5th October 2018
What Auckland Hotel Room Investment Yields Mean for Airbnb Opportunities
Back in 2016, a report created by New Zealand Trade and Enterprise predicted the need for thousands of more hotel rooms in Auckland and New Zealand as a whole. With the primary focus being the year 2025, the organisation highlighted the growing rates of domestic and international tourism shown by the nightly occupancy rising from 70% to 84% in a short period of time.
Now in 2018, as we draw closer to major international events and a summer that’s set to see the highest numbers of tourism on record, Auckland City has a huge opportunity for investment in the accommodation industry. As predicted, New Zealand currently reaches peak capacity on a regular basis and is set to see surging guest nights over the next couple of years and for the foreseeable future.
In a recent article by interest.co.nz, standard rental yields were compared with that of a one bedroom apartment in the Spencer on Byron Hotel on Auckland’s North Shore. The apartment under focus was purchased as a hands-off property investment purposed for use in the hotel’s operation. After remediation work performed on the hotel room, the total purchase price was valued at $422,387.
Once the hotel was bought by an investor, the company then pays rent to the owner. The rental rates paid by the hotel are a net gain for the owner as the hotel pays rates and body corporate fees on their own accord. The income for this property in 2017 was $17,116 and while this will change each year based on occupancy rates, it shows a great earning potential from this investment.
Interest.co.nz points out that the 2017 return for this hotel investment “is a gross rental yield of about 6.2%”. In their comparison of these earnings with standard rental rates, this situation is significantly higher than “the 3.9% to 4.6% range for typical rental stock at current prices”. This case study shows a much higher return for the hotel investment than that of a typical long-term rental property.
As we can see based on interest.co.nz’s snapshot of a hotel investment property, short-term rentals tend to perform much better than their traditional counterparts in the current Auckland market. These results paint an extremely positive picture for New Zealand’s accommodation market and highlight potential opportunities for those looking into property investment in 2018.
It’s clear from tourism rates, upcoming large-scale events and a lack of required hotel rooms that occupancy is forecast to reach booming national levels. These rates show a fantastic outlook for hotels in the years to come, however, they also make it evident that everyone in the accommodation industry can take advantage of this thriving sector of our economy.
For those that prefer the simplicity of managing their own property investment and avoiding the hassle and often underlying costs of dealing with hotels, platforms like Airbnb have opened up doors. It’s now possible for anyone with the means to purchase a house or apartment to tap into the accommodation market directly. When done right, this can mean the earnings of a hotel investment (like the one analysed by investment.co.nz) without a hotel company’s interference.
While buying a hotel room for the purpose of investing in the property market has been a popular form of earning across the world, it does come with downsides. For many, the idea of getting into this type of commitment is undesirable for the following reasons:
- Hotels are inflexible. There is often no chance of booking your own hotel room if you ever want to use it as you are entering into an agreement with the hotel company. Don’t expect free or even discounted rates. On the other hand, you’re able to choose when your property is occupied via Airbnb. This means that if you ever need it, your property can be free for you to use.
- The Risk is Higher. It can often be difficult to raise the required cash to purchase the hotel room given some wariness from banks about the investment as a whole. If you’re in a situation where you will need to take out a mortgage to make a purchase, you may have some trouble getting the loan from your preferred provider (depending on your personal circumstances).
- There are not as many options. There are a limited number of hotels in Auckland City (made clear by the hotel shortage) while there are new properties on the market every day in the residential sector. Purchasing a cookie-cutter property isn’t for everyone and doesn’t necessarily equate to appeal in the short-term accommodation market and in resale value.
- Seasons will have a dramatic impact. Hotel occupancy rates are extremely dependant on the seasons and while the entire market is impacted to an extent, you’ll be able to use a variety of different tactics to draw people in during low-season on Airbnb. This is where control of your nightly-rates come in too, as you have the freedom to adjust pricing accordingly.
The same forecasts that apply to hotel investments can be used to predict potential earnings from Airbnb, Booking.com and other vacation rental platforms. With occupancy rates shooting higher each year, a demand for hotel rooms becoming increasingly apparent, and New Zealand featuring on the world stage more and more, those considering these routes can be confident in their possible venture’s results.