International visitor numbers reached new record levels in early 2017 surpassing 3.5 million for the first time. The lift in visitor numbers saw spending too, reach record levels with tourists pumping over $10.1 billion into the economy.
The stunning growth of the sector has been of huge benefit to the Country’s economy with income generated by tourism surpassing that of the dairy sector. The industry’s share of GDP has increased significantly over the last two years.
The speed of growth has, however, put pressure on tourism infrastructure. Central government and local councils are faced with the dilemma of finding ways to raise funding for the required upgrades without dis-incentivising the sector’s plans for expansion
Visitor Growth Broad Based
International visitor numbers have reached new record levels consistently since late 2014 with annualised figures surpassing 3.5 million for the first time in January of 2017, a 23.5% increase in just two years. Between 2004 and 2012 the increase was just over 9%.
Encouragingly for the sector, visitor growth, over 2016, was positive from all 37 of the national markets tracked by Statistics new Zealand. While Oceania and Asia remain the country’s largest markets it is the Americas region which saw the most rapid growth over 2016. In the 12 months ending 2017 visitors from Australia numbered 1,415,696 significantly ahead of the second largest market, China from which just over 400,000 people visited.
Tourism Boom Drives the Economy
Rocketing visitor numbers and tourist spending has seen the tourism sector’s share of the economy climbing sharply over the last two years.
The Tourism Satellite Account published by Statistics New Zealand (Stas NZ) shows that in the year to March 2016 tourism generated a direct contribution to GDP of $12.9 billion, or 5.6% of GDP. As recently as 2014 the direct contribution was just $10.9 billion. The direct add value to the economy has therefore risen by 18.4% over two years having increased by just 8.8% between 2008 and 2014.
As at March 2016 188.136 people were directly employed in tourism a figure which equates to 7.5% of all people employed in New Zealand. The employment figure was up 3.5% over the March 2015 total.
In addition to the above there are significant indirect benefits to the economy generated by tourism Stats NZ put the value add to the economy, from industries which support tourism at $9.8 billion or 4.3% of GDP.
International Tourism Expenditure Reaches New Record
Total international tourist expenditure surpassed $10 billion for the first time in 2016 according to the Ministry of Business, Innovation and Employment’s (MBIE) International Visitor Survey (IVS). The total spend was $10.1 million up 4% over the 2015 figure and 36.5% on s014 total.
Australian tourists remain the largest contributors to total expenditure with China, despite a slight softening over 2016 holding on to the second position ahead of visitors from the USA.
While down slightly on 2015 Chinese expenditure at $1.653 billion equates to a remarkable increase of 316% since 2010 when expenditure stood at just 397 million. At that time China was New Zealand tourism’s fourth largest market.
Forecasts Project Strong Growth
Forecasts prepared by MBIE for the period to 2022 project further strong growth in both international tourist numbers and expenditure.
Total international visitor numbers are picked to exceed 4.5 million in 2022 while spending is forecast to reach an annual total of just over 16 billion.
The growth is to be driven, according to the forecasts, primarily by increased visitor numbers from China and Australia. The forecast figures anticipate Chinese visitor number to reach nearly 921,000 by the end of the forecast period up from the current level of approximately 400,000. The lift in Australian tourists will see the annual total increased by approximately 210,000.
As at February 2017 both visitor numbers and spending have surged ahead of forecasts with estimated spending reaching nearly $10.9 billion and visitor numbers standing at 3.544 million on an annualised basis.
Upgraded FTA to boost Chinese Tourism
In November of 2016, the New Zealand and Chinese governments agreed to work towards upgrading the Free Trade Agreement which currently exists between the two nations. In March a number of initiatives were announced some of which centred on encouraging increased tourism from China. These initiatives included:-
An announcement on an increase in the maximum number of direct flights per week between China and New Zealand under the Air Services Agreement. The flight cap was lifted from 49 to 59 immediately, with an additional 11 flights later in the year pending a further discussion between agencies. The reason stated was that tourism is a key driver of growth. Increased flight frequencies facilitate greater ease for two-way people movements, and increased airfreight capacity for New Zealand products to China.
There was also agreement on simplifying movement of people through measure to include the granting of five year business/tourist visas and the use of SmartGate for Chinese passport holders. It is anticipated that these initiatives will encourage growth through the flow of tourists and businesspeople. The five year visa encourages return tourist visits, which typically involve more extensive itineraries to new areas, helping support growth in the regions.
The final announcement was in reference to 2019 being a China-New Zealand Year of Tourism.
Pressure on Infrastructure to Spur Investment
It is becoming clear that the surge in tourism is putting existing infrastructure under pressure.
The tourism sector has experienced far faster growth over the last two to three years than most anticipated. This, combined with a near hiatus in hotel development, post GFC, has meant that demand has outstripped supply.
Hotel occupancy within the five main tourism centres of Auckland, Rotorua, Wellington, Christchurch and Queenstown have increased sharply over the last two years.
Over the course of 2016 average occupancy across Auckland hotels was 82.5% while in Queenstown the figure was 80.1%. In the peak month of February occupancy in both centres was approximately 90%.
A government commissioned report, published in early 2016, estimated that a shortage of approximately 4,526 hotel rooms could arise by 2025 if demand and supply projections proved to be correct.
At present room shortages in Auckland, in particular, can be acute when major events are taking place. A supply response has begun with a number of projects underway or proposed for the near future. There are though a number of obstacles to development which hamper a rapid increase in the supply pipeline.
Many of these constraints are common to all forms of commercial development within the City, such as, high land costs, rapidly increasing building costs, a shortage of construction workers. In addition though forecasts predict strong growth in international visitor arrivals, there is still uncertainty in the market about the level and persistence of this growth. Building and resource consent processes can delay construction projects, slowing how quickly supply responds to demand.
In order for new development to be financially viable therefore returns from room rates need to increase.
While, in this respect, conditions have improved over the last two to three years with average room rates rising to reach approximately $185 according to Statistics from Tourism Industry Aotearoa (TIA). This rate however, remains below 1996 levels if inflation is taken into account. The future prognosis is though promising. With occupancy sitting at elevated levels further increases in room rates appears inevitable. Projections within the government commissioned Project Palace report saw average room rates reaching $225 by 2025,which will further encourage development.
Signs of development response are already evident in Auckland with a number of schemes planned or having been progressed. Auckland Tourism Events and Economic Development (Ateed) has reported that 19 new builds or hotel refurbishments are slated for completion by 2030. A list of some of the more high profile developments is shown in the table below.
While a majority of hotel development is currently occurring in Auckland other major centres are also seeing a lift in activity.
Funding Infrastructure Debate
While the development of accommodation is left primarily in the hands of private investors and developers the cost of rolling out infrastructure to support the growth of the tourism sector falls predominantly upon the public purse.
Roading, port facilities for the cruise industry, public transport services, wastewater and energy systems and public amenity within tourist areas all need to be upgraded and maintained in order for New Zealand to continue to compete on the global stage for the tourism dollar. While it is acknowledged that the nation’s natural environment provides the greatest drawcard infrastructure is required to support the range of activities which visitors enjoy.
In the 2016 budget the government announced an increase of $45 million in funding, over four years, to tourism in order to assist the sector achieve its goals of providing high-quality experiences that attract high-value visitors to regions all year round. This funding announcement builds on the $130 million a year the government currently spends through Vote Tourism.
Local councils within the major tourism regions are exploring options aimed at raising additional funding to meet the costs of providing infrastructure and in promoting their region.
In Auckland the Council has proposed a targeted rate of 150%+ to be levied upon accommodation providers. The rate would equate to approximately 4% of gross revenue for accommodation businesses.
The accommodation industry argues that the proposal unfairly targets the sector which is just one of many that benefits from tourism spend. The industry argues that MBIE research has found that the retail, café and restaurant, transport and tourism activity sectors all attract a higher percentage of visitor spend than accommodation providers.
It is also argued that, at a time when massive investment in new accommodation is required, the targeted rate policy acts as a huge dis-incentive to potential investors.