Based in Sydney, Australia, Foundry is a blog by Rebecca Thao. Her posts explore modern architecture through photos and quotes by influential architects, engineers, and artists.

Tourism, Lifestyle & Resort Businesses

When REINZ asked Richard Hemingway, Director at Nexus Business Sales, based out of Wanaka in the Queenstown Lakes area of the South Island, about working in Tourism, Lifestyle and Resorts, he leapt at the opportunity to share some thoughts.

Tourist numbers have never been higher in New Zealand. It seems that trend is set to rise further in the future, This applies to both domestic and international tourism.

In 2006, NZ received just under 2.4 million international visitors, by 2016 this number has risen to almost 3.3 million, with an increase of around 25% over the last 3 years, and up more than 10% in the last 12 months alone. Of these, two thirds come from Australia, China, the US and the UK. 

Analysing the reason for travel, 80% come to NZ for holidays or visiting relatives and friends, whereas less than 10% arrive here to do business.

What we see out of this as brokers is a high number of visitors “falling for” NZ, and with holiday brain firmly in gear, we have many enquiries, which are very genuine at the time they are made, but find a reality check when people arrive back home.

For February 2016, compared with February 2015:

National guest nights were up 7.0 percent (the 23rd consecutive month of rises), with total guest nights at around 4 million for the month
North & South Island guest nights are roughly evenly split, with both showing increases
Domestic and international guest nights are also evenly split, and both showing positive trends
All four accommodation types (hotels, motels, backpackers and holiday parks) also had more guest nights.

With average occupancy across all types of accommodation being at 55%, there would seem to be capacity in the system for growth. Of these, hotels and motels are trading at over 75% occupancy, whereas backpackers (55%) and holiday parks (around 30%).

Thus, a business in the tourism sector has potential to deliver solid returns, given the right operator and location.

As has been noted in this column by previous authors, specialization is important. Where we are servicing clients in a sector, they have a right to expect a deep understanding of their industry, allowing us to give an accurate appraisal of value, and insights as to what is happening in the marketplace. 

Enquiry in the tourism sector comes from various sources, including NZ, the US and Australia, with a number of other countries making up the balance, including an increasing prevalence of Asian investors. We are seeing an increase in contact from corporate groups in the accommodation and hospitality sectors, indicating the positive sentiment towards the NZ economy generally.

Similarly, we are seeing through the mainly South Island regions we service, a trend towards moving out of the bigger cities (both here and abroad) for lifestyle reasons. Whilst data is a little harder to come by in macro terms, we see this clearly in enquiry patterns. This takes a few forms: 

  • One factor is the increasing number of Kiwi expatriates looking to return home in the next couple of years.
  • Another trend observed by our South Island brokers is the increased inquiry from the North Island, people having been in lucrative employment and now looking not only for a lifestyle change, but also wanting to have a go at being their own boss. Accommodation businesses can be an appropriate conduit to help realize this dream of living and working in a tourist area, as they can negate the need to rent or buy their own home. 
  • Our brokers are also noticing an increase of genuine enquiry from international investors, either as a change in direction, or as an addition to an existing portfolio. Whilst we, as brokers, are not immigration advisors, it is important to understand the general foreign business investment framework. The NZ government provides easy to read and comprehensive information on the subject of investing in NZ from overseas on their immigration website.

Lifestyle businesses are interesting in terms of return on investment, as we see investors blending personal expenditure with business investment. Most frequently, these businesses include freehold land and buildings, and when the investment is taken as a whole, returns will sit well below usual business investment parameters, 

Business in tourist resorts is cyclical by nature, and it is an important factor for purchasers to understand that these cycles come with staffing, management and working capital issues. Again, with the increased influx of tourists, the peaks and troughs appear to be evening out over the last couple of years in many places, making it easier for business owners to make a good living. 

Many of the tourist hotspots in NZ are very small population areas. Traditionally, buying a business in such a spot has meant buying yourself a job, with limited opportunity for employment outside the business purchased.

All these factors work together to create an interesting and dynamic market for this class of business. As mentioned, it is important in order to be successful as brokers, for us to develop a deep understanding of the market sectors we service, and tourism related business are certainly no exception. 

The Future of Industry