visit in August, Prime Minister John Key said a $1 billion fund to fast-track council infrastructure development would be “broadly” spent in Queenstown and Auckland.

TIA has appointed consultants Deloitte to undertake a national infrastructure assessment, which will be published next month.

Tourism infrastructure

• In Queenstown, 3-to-4-star hotels are full during January, Queenstown’s peak tourism month.

• Last year, Queenstown was the second-largest destination for international tourists (820,000) behind Auckland (1.5 million).

• Air transport capacity has grown exceptionally in Queenstown, up 97.9 per cent from 2013 to 2014, and 23.8 per cent from 2014 to 2015.

• Analysis of one booking website shows Queenstown and Wanaka holiday homes are charging an average $374-a-night, 77 per cent higher than the national average.