INTERNATIONAL CONVENTION AND EXHIBITION CENTRE

Transcription

1 INTERNATIONAL CONVENTION AND EXHIBITION CENTRE FEASIBILITY STUDY Prepared for CONSULTANTS TO THE HOTEL, TOURISM & LEISURE INDUSTRIES A member of Horwath International prepared in conjunction with

2 CONTENTS 1. INTRODUCTION AND EXECUTIVE SUMMARY 3 2. HISTORICAL CONFERENCE ACTIVITY CURRENT AND EXPECTED FUTURE MARKET TRENDS NEW ZEALAND S COMPETITIVE POSITION SITE SELECTION CRITERIA AND LOCATION ANALYSIS SCALE CAPITAL EXPENDITURE ANALYSIS OPERATING PROJECTIONS ECONOMIC IMPACT ANALYSIS / BENEFIT-COST ANALYSIS PUBLIC / PRIVATE OWNERSHIP, GOVERNANCE, OPERATIONS 91 APPENDICES 1A. BENEFIT-COST CALCULATIONS 96 1B. TECHNICAL DETAIL OF THE NZIER MODEL INTERNATIONAL PCO SURVEY FEEDBACK FROM THE CONFERENCE COMPANY CLIENTS INTERNATIONAL BAR ASSOCIATION CONVENTION NOTES NEW ZEALAND VENUE COMPARISON ASIA PACIFIC INTERNATIONAL CONVENTION AND EXHIBITION CENTRES INTERNATIONAL ASSOCIATION CONFERENCES WITH NZ CONTACT INTERVIEWEES / INFORMATION SOURCES 136 International Convention and Exhibition Centre Feasibility Study Page 2

3 1. INTRODUCTION AND EXECUTIVE SUMMARY 1.1 BACKGROUND A Reference Group has been formed to oversee this feasibility study. The Reference Group comprises: (John Duthie, General Manager, City Development) Ministry of Tourism (Ray Salter, General Manager) Ministry of Economic Development (Louise Marra, Director, Government Urban and Economic Development Office) Conventions and Incentives New Zealand (John Duncan, Chair). The project has been managed on behalf of the Reference Group by: (Gareth Stiven, Group Manager Economic Development) Ministry of Economic Development (Jami Williams, Chief Advisor, and Tariq Ashraf, Senior Policy Analyst, Government Urban and Economic Development Office). 1.2 SCOPE OF WORK AND APPROACH The agreed scope of work and approach is documented in the engagement letter from Auckland City, dated 30 April 2009, which is based on the Request for Quotations letter dated 14 April 2009, our letter dated 20 April 2009 and dated 22 April The scope of work and approach is as follows: conducting a robust assessment of the market for the proposed international convention and exhibition centre. This has involved: o an assessment of economic climate and market. This has included conducting discussions with CINZ, leading convention centres and PCOs in New Zealand and Australia on current trends in conference activity with specific focus on the Asia / Pacific region; and undertaking a review of the ICCA database of the international convention centre activity concerning past shocks and the recovery o an environmental considerations assessment concerning convention activity, convention centre design and market assessment. This has included conducting discussions and securing relevant sustainability information from MCI and global organisations such as Green Meetings Industry Council, Convention Industry Council based in the US, Green Globe Standards. From within New Zealand we have obtained International Convention and Exhibition Centre Feasibility Study Page 3

4 information from CINZ s Sustainability Action Group. This has also addressed the impact of the pressure to reduce carbon miles and any subsequent demand impacts o an assessment of the impact on the market of changing technology. This has included conducting discussions with CINZ, leading convention centres and PCOs in New Zealand and Australia regarding current trends in: impact of communications and marketing (eg: social networks) on buyer behaviour and convention delegate attendance numbers impact of immersive telepresence on conference content and convention centre infrastructure / technology requirements impact of conference-related trade exhibitions on conference economics and convention centre design and functionality requirements impact of Awards programmes on delegate / accompanying person attendance and convention centre design and functionality requirements impact of ever-changing AV requirements (and supply-led development of technology capability) on convention centre design and functionality requirements trends in delegate / conference organiser adaptability to (or lack of) technology / gimmicks completing an economic impact assessment on the Auckland and New Zealand economies including sensitivity analysis. This work has involved: o a review of existing data prepared from earlier studies of the convention centre options; amending the data in light of changes in projected visitor numbers or expenditure; modifications resulting from the peer review (undertaken by Covec); and conceptual differences required for use in the next stage o putting the direct economic impacts into the NZIER CGE model as an external shock. The NZIER CGE model has a base run showing economic aggregates based on current economic forecasts. The resulting model outputs have been compared to the base run, with the differences representing the economy-wide impacts, in aggregate and by main component of economic activity o modelling a number of scenarios based on medium, high and low visitation rates and up to three convention centre options. The estimates from the model are of the national impact and also estimate regional direct and indirect impacts within the outputs of the national model (ie: the distribution of impacts between Auckland and other regions, including direct impacts arising from pre- and post- conference touring and satellite conferences) completing a cost benefit analysis that addresses non-economic factors: International Convention and Exhibition Centre Feasibility Study Page 4

5 o building on the economic impact analysis, applying a suitable discount rate to the time profile of costs of the convention centre (both investment and any other costs such as rates subsidies) and direct economic impacts (and total), to estimate the Net Present Value of a centre o undertaking a review of the existing assessment of these, and any equivalent studies abroad, with a view to refining the assessment and if possible, forming a view as to the order of magnitude importance of each of these identifying facility requirements and specifications including dimensions such as footprint and total gross floor area: o undertaking a review of previous architectural work, IAPCO convention centre design / space criteria, updating criteria where required or justified and determining GFA requirements taking into account recent / emerging trends, New Zealand s competitive position in the international market, critical success factors for competitive international convention centres, relationship with site and surrounding area / buildings / supporting infrastructure / services, etc confirming the criteria for site selection, and assessing the high-level viability of a few sites against these criteria. The approach has involved: o working with members of the consulting team to review, update, modify and confirm the site selection criteria, including weightings of criteria o obtaining approval from client on the selection criteria and weightings o undertaking an independent assessment of scoring the different sites against each criterion with supporting rationale for scoring each criterion o providing results of site assessment and conduct discussions with the client prior to including into the feasibility study identifying examples of successful ownership models that could be applicable for Auckland, including analysis of the governance arrangements, management and operational arrangements and upfront and ongoing finance and funding arrangements. This has included utilising our networks to identify: o the most relevant best practice examples of convention centre developments and operations (to the New Zealand context) in Australia, UK, Europe, USA, South America and Asia o relevant information in relation to the most relevant examples, from an owner operator perspective. In the short time available we have undertaken the following key steps to achieving the scope of work: reviewed existing available research regarding conference demand in New Zealand and the need for / opportunity for new conference facilities, including a review of Committee for Auckland s previous research International Convention and Exhibition Centre Feasibility Study Page 5

6 interviewed key conference industry stakeholder representatives including: o Conventions and Incentives New Zealand ( CINZ ) o THE EDGE o SKYCITY Entertainment Group o Tourism Auckland o The Conference Company Ltd contacted a conference industry consultant in Australia to assist in information about trends in international conferences additional research as required to address the objectives outlined above, including: 1.3 DISCLAIMER o updated general trends in the global convention market, from the ICCA conventions database o assessed the exhibition space requirements of international conventions o reviewed the business case submissions made to the Christchurch City Council regarding the proposed significant expansion of the Christchurch Convention Centre. This report and the projections included in it have been prepared on the specific instruction of the reference group. Neither the report nor its contents, nor any reference to our firm may be included or quoted in any document without the prior written consent of Horwath HTL Ltd. This report is based on estimates, assumptions and other information available to us, the sources of which are stated in the appropriate sections of the report. We did not carry out an audit or verification of the information supplied to us during the engagement, except to the extent stated in this report. We advise that the projections and forward looking statements presented in this report are based on estimates and assumptions which are inherently subject to uncertainty and variation depending upon certain evolving events. Accordingly, we do not present the projections as results which actually will be achieved. Actual results achieved may vary from the projections and the variation may be material. Horwath HTL Ltd assumes no responsibility whatsoever in respect or, or arising out of, or in connection with the contents of this report to parties other than the reference group. If any other parties choose to rely in any way on any advice provided by Horwath HTL Ltd to you, even with our approval, they do so entirely at their own risk. International Convention and Exhibition Centre Feasibility Study Page 6

7 1.4 EXECUTIVE SUMMARY The primary rationale for developing a new international convention and exhibition centre for Auckland is to substantially improve New Zealand s capability for hosting medium to large-scale international conferences and related exhibitions / tradeshows. This involves winning such conferences over competing countries (especially Australia) and hosting them with the minimum of compromises. New Zealand has some capability for hosting small to medium sized international conferences at present, and New Zealand has hosted some reasonably large international conferences in the past. However, we are facing increasingly significant constraints and competitive disadvantages when compared to international facilities and locations, especially when compared to our closest competitor, Australia. The key target conferences where New Zealand does not currently have good competitiveness is in international association (ie: non-corporate entity) conferences of over 1,000 delegates. Historical Conference Activity There has been substantial growth reported in the number of larger international association conferences held annually in the period , with the strongest growth being in meetings of 1,000 2,000 delegates (6.7% per annum Compound Annual Growth Rate (CAGR)), where New Zealand currently does not have strong capability. The rate of growth has also been strong in the largest conferences, although the total number of such conferences is smaller. There has been no trend of reduction in the number of conferences in any size category during the period. There has been stronger growth in international association conferences hosted in the Asia / Middle East / Pacific region during the period , only interrupted by the outbreak of SARS in the region in The data shows that New Zealand achieved a CAGR (between 1999 and 2008) of 6.3% (above Australia at 2.9%). Figure 1.1 summarises the performance of New Zealand in the context of Australasia, Asia / Middle East / Pacific region and the World. The 38 conferences held in New Zealand in 2008 represent a share of 0.5% of total conferences. These conferences had an average size of 467 delegates compared to the world average of 638 delegates. 1 1 The average size of conferences reported has fallen mainly as a result of in increase in the number of smaller conferences reported by new / additional hotel venues. International Convention and Exhibition Centre Feasibility Study Page 7

8 Figure 1.1: New Zealand s Share of International Association Conferences 1999, Number % of Asia/ME/Pac 19.0% 13.6% Growth (10 yrs) +35% Average Size (Refer to Table 2.1 for annual growth) New Zealand (not to scale) Australasia (not to scale) Number % of Australasia 13.5% 17.3% Growth (10 yrs) +73% Average Size (Refer to Table 2.1 for annual growth) Number 4,424 7,475 Growth (10 yrs) +69% Average Length Average Size Asia / ME / Pacific (not to scale) World Number 857 1,612 % of World 19.4% 21.6% Growth (10 yrs) +88% Average Length Average Size (Refer to Table 2.1 for annual growth) The data indicates that New Zealand has punched above its weight in terms of winning international association conferences within the Australasian and world markets over the past decade, even with limitations of facilities. This can partly be attributed to the Christchurch Convention Centre (which opened in 1997) and SKYCITY Auckland Convention Centre (which opened in 2004) becoming established in the international market, and improved marketing and targeting of international conventions by Conventions and Incentives New Zealand in conjunction with the leading venues and regional convention beaureus. In addition to these regional and international conferences, New Zealand taps into the Australian domestic market for association conferences ie: those conferences normally hosted only in Australia but which come to New Zealand on occasion. These conferences do not meet the ICCA criteria of international association conferences. Australian corporate conferences (as well as corporate conferences from further afield, to a lesser extent) are also a target for the New Zealand conference industry. The strong growth in international conference activity in the Asia / Middle East / Pacific region has partly been stimulated by the substantial growth in large-scale convention and exhibition centre developed in Asia and Australia during the past years. The schedule identifies the date of opening, and (where applicable) expansion of the facilities. This confirms a significant expansion in convention centre supply, and an even greater expansion in exhibition space. Many of the Asian facilities have been developed as icons of national pride for hosting regional and international inter-governmental meetings and conferences. Hosting large-scale regular trade shows has also been a significant driver of the expansion of exhibition facilities. International Convention and Exhibition Centre Feasibility Study Page 8

9 In the case of Australia, a significant factor in the development and expansion of facilities has been driving economic impact at a state level. Therefore, winning national conferences and exhibitions (which attract inter-state conference delegates) is important, as well as winning international conferences and exhibitions, for many of the Australian venues. Current and Expected Future Market Trends Sustainability has become a key focus in the international (and local) conference industry largely because of increased awareness and concern of consumers regarding the carbon footprint of travel. This may become an increasingly significant factor in conference buyers considering the choice of destination for international conferences in the future, responding to the views and perceptions of conference delegates. This presents a risk to New Zealand (and Australia) in terms of marketing to and winning international conventions, assuming environmental concerns continue to be top of mind to the consumer, although the risk is less in relation to domestic, Australasian and Asia / Pacific conferences. Australasian destinations may become proportionately less favourable over time than if there were no environmental concerns. It is unlikely, however, that distance will become the critical decision factor in the choice of location, even if it is still one factor, for most international conferences, although it may become a critical decision factor in the choice of location for international conferences 2. There is no particular reason why convention delegate arrivals to New Zealand would be worse affected than leisure visits from international visitors. Arguably, leisure travel is more of a luxury and discretionary nature and therefore less justifiable than international conference attendance. For example, it will always be important for professional training and development for doctors to attend medical conferences, the largest international association conference segment. Improved video conferencing technology provides both risks and benefits for the conference industry. The risks are around the potential for substitution of video conferencing for travel to meetings and conferences. To the extent that this risk is real, it is more significant in relation to corporate meetings of short duration (eg: part or full day meetings) rather than multi-day conferences, and generally in relation to smaller groups rather than larger groups. It is unlikely that video conferencing is a practical alternative to multiday international association meetings and conferences. The benefits of improving communication and video conferencing relate to the increased ability to have expert input from a wider range of presenters (including 2 Alan Trotter, CEO, Conventions and Incentives New Zealand International Convention and Exhibition Centre Feasibility Study Page 9

10 keynote presenters) by video link as a substitute to their attendance in person. This allows greater flexibility, richness and depth in conference content, and greater cost efficiency. Evolving communication technologies provide both risks and opportunities for the conference industry. The risks involve increasing use of the internet and other on-line forums for communicating and sharing information and ideas globally. There is the potential that increased sharing of information, ideas and thought leadership through increasingly effective and cost-effective technology solutions could reduce the degree of reliance of some organisations (both corporate entities and associations) on face-to-face meetings and conferences, and therefore result in fewer conferences than might otherwise be the case. Similarly, such communication channels may mean that conference delegates could be more challenging to attract, and delegate numbers be more difficult to achieve than previously. The benefits of evolving communication technology for international conferences relate to marketing opportunities. New Zealand s Competitive Position New Zealand s competitive position is currently compromised by the fact that three of our largest venues (THE EDGE, Wellington Convention Centre and Christchurch Convention Centre) are all multi-purpose venues that rely on arts-focused spaces to provide them with the critical scale. Furthermore, for conferences of any significant size (eg: 600 delegates plus) that require exhibition space, it is necessary to have delegates moving between multiple buildings. These current arrangements mean that from a pure physical facility perspective, New Zealand is becoming an increasingly uncompetitive destination, particularly as cities in Australia and Asia continue to upgrade and expand their facilities. Despite this, New Zealand is continuing to attract a small number of international conferences. This can partly be attributed to the increased marketing effort that is being applied (eg: the Ministry of Tourism-funded Conference Assistance Programme operated by Conventions and Incentives New Zealand). In a general sense, therefore, New Zealand s key current weaknesses relate to venue scale, quality, and functionality while the country s key strengths relate to its destination appeal and support infrastructure. There are a number of specific opportunities that New Zealand can leverage in order to optimise the outcomes from developing an international standard convention centre. Key opportunities include: International Convention and Exhibition Centre Feasibility Study Page 10

11 100% Pure New Zealand marketing campaign and brand recognition targeting international conferences hosted in Australia development of a distinctive venue that showcases New Zealand In seeking to increase New Zealand s share of the international conference market, it is important to acknowledge key challenges that New Zealand will need to overcome, including: New Zealand is a long-haul destination carbon miles implications, wash down factor the emerging tendency for conference venues and / or destinations to buy conferences. Site selection criteria and location analysis Proximity to a critical mass of appropriate standard hotel rooms is regarded as the single most important attribute due to the convenience this provides conference organisers and delegates. Based on the location attributes identified above, a CBD location is the most obvious and advantageous option for an international convention centre. This is primarily because the CBD is the only precinct that provides the critical mass of appropriate accommodation to support the centre s operation. Furthermore, existing transport links and infrastructure have been designed to primarily service the CBD area, and the CBD has the greatest concentration of existing meetings infrastructure and entertainment facilities. Scale We have undertaken interviews with key buyer and seller representatives in New Zealand and the leading Auckland venues 3 regarding the optimal scale of convention centre. The clear view is that the larger of three facility size scenarios (27,000 m 2 GFA) should be regarded as the optimum on the basis that: it provides much clearer incremental capability to any existing or planned conference facilities in New Zealand it is more clearly competitive with the ever-expanding capacities and capabilities of the Australian and Asian venues it provides the highest degree of flexibility and convenient and effective flow while minimising compromises it provides the highest degree of future proofing 3 Conventions & Incentives New Zealand (including IAEG-funded CAP programme); Tourism Auckland (including Business Events team); SkyCity Entertainment Group; THE EDGE International Convention and Exhibition Centre Feasibility Study Page 11

12 it provides the greatest future potential for generating maximum venue operational cashflows through maximising event numbers and utilisation. The rationale for developing an international convention centre for New Zealand is not predicated on developing an exhibition centre for stand-alone tradeshows and exhibitions, or replicating or competing with the ASB Auckland Showgrounds. Such an expansion could only be contemplated if it was planned to close down the recently expanded ASB Auckland Showgrounds. We have not assumed that the proposed convention and exhibition centre will win any exhibition business at the expense of the ASB Auckland Showgrounds. The substantial expansion of facilities in the Asia / Pacific region (especially in Asia, and in Australia) to cater for such shows and exhibitions is, in our view, not justified in New Zealand. Capital Expenditure Analysis WT Partnership have prepared capital cost estimates of alternative convention centre scenarios. Three scenarios assume a waterfront location, one a location at Wynyard Point and one a CBD location. Land purchase costs are excluded. A summary of the cost estimates follows: Bledisloe Bledisloe Other Wynyard CBD (Full) (Half) Wharf Point Site ($m) ($m) ($m) ($m) ($m) Convention Centre (excl. land) 191, , , , ,700 Additional iconic enhancement 57,510 57,510 57,510 Wharf structure premium 54, ,800 Fees, consents, other 43,612 53,219 62,827 33,548 33,548 Base cost (pre-escalation) 292, , , , ,247 Escalation (4 years, except Wynyard option: 9 years) 37,178 44,671 53,163 82,753 28,753 Total cost (incl. escalation) 330, , , , ,000 (Source: WT Partnership) Operating Projections In developing conference activity projections, we have considered the activity both in terms of the origin of the conferences and the average size of the conferences. We project the proposed facility could, on average, attract approximately 35 conferences per annum. In total, this is below the number of conferences held at the leading Australian venues (eg: Melbourne Convention Centre hosted 41 conferences International Convention and Exhibition Centre Feasibility Study Page 12

13 in 2007/08) and reflects the smaller domestic market in New Zealand relative to Australia.) In terms of international conferences, we believe the facility is likely to have a higher number of conferences than many of the Australian venues due to the relative lack of internal competition for international conferences such as exisits between the various Australian facilities. This is reflected in the 25 international conferences projected in a stablised year, compared to the 18 international conferences hosted at the Melbourne Convention Centre in 2007/08. The 25 conferences with an average size of 939 delegates represents a strong lift in New Zealand s existing market share of international conferences, with ICCA data showing that New Zealand hosted 35 conferences in 2007 with an average size of 527 delegates. Based on our financial projections, we anticipate the facility will operate broadly on a break-even cash flow basis. This level of cash flow performance is consistent with that achieved by the major Australian venues including Melbourne and Adelaide. Economic Impact Analysis / Benefit-Cost Analysis It is estimated that, when fully operational, events at the proposed facility will generate and increase of $85.4 million in tourism-related expenditure per annum (almost 22,000 additional international visitors who would not otherwise visit New Zealand, and more than 200,000 extra visitor days). 84% of the incremental visitor expenditure is associated with people who participate in conferences. There is a significant spin-off from associated visitor activity which account for over half of the visitor days and 39% of visitor expenditure. Approximately 95% of the incremental expenditure is attributable to conferences. Assuming 80% of capital costs will be funded from the public sector, the estimated capital costs have been increased by 16% (a 20% increase on the public sector contribution) to recognise the effect of deadweight loss. Land costs have been included, on the basis that these represent an opportunity cost, at an assumed $75 million for each site option. The CBD option has the lowest total Net Present Value (NPV) of costs (except Wynyard) as its capital costs are purely for construction of the convention centre. The addition of an iconic structure for the waterfront options, and the varying costs of wharf strengthening, raises the NPV of their costs. The Wynyard option differes from the others primarily in terms of its timing, with no additional site costs or iconic enhancements. The NPV of benefits is $396.7 million for all site options (except Wynyard Point) as all options assume the same income stream. The CBD option has the highest Benefit Cost Ratio (BCR). The lowest-cost waterfront option and the Wynyard option have similar BCRs. The effect of additional costs of wharf strengtheneing is to reduce the BCRs of other waterfront options International Convention and Exhibition Centre Feasibility Study Page 13

14 further. In the case of the most expensive waterfront option, its NPV costs exceed NPV benefits. If the assumptions are considered realistic, a CBD option would be favoured as it delivers the benefits from increased tourism at the earliest date and the least capital costs. In comparison, the waterfront options incur additional capital costs but secure no additional benefits. They provide additional amenity values from iconic structures in a signature location. The Wynyard option assumes the same costs and benefits as the CBD option, but with a four year delay. Given the fact that the options generally deliver net benefits, the impact of deferring these is to reduce the value of this project option. The relativity of benefits to costs between the options could change if there were significant differences in land values between the options. The above results have been applied through the NZIER Computable General Equilibrium (CGE) model of the New Zealand economy to estimate the total effects from the initial impacts of capital and tourism expenditure. The effect of the additional $85.4 million per annum in tourism expenditure is an increase in national GDP value added of $40.3 million per annum. The CGE model assumes all tourism expenditure is generated equally throughout the year, and that there is limited surplus capacity in the economy throughout the year to absorb the incremental demand. However this assumption does not reflect the underlying reality of conference demand, which occurs generally during the shoulder and low season of the international and domestic visitor industry, therefore increasing demand at times when there is usually significant excess capacity. Therefore the GDP estimates produced by the CGE analysis are likely to be significantly understated. Other potential non-quantified and intangible effects of the convention centre include: savings of offshore expenditure: New Zealanders attending events at the home-based convention centre rather than travelling overseas to the conferences held elsewhere reputational effects: hosting major conventions reinforces the perception of Auckland and New Zealand as a destination of international standing, especially in fields in which New Zealand wishes to establish its international standing (eg: emerging technologies) learning and relationships effects: the personal contacts that New Zealand conference delagtes make at international conferences, and the subsequent exchange of information, collaborative activities, business venture, etc, contributes to New Zealand s global connectedness local networking: local planning and preparation for major international conventions may provide a catalyst for local networking, including business, academia and / or the public sector, and may lead to ongoing collaboration. These effects are potentially significant but are regarded as non-quantifiable. International Convention and Exhibition Centre Feasibility Study Page 14

15 Public / Private Ownership, Governance, Operations Convention and Exhibition (Convex) Centres are substantial real estate investments (in terms of capital cost) and are not generally run on a commercial basis. The key reasons for developing international standard convention centres revolve around their ability to generate substantial economic impact and facilitate the transfer of valuable knowledge and contacts to the benefit of the local economy. It is because of these public good aspects and the large capital costs that large convention centres tend to predominantly be funded by the public sector. In order to optimise private sector funding contributions it is likely that a range of funding mechanisms will need to be pursued. There are three broad ownership options available for an international standard convention centre: private ownership through a BOOT scheme direct ownership by the public sector the creation of special purpose entities that are accountable to the public sector. These entities take a diverse range of forms. The benefit of these entities is that they are fully accountable to the public sector but are able to operate at arms length to ensure the public sector s objectives are met in the most efficient and effective manner. We note that the Royal Commission on Auckland Governance has recommended the establishment of a Council Controlled Organisation to own all regionally significant event venues, which would logically include the proposed international convention centre. The on-going governance model for the proposed centre will be a product of the ownership model that is adopted. There may be merit in establishing an interim governance structure to oversee the development of the facility. This could be akin to the Redevelopment Board that has been established at Eden Park and have specific responsibility for ensuring key stakeholder requirements are met in the development of the physical building. The skill-sets of the representatives on this governance structure are likely to differ significantly from the skill-sets sought for those on the governance structure of the ownership entity although some continuity of representation would be highly desirable. In Australasia there is a reasonably even split between in-house venue management and out-sourced venue management. The primary advantages of contracting out venue management include realising key money in return for the commercial opportunity and the potential to obtain specialist operational expertise to improve performance levels, particularly during the establishment phase. International Convention and Exhibition Centre Feasibility Study Page 15

16 The key risks of contracting out the venue management is the potential for misalignment of objectives and the potential that revenue performance may not be improved to the extent necessary to off-set the associated management fees. Historically, there has been a tendency for venue managers to out-source food and beverage services to specialist caterers. However, in recent years there has been a trend towards venue managers bringing these services back in-house to assist their profitability and ensure greater control over service standards. Conclusion The rationale for development of an internationally competitive venue for hosting international and national conferences, exhibitions and other business events is centred on: generating incremental economic impact for the New Zealand economy as a result of hosting such events providing the opportunity to showcase New Zealand to international delegates in an internationally competitive venue generating other tangible and intangible benefits which are not directly measurable in economic terms. The Cost Benefit ratios of all but one scenario analysed in this study are positive. The economic impact analysis is based on a General Equilibrium model of the New Zealand economy and is conservative because it assumes that: demand will occur for the conference and exhibition centre evenly throughout the year whereas international (and national) conference demand will tend to peak during the months March October (nine months) New Zealand s capacity to host such events will face capacity constraints throughout the year whereas the period of peak demand will coincide with the shoulder and low season demand for the required infrastructure (most importantly hotel accommodation, but also other commercial accommodation, airline and airport infrastructure, coach and other public transport, etc) when capacity is generally available and under-utilised. Because the demand and capacity constraint assumptions inherent with General Equilibrium modelling do not reflect the underlying reality of the shape of convention activity and the highly seasonal nature of international and domestic visitor activity demand on infrastructure in New Zealand, the actual incremental contribution to GDP is likely to be significantly higher than indicated in the analysis contained in this report. In addition to the conservative economic impact assumptions adopted in the analysis contained in this report, the employment and financial benefits to the visitor industry (especially in terms of the owners of tourism industry infrastructure) are likely to be incrementally substantial. International Convention and Exhibition Centre Feasibility Study Page 16

17 For example, incremental hotel room demand in Auckland (and elsewhere around New Zealand) as a result of incremental conference demand (including pre- and post-conference travel in New Zealand) will have a high flow-through to net profit during a period of the year when profitability is under significant and increasing pressure as peak season visitor demand grows (ie: November February). If, on an indicative basis, total revenue in a typical conference hotel grew by 2 3 percent on an annual basis as a result of incremental conference industry demand, it is possible that net profit before tax could grow by 4 6 percent or even 8 12 percent on an annual basis. Incremental off-season demand combined with improved overall industry profitability will result in more sustainable businesses in the tourism industry, and increased fulltime year-round employment for New Zealanders to replace seasonal / casual labour, much of which is provided by short-term migrants. International Convention and Exhibition Centre Feasibility Study Page 17

18 2. HISTORICAL CONFERENCE ACTIVITY The primary rationale for developing a new international convention and exhibition centre for Auckland is to substantially improve New Zealand s capability for hosting medium to large-scale international conferences and related exhibitions / tradeshows. This involves winning such conferences over competing countries (especially Australia) and hosting them with the minimum of compromises. New Zealand has some capability for hosting small to medium sized international conferences at present, and New Zealand has hosted some reasonably large international conferences in the past. However, we are facing increasingly significant constraints and competitive disadvantages when compared to international facilities and locations, especially when compared to our closest competitor, Australia. The key target conferences where New Zealand does not currently have good competitiveness is in international association (ie: non-corporate entity) conferences of over 1,000 delegates. 2.1 INTERNATIONAL ASSOCIATION CONFERENCE ACTIVITY The main data source relating to this conference activity is the International Congress and Convention Association ( ICCA ) database of conference activity. The ICCA database does not cover governmental / quango organisation conferences (eg: World Bank, United Nations, Commonwealth Heads of Government, etc). (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) According to ICCA, the association market covers a wide range of event types and categories: medical meetings (the largest segment); scientific; other academic; trade organisations; professional bodies; social groupings. In terms of size, budget, duration and complexity there are significant variations between and also within categories. However, some similarities can be identified: almost every specialty has an association which holds one or more meetings most associations have meetings that are repeated at regular intervals; these can be annual, biennial, etc International Convention and Exhibition Centre Feasibility Study Page 18

19 the destinations rotate, and they rarely return to the same destination within a very short time-span the initiative to host a meeting often comes from the local counterpart, eg: the national association; if that body is difficult to motivate to organise the meeting, the chances are high that the meeting will be scheduled elsewhere Association meetings have a very long lead-time; it is not unusual to find lead times of 5 years or more. it is estimated that a growing minority of about 25-30% of the decision-making processes no longer include an official bidding procedure, but have a central initiator who selects the location and venues based on pre-determined and strict criteria International Congress and Convention Association Database The ICCA database is the primary source of published quantitative information regarding non-governmental international association conferences. It is estimated that there are approximately 15,000 such association meetings organised in the world on a regular basis. 4 The ICCA Association Database has collected information on approximately 80% of them (approximately 12,000). The 15,000 association meetings include non-annual meetings, meetings which do not rotate between countries (including USA-based associations that rotate principally within the USA), and association meetings of less than 50 participants. In order to be included in the ICCA database, association meetings must meet the following criteria: be attended by at least 50 participants be organised on a regular basis (ie: one-off events are not included) move between at least three different countries. In 2009, ICCA identified 7,475 international Association conferences that were reported as being held in 2008 which met these criteria 5. The difference between the 13,000 association meetings in the ICCA database and the 7,475 meetings reported in 2008 relates to the proportion of Associations which do not hold annual meetings, non-reporting by ICCA members by the reporting deadline of 1 February 2009, conferences held at non-icca member venues, and meetings of less than 50 delegates in the 2008 year. 4 ICCA: International Association Meeting Market Statistics Report 1999 to Subsequent top-line ICCA data for 2008 indicates 7,475 conferences, an 11.9% increase on 2007 International Convention and Exhibition Centre Feasibility Study Page 19

20 2.1.2 International Association Conference Market Trends Global Figure 2.1 illustrates the global growth in the association conference market by number of participants (over 500 delegates) between 1999 and This segmentation is based only on a subset of the ICCA database where participant numbers are stored. Reporting of delegate numbers appears to be more complete in the larger conferences (over 500 delegates); however it is probable that the data in Figure 2.1 understates that actual number of larger international association conferences. Figure 2.1: International Association Conferences (> 500 delegates) Global ( ) CAGR 4.5% Number of Association Conferences CAGR 6.7% CAGR 6.2% CAGR 5.1% to 999 1,000 to 1,999 2,000 to 2,999 >3,000 Number of Participants CAGR = Compound Annual Growth Rate (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) As shown in Figure 2.1, there has been substantial growth reported in the number of larger international association conferences. There has been strong in meetings of 1,000 delegates and over where New Zealand currently does not have strong capability. There has been no trend of reduction in the number of conferences in any size category during the period. Figure 2.2 shows the growth trend in the association conference market by number of participants (over 500 delegates) including in the intermediary years between 1999 and International Convention and Exhibition Centre Feasibility Study Page 20

21 Figure 2.2: Global Growth Trend International Association Conferences by Size y = x Number of Conferences by Size y = x to to Year to to to Linear (500 to 999) Linear (1000 to 1999) (Source: ICCA: International Association Meeting Market Statistics Report ) The international association conference market is highly seasonal, as illustrated in Figure 2.3. The number of international association conferences peaks in June and September, and bottoms out in December February. International Convention and Exhibition Centre Feasibility Study Page 21

22 Figure 2.3: Seasonality of International Association Conferences Global (1999 and 2008) Number of Meetings Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) ICCA also compiles statistics (where the data is available) on the venues used by association conferences. As shown in Figure 2.4, the most popular conference venues, particularly for smaller conferences, are hotels with meeting facilities (42%), followed by dedicated conference / exhibition centres (30%) and universities (19%). Figure 2.4: Conference Venues Used Global (2008) Other Venues 9% Universities 19% Hotels 42% Conference / Exhibition Centres 30% (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) International Convention and Exhibition Centre Feasibility Study Page 22

23 Of the 7,475 international association conferences held in 2008 included in the ICCA database, 50% rotated in a worldwide manner (in the sense that they have a pattern of rotating between all major regions of the world). Another 30% rotated within Europe only. Figure 2.5 illustrates the growth trend in total estimated number of delegates attending international association conferences analysed by region between 1999 and Europe is the leading region in terms of total estimated conference attendees and has experienced the steepest linear growth throughout the ten-year period of time. As the trend line illustrates, Asia / Middle East has experienced the second steepest growth trend followed by North America. The total number of delegates to Australia has not grown over the past ten years. Figure 2.5: Total Conference Attendance by Region 3,000 y = x Number of Participants (000's) 2,500 2,000 1,500 1, y = x y = x y = x Year Europe North America Asia/Middle East Australia Linear (Europe) Linear (North America) Linear (Asia/Middle East) Linear (Australia) (Source: ICCA: International Association Meeting Market Statistics Report ) International Association Conference Market Trends Asia / Middle East / Pacific Region According to ICCA, the number of international association conferences hosted in the Asia / Middle East / Pacific region in 2008 was 1,612 with a compound annual growth rate ( CAGR ) of 7.3% between 1999 and International Convention and Exhibition Centre Feasibility Study Page 23

24 This rate of growth is 21% higher than the rate of growth reported for the world over the same period (with CAGR of 6.0%). 6 The higher regional rate of growth reflects the number of major new convention centres which opened in Asia during the period. Figure 2.6 demonstrates the consistent growth in international association conferences hosted in the Asia / Middle East / Pacific region during the period , only interrupted by the outbreak of SARS in the region in Figure 2.6: Number of International Association Conferences Asia / ME / Pacific ( ) Number of Association Conferences 1,800 1,600 1,400 1,200 1, Impact of SARS: postponements followed by bounce back Calendar Years Other Asia / ME / Pacific Australia New Zealand (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) Table 2.1 shows a further analysis of the conferences held in the region in 1999 and This highlights the dramatic growth in conference activity within Asia, especially in China, Korea and Singapore, which countries have invested heavily in new and expanded convention and exhibition centres. 6 The ICCA database includes new venues reporting conference activity, as well as actual growth in total conference activity, although it is not possible to identify what the underlying actual growth is. International Convention and Exhibition Centre Feasibility Study Page 24

25 Table 2.1: Number of Conferences Hosted within Asia / Middle East / Pacific Region Country Number of International Association Conferences Held Percentage Change CAGR Change Japan % 5.4% China % 13.9% Korea % 10.8% Singapore % 11.0% Other Asia % 7.7% Total Asia 613 1, % 8.7% Sydney % 1.5% Melbourne % 0.9% Brisbane % 0.0% Other Australia % 7.6% Total Australia % 2.9% Auckland % 8.7% Christchurch % 26.0% Other New Zealand % 0.0% Total New Zealand % 6.3% Other ME / Pacific % 1.9% Total Asia / ME / Pacific 857 1, % 7.3% (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) The data shows that New Zealand achieved a CAGR (between 1999 and 2008) of 6.3% (above Australia). The New Zealand growth has been influenced by additional venues (including hotels and universities) reporting relatively smaller conferences other than in Auckland and Christchurch. Other Asian countries that experienced high volume growth in the period included China (CAGR of 13.9%), Korea (10.8%) and Singapore (11.0%). The ICCA database shows that, of the 1,612 international conferences hosted in the region in 2008, 680 of these (42% of total) rotated only within the region (ie: not on a worldwide basis). This was up from 328 conferences (38% of total) in The number of conferences in Australasia (ie: New Zealand and Australia combined) grew from 163 in 1999 to 220 in 2008, consistent with the overall world growth, but significantly less than the overall Asia / Middle East ( ME ) / Pacific region. This resulted in a reduction in market share of Australasia within the region, and reflects the rapid growth in conference activity in Asia, and particularly China, Korea and Singapore. Table 2.2 summarises the relative rankings in terms of number of conferences hosted by country within the region. This highlights the low New Zealand share International Convention and Exhibition Centre Feasibility Study Page 25

26 achieved (13 th in 1999 and 11 th in 2008) compared to Australia s 2 nd in 1999 and 3 rd in The analysis suggests a strong upside potential for New Zealand within the Asia Pacific region. Table 2.2: Country Rankings of Number of Conferences Hosted in Asia / ME / Pacific Region Ranking Country Japan 1 1 China 3 2 Australia 2 3 South Korea 4 4 Singapore 6 5 Chinese Taipei 5 9 New Zealand (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) Figure 2.7 illustrates the mix of conference venues used in the Asia / ME / Pacific region. Approximately 44% of international association conferences were held in hotels with meeting facilities (compared with 42% globally) and 35% were held in dedicated conference / exhibition centres (compared with 30% globally). Figure 2.7: Conference Venues Used Asia / ME / Pacific (2008) Universities 14% Other Venues 7% Hotels 44% Conference / Exhibition Centres 35% (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) As shown in Figure 2.8, the majority of the Asian countries have experienced a fluctuating growth trend in terms of delegates attending conferences in the Asian region between 1999 and The combined dip in 2003 (with the exception for International Convention and Exhibition Centre Feasibility Study Page 26

27 Singapore) may be related to the bird flu resulting in fewer participants willing to travel to conferences. Figure 2.8: Delegates per County in Asia 350 Number of Participants per Country (000's) Year Republic of Korea Japan China-P.R. Thailand Singapore Other Asia International Association Conference Market Trends New Zealand Figure 2.6 summarises the performance of New Zealand in the context of Australasia, Asia / ME / Pacific region and the World. The 38 conferences held in New Zealand in 2008 represent a share of 0.5% of total conferences. These conferences had an average size of 467 delegates, compared to the world average of 638 delegates. 7 7 The average size of conferences reported has fallen mainly as a result of in increase in the number of smaller conferences reported by new / additional hotel venues. International Convention and Exhibition Centre Feasibility Study Page 27

28 Figure 2.9: New Zealand s Share of International Association Conferences 1999, Number % of Asia/ME/Pac 19.0% 13.6% Growth (10 yrs) +35% Average Size (Refer to Table 2.1 for annual growth) New Zealand (not to scale) Australasia (not to scale) Number % of Australasia 13.5% 17.3% Growth (10 yrs) +73% Average Size (Refer to Table 2.1 for annual growth) Number 4,424 7,475 Growth (10 yrs) +69% Average Length Average Size Asia / ME / Pacific (not to scale) World Number 857 1,612 % of World 19.4% 21.6% Growth (10 yrs) +88% Average Length Average Size (Refer to Table 2.1 for annual growth) (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) The data indicates that New Zealand has punched above its weight in terms of winning international association conferences within the Australasian and world markets over the past decade, even with limitations of facilities. This can partly be attributed to the Christchurch Convention Centre (which opened in 1997) and SKYCITY Auckland Convention Centre (which opened in 2004) becoming established in the international market, and improved marketing and targeting of international conventions by Conventions and Incentives New Zealand in conjunction with the leading venues and regional convention bureaus. In addition to these regional and international conferences, New Zealand taps into the Australian domestic market for association conferences ie: those conferences normally hosted only in Australia but which come to New Zealand on occasion. These conferences do not meet the ICCA criteria of international association conferences. Australian corporate conferences (as well as corporate conferences from further afield, to a lesser extent) are also a target for the New Zealand conference industry. Conventions and Incentives New Zealand is active in marketing New Zealand in the Australian market with full-time representation in Sydney, as are several of the Convention Bureaux and major venues in New Zealand. Meetings, the annual New Zealand conference industry trade show, also heavily targets Australian buyers. As a result of these initiatives New Zealand has an increasingly high profile in Australia as a destination for conferences. There are currently almost 670 conferences in the ICCA database that include within their organisation some connection to New Zealand (eg: a committee member of=n the international organisation). Figures 2.10 to 2.14 refer to this sub-set of the ICCA conference database. International Convention and Exhibition Centre Feasibility Study Page 28

29 Figure 2.10 shows the proportion of the main country base of the organisation. The largest proportion of the organisations (57%) is Europe based followed by the Americas (22%). Asia-Pacific represents a combined 19% of the organisations. Figure 2.10: Main Country Base of Organisation (with some NZ contact) Main Country Base of Organisation Not Identified 2% Americas 22% Oceania 5% Europe 57% Asia 14% (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) Figure 2.11 illustrates the frequency of the conferences (ie: how often they are held). The 25% of other conferences represents conferences that have a different kind of frequency (eg: several times a year, only each tenth year, by no particular frequency schedule, etc). International Convention and Exhibition Centre Feasibility Study Page 29

30 Figure 2.11: Conference Frequency Conference Frequency Other 26% Not Identified 3% Annual 27% Triennial 14% Biennial 30% (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) Figure 2.12 shows the rotation pattern of the conferences in the ICCA database that are represented by an organisation that has some connection to New Zealand. Figure 2.12: Conference Rotation Conference Rotation Asia/Pacific 11% Other 2% World / International 87% (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) International Convention and Exhibition Centre Feasibility Study Page 30

31 Figure 2.13 illustrates the conference activity in terms of time of the year. 79% of the conferences (for which the timing is known) occur during the New Zealand winter and shoulder period of the year compared with only 21% that occur during the New Zealand summer. Figure 2.13: Conference Activity throughout the Year Conference Activity throughout the Year October- March 10% Not Identified 53% April- September 37% (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) As illustrated in Figure 2.14, for those conferences where the usual type of conference venue is identified, 76% of the conferences, are hosted either at a Congress Centre (or Conference Centre) only or a Congress Centre in conjunction with one or more venues. International Convention and Exhibition Centre Feasibility Study Page 31

32 Figure 2.14: Venue Type Venue Type Congress Centre or Shared 29% Not Identified 62% Other (Including Hotel only, University, etc) 9% (Source: ICCA: International Association Meeting Market Statistics Report 1999 to 2008) In addition to these 667 international association conferences where there is some New Zealand contact / representation in relation to the organisation responsible for the conference, approximately 20 of these organisations are either based in New Zealand or are led by a person based in New Zealand. A list of these conferences is attached as Appendix 7. These organisations and conferences potentially may have a higher probability of being hosted in New Zealand, and are a higher priority for targeting for conference bids by CINZ (where the expected conference size within New Zealand s current capability to host. 2.2 AUSTRALIAN CONVENTION ACTIVITY The National Business Events Study 8 ( NBES ) produced by the Sustainable Tourism Cooperative Research Centre ( STCRC ) recorded a total of 20 million meeting and conference delegates in 2003, of which approximately 1% or approximately 200,000 visitors were of international origin 9. According to the study, New Zealand was Australia s largest international market representing nearly 25% of total international conference and meeting delegates. The next largest market was Europe, generating nearly 18% of total international conference and meeting delegates. 8 Latest version published in 2005 and based on 2003 data 9 According to Tourism Australia visitor arrival statistics, there were 280,300 international conference arrivals in International Convention and Exhibition Centre Feasibility Study Page 32

33 Figure 2.15 shows international conference and meeting delegates by country of origin in Australia. Figure 2.15: International Conference and Meeting Delegates in Australia Americas 17% Middle East / Africa 3% New Zealand 25% South East Asia 17% North East Asia 17% Europe 18% Other Ocenia 3% (Source: STCRC: NBES) An example of the range and type of conference activity hosted in Australian venues is contained in the Annual Report of the Melbourne Convention and Exhibition Trust. The list of international and national conventions held at the (existing, prior to expansion) Melbourne Convention Centre in the 2007/2008 financial year is as follows: International Conference on Yeast Genetics and Molecular Biology The World Conference of Neuroscience The Australia Post LPO Conference The Victorian Peri-Operative Nurses Conference The Australian Breastfeeding Association Conference The IT Service Management Forum Vascular 2007 Conference The Emergency Management Conference The Pharmaceutical Association of Australia Conference International Convention and Exhibition Centre Feasibility Study Page 33

34 The 9th Australian Palliative Care Conference The Australia and New Zealand Mental Health Services Conference Apimondia Aged Community Services Conference Australia The Australasian Association of Clinical Research Conference Australian Market and Social Research Society Conference Financial Planning Association National Conference Australian Health and Medical Research Conference Asia Pacific Congress of Heart Failure International Society of Aesthetic Plastic Surgery Conference Ottawa International Conference on Clinical Competence World Congress on Endometriosis Enviro 2008 Irrigation Australia 2008 Annual Meeting of Organisation of Human Brain Mapping World Mental Health Conference International Symposium on Forensic Science Australian Human Resource Institute Conference Scientific Meeting on Medical Imaging and Radiation Therapy. 2.3 GROWTH IN CONVENTION AND EXHIBITION CENTRES ASIA PACIFIC The strong growth in international conference activity in the Asia / Middle East / Pacific region (refer Section 2.1) has partly been stimulated by the substantial growth in large-scale convention and exhibition centre developed in Asia and Australia during the past years. Figure 2.16 illustrates the growth in conference / exhibition floor space capacity by country and venue in the Asia-Pacific Region over the past 12 years. Japan had the largest exhibition floor space until 2005 when Singapore Expo undertook a major expansion and Hong Kong opened Asia World-Expo. Australia has for this period of time dropped from third place to seventh in the Asia-Pacific Region in terms exhibition floor space capacity despite their expansions. International Convention and Exhibition Centre Feasibility Study Page 34

35 Figure 2.16: Exhibition Floor Space Capacity by Country and Venue in Asia / Pacific H Singapore Expo Intex Osaka Shanghai Asia World-Expo, Hong Kong Singapore Expo M Makuhari Messe, Chiba Bangkok Tokyo Queen Sirikit, Bangkok Melbourne MATRADE, Kuala Lumpur L Hong Kong Putra, Kuala Lumpur Brisbane Suntec, Singapore Jakarta Philippine, Manilla Nagoya Cairns Sydney COEX, Seoul Adelaide ICC Jeju, Siogwipo Gold Coast Kuala Lumpur Convention Centre SMX, Manilla Perth CNCC, Beijing Pattaya Singapore Japan Malaysia Thailand Indonesia South Korea Hong Kong China Philippines Australia (Source: Venues web sites) Note: 1. Left arrows illustrates venues that were built before 1997 and or venues that have been expanded since their original building year 2. Dashed lines illustrates venues of smaller exhibition floor space capacity than the venue with largest exhibition floor space capacity in the country 3. Solid lines illustrates the venue with the largest exhibition floor space capacity within the country International Convention and Exhibition Centre Feasibility Study Page 35

36 Appendix 6 contains a schedule of the major convention and exhibition centres in New Zealand, Australia and Asia. The schedule identifies the date of opening, and (where applicable) expansion of the facilities. This confirms a significant expansion in convention centre supply, and an even greater expansion in exhibition space. Many of the Asian facilities have been developed as icons of national pride for hosting regional and international inter-governmental meetings and conferences. Hosting large-scale regular trade shows has also been a significant driver of the expansion of exhibition facilities. In the case of Australia, a significant factor in the development and expansion of facilities has been driving economic impact at a state level. Therefore, winning national conferences and exhibitions (which attract inter-state conference delegates) is important, as well as winning international conferences and exhibitions, for many of the Australian venues. 2.4 NEW ZEALAND INTERNATIONAL CONFERENCE ACTIVITY International visitor arrivals to New Zealand for the year ended December 2008 amounted to 2.46 million, of which 2.3% (or approximately 57,000 visitors) indicated their main reason to visit was to attend a conference in New Zealand. 10 Figure 2.17 shows the growth in conference-related international visitor arrivals between YE December 2000 and Figure 2.17: Growth in Conference-related International Visitor Arrivals Conference Related Visitor Arrivals 70,000 60,000 50,000 40,000 30,000 20,000 10, YE December (Source: International Visitor Arrival Statistics, Statistics New Zealand) 10 International Visitor Arrival Statistics, Statistics New Zealand International Convention and Exhibition Centre Feasibility Study Page 36

37 The international conference market has experienced a compound average growth rate ( CAGR ) between 2000 and 2008 of 6.6%, despite a plateauing of arrivals since 2005 at approximately 60,000 per annum. Factors contributing to the growth in international delegate arrivals include: New Zealand s reputation as a safe country, building on the success of Tourism New Zealand s 100% Pure marketing campaign dedicated resourcing and focus of international conference marketing by Conventions and Incentives New Zealand and regional convention bureaus, especially in the Australian market competitive airfares, especially on the trans-tasman routes new and refurbished convention facilities becoming established in the market (eg: Christchurch Convention Centre, SKYCITY Auckland Convention Centre, Auckland Convention Centre at THE EDGE ) thereby improving New Zealand s competitiveness in the international conference market, and particularly in relation to Australian corporate and association conference markets. As shown in Figure 2.18, New Zealand s key source markets for conference-related visitors in 2008 were Australia (59%), Asia (15%) and the Americas (10%). Figure 2.18: Source Markets of Conference-related Visitors (2008) Other 8% Europe 8% Americas 10% Asia 15% Australia 59% (Source: International Visitor Arrival Statistics, Statistics New Zealand) As illustrated in Figure 2.19, between 2000 and 2008, the source markets with the highest CAGRs were Asia (9.9%) followed by Australia (7.1%). International Convention and Exhibition Centre Feasibility Study Page 37

38 Figure 2.19: Growth in Source Markets of Conference-related Visitors Conference-related Visitor Arrivals 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5, YE December Australia Asia Americas Europe Other (Source: International Visitor Arrival Statistics, Statistics New Zealand) 2.4 CONFERENCE ACTIVITY IN NEW ZEALAND MAIN CENTRES Based on the National Convention Activity Survey 11, Auckland, Wellington and Canterbury (mainly Christchurch) hosted approximately 3,500 multi-day conferences between them in the year ended June Auckland is dominant in terms of the numbers of conferences held in New Zealand. This reflects: the dominance of corporate meetings and conferences over association meetings 12, supported by Auckland s position as New Zealand s leading commercial centre the dominance of major hotels, and hotel conference venues, in Auckland 13 (eg: The Langham, Hyatt Regency, Stamford Plaza, Rendezvous and Hilton hotels) the opening of the new SKYCITY Auckland Convention Centre in 2003, and the expansion / refurbishment of conference facilities at THE EDGE at the same time. Figure 2.20 provides a summary of the number of multi-day conferences (both corporate and association) in the three main centres between YE June 2004 and Convention Activity Survey, Angus & Associates 12 Approximately 2 / 3 of New Zealand conferences are corporate conferences 13 Approximately 40% of New Zealand s major hotel room supply is in Auckland International Convention and Exhibition Centre Feasibility Study Page 38

39 Figure 2.20: Total Multi-day Conferences in New Zealand Main Centres Number of Multi-day Conferences 2,500 2,000 1,500 1, YE June Auckland Wellington Christchurch & Canterbury (Source: Convention Activity Survey, Angus& Associates) Figure 2.21 outlines the changes in market share of multi-day conferences between Auckland, Wellington and Christchurch over the period. Figure 2.21: Market Share of Multi-day Conferences 40% Market Share of Multi-day Conferences 35% 30% 25% 20% 15% 10% 5% 0% YE June Auckland Wellington Christchurch & Canterbury (Source: Convention Activity Survey, Angus& Associates) International Convention and Exhibition Centre Feasibility Study Page 39

40 3. CURRENT AND EXPECTED FUTURE MARKET TRENDS A number of current and expected future trends are addressed in this section including trends in convention centre design and capability and trends in international conference buyer demand. Appendix 2 contains the results of a survey of leading international Professional Conference Organisers ( PCOs ). 3.1 SUSTAINABILITY Sustainability has become a key focus in the international (and local) conference industry largely because of increased awareness and concern of consumers regarding the carbon footprint of travel. This may become an increasingly significant factor in conference buyers considering the choice of destination for international conferences in the future, responding to the views and perceptions of conference delegates. This presents a risk to New Zealand (and Australia) in terms of marketing to and winning international conventions, assuming environmental concerns continue to be top of mind to the consumer, although the risk is less in relation to domestic, Australasian and Asia / Pacific conferences. Australasian destinations may become proportionately less favourable over time than if there were no environmental concerns. It is unlikely, however, that distance will become the critical decision factor in the choice of location, even if it is still one factor, for most international conferences, although it may become a critical decision factor in the choice of location for international conferences 14. There is no particular reason why convention delegate arrivals to New Zealand would be worse affected than leisure visits from international visitors. Arguably, leisure travel is more of a luxury and discretionary nature and therefore less justifiable than international conference attendance. For example, it will always be important for professional training and development for doctors to attend medical conferences, the largest international association conference segment. Appendix 2(I) contains responses from international PCO s to the following questions: If NZ was to demonstrate an outstanding commitment to sustainability in its approach to its convention centre facilities and marketing, what might that look like? Do you believe that the distances involved in travelling to NZ have a negative impact on NZ as a convention destination. If yes, please describe those impacts and how long-term you think they may be. 14 Alan Trotter, CEO, Conventions and Incentives New Zealand International Convention and Exhibition Centre Feasibility Study Page 40

41 The focus of the conference industry is on how to mitigate these potential impacts / risks. The industry response is still emerging, and is being pro-actively integrated into forward planning, and involves: new convention centres being developed to rigorous environmental standards (eg: the new 6 star Melbourne Convention and Exhibition Centre) accreditation / certification of existing and new venues, organisers, suppliers, etc. There is an opportunity for the New Zealand conference industry to present a leading edge industry-wide approach to environmental sustainability. Such an industry-wide approach should be led by the flagship national convention centre. Other leading venues in New Zealand are already Green Globe certified 15 or ISO accredited 16. Green Globe is a worldwide Benchmarking, Certification and Performance Improvement programme developed specifically for industry. Green Globe assists organisations improve their economic, social and environmental sustainability while being rewarded and recognised for it. These achievements are underpinned by the Green Globe Company Standard, which sets out the guidelines, procedures and Self-Assessment Checklist organisations must follow to achieve sustainability. The Green Globe Company Standard provides organisations with a framework to conduct a comprehensive assessment of their environmental sustainability performance, through which they can monitor improvements and achieve certification. The focus is not just on green venues but on wider sustainability issues. This incorporates green and Corporate Social Responsibility ( CSR ). The international event management company MCI 17 Event Standards which includes the following extracts: has produced Sustainable Driven by industry professionals seeking clear, uniform definitions of a sustainable event, two separate and unique voluntary processes are available to meeting planners, organisers and industry suppliers: BS 8901 (the specification for a sustainable event management system) and the Convention Industry Council s APEX Green Meeting and Events Voluntary Standards. 15 Eg: Wellington Convention Centre (January 2009), Christchurch Convention Centre (applied for) 16 Eg: Wellington Convention Centre (ISO 14001, October 2007) 17 MCI Group is an independent, global association, communications and event management company. MCI provides strategy, creativity and execution in the field of association management (AMC), Congress and Exhibition (PCO), live communication, meetings, events and incentives and performance improvement programmes. International Convention and Exhibition Centre Feasibility Study Page 41

42 The current best example, and the first voluntary standard for a sustainable management system for events available to the meetings industry, is the BSI 18 BS 8901:2007 Specification for a sustainable event management system with guidance for use. BS 8901 was developed by a BSI committee comprising of events industry experts. BSI has responsibility for its review and integrity. BS 8901 is a management system that provides requirements for planning and managing sustainable events of all sizes and types. The standard is applicable to the entire range of events, from large scale conferences and unique events such as the 2012 Olympics, to music festivals and air shows. It is applicable throughout the sector supply chain encompassing venues, organising companies and industry contracting firms and is aimed at the following groups: event organisers venues organisations and / or individuals in the supply chain. If these procedures are followed and documented in the planning, onsite and post event phases, the event can earn either self-certification designation, or be eligible to be certified by a 3rd party as a sustainable event. Although it was originally created for the UK events industry, BS 8901 is being used all around the world by organisations such as Microsoft, MPI, US Green Buildings Council and the 2012 London Olympics. Towards the end of 2009, The Convention Industry Council s APEX / ASTM initiative will release green meeting standards for the meetings / events industry. The standards design team is comprised of the meeting industry standards body, APEX, and the United States Environmental Protection Agency s endorsed standards organisation. These standards will be vetted through both the APEX and ASTM process. ASTM International is one of the largest voluntary standards development organisations in the world. The standards are being developed in a consensus basis and vetted throughout the international meetings / events community. The intention behind the standards is for them to complement existing, relevant certifications and criteria. The APEX / ASTM standards will be specific, measurable, performance based criteria. They will use a ticksheet and scoring level to gauge performance. They will cover the following 9 areas: accommodation audio / visual and production 18 The British Standards Institution ( BSI ) is a leading global provider of management systems assessment and certification solutions, with more than 60,000 certified locations and clients in over 100 locations worldwide. International Convention and Exhibition Centre Feasibility Study Page 42

43 communication destinations exhibits food & beverage meeting venues on-site offices transportation. According to BSI, BS 8901 will: help companies to improve sustainable performance within available budgets reduce carbon emissions and waste, improving the resource efficiency of the entire event supply chain present opportunities for more efficient planning and encourage the re-use of equipment and infrastructure. reduce environmental impacts such as carbon usage, waste management and effects on biodiversity improve social impacts such as community involvement and fair employment establish economic impacts such as local investment and long-term viability. The MCI Supplier Code of Conduct includes the following extracts: Introduction As signatories of the UN Global Compact 19, MCI Group is committed to promoting sustainable practices in the meetings industry. This Supplier Code of Conduct (SCC) sets the minimum performance standards for the purchases our suppliers make on behalf of our company or our clients. Environmental Commitment MCI is taking action and making investments as an effort to begin to take responsibility for environmental impacts in areas under its control. We expect a strong environmental commitment and aggressive efforts to protect and restore the natural environment. We will favor partners who: have a management system demonstrating environmental commitment; publicly disclose 19 The UN Global Compact is a both a policy platform and a practical framework for companies that are committed to sustainability and responsible business practices. The Compact asks companies to embrace, support and enact, within their sphere of influence, a set of core values in the areas of human rights, labour standards, the environment, and anti-corruption. The environment principles (principles 7 to 9) are: businesses are asked to support a precautionary approach to environmental challenges undertake initiatives to promote greater environmental responsibility encourage the development and diffusion of environmentally friendly technologies. International Convention and Exhibition Centre Feasibility Study Page 43

44 environmental impacts and activities through regular reporting; eliminate toxic and hazardous substances from products and operations; increase efficiency and thereby minimize pollution and waste; reduce use of natural resources including raw materials, energy and water; take responsibility for proper waste management and any environmental problems associated with disposal of wastes; promote the use of renewable energy through support of innovation and integration in operations. MCI seeks to work with business partners who have published commitments to environmental responsibility and encourages all suppliers to seek industry specific 3rd party environmental certification as a way to express their commitment. With proven scientific integrity, triple bottom line focus and ability to build stronger businesses, MCI has a clear preference for the following certification schemes: Green Globe, Swan and LEED. Other certifications will be considered though additional performance measures may be requested as evidence of an engaged commitment to Corporate Social Responsibility. Partnership MCI understands that sustainability requires collaboration and engagement with all its suppliers. MCI invites suppliers who respect its SCC to join the effort to promote more responsible business practices and to actively do their utmost to achieve the standards outlined here. 3.2 INCREASING USE OF NEW TECHNOLOGY Improved video conferencing technology provides both risks and benefits for the conference industry. The risks are around the potential for substitution of video conferencing for travel to meetings and conferences. To the extent that this risk is real, it is more significant in relation to corporate meetings of short duration (eg: part or full day meetings) rather than multi-day conferences, and generally in relation to smaller groups rather than larger groups. It is unlikely that video conferencing is a practical alternative to multiday international association meetings and conferences. The benefits of improving communication and video conferencing relate to the increased ability to have expert input from a wider range of presenters (including keynote presenters) by video link as a substitute to their attendance in person. This International Convention and Exhibition Centre Feasibility Study Page 44

45 allows greater flexibility, richness and depth in conference content, and greater cost efficiency. Appendix 2C contains responses from international PCO s to the following questions: What should be the role of convention centres in delivering technology based services, eg: audience polling, live broadcasting, web casting, satellite links? Options might include (a) no role at all and everything outsourced, (b) basic services complemented by outsourcing or (c) full service which is always at the forefront of technological innovations If you consider that the convention centre needs to provide technology based services rather than outsourcing, how much will the venues equipment and technical skill influence your decision to book that venue? If you consider that the convention centre needs to provide technology based services rather than outsourcing, which services in particular would be required? Improved technology continues to provide benefits for conferencing. Considerations for new conference centre design include the following: virtual 3D Videoconferencing requires large bandwidth, as with webcasting of Richmedia presentations that synchronise video, audio and graphics simultaneously to the internet in real time; both technologies require reliable Internet Protocol ( IP ) bandwidth; Videoconferencing equipment, by necessity, is capable of interfacing with ISDN and IP networks from standard definition to full HD integration with live video coverage, webcasting and Richmedia archiving has become standard practice with some international organisations such as UNESCO the brightness threshold for daylight viewing is now available (meaning conference rooms do not need to be darkened for video presentations) and the trend in the immediate future will be to high definition images HD 1980x1020 resolution is now in common use but this is just the beginning of the HD trend; Sony has recently introduced the 4K standard for digital cinema multi-lingual simultaneous translation systems are now available with digital information, speaker ID and wireless transmission wireless voting systems and hearing aid loops also need to be accommodated. 3.3 COMMUNICATIONS AND MARKETING TO POTENTIAL ATTENDEES Evolving communication technologies provide both risks and opportunities for the conference industry. International Convention and Exhibition Centre Feasibility Study Page 45

46 The risks involve increasing use of the internet and other on-line forums for communicating and sharing information and ideas globally. There is the potential that increased sharing of information, ideas and thought leadership through increasingly effective and cost-effective technology solutions could reduce the degree of reliance of some organisations (both corporate entities and associations) on face-to-face meetings and conferences, and therefore result in fewer conferences than might otherwise be the case. Similarly, such communication channels may mean that conference delegates could be more challenging to attract, and delegate numbers be more difficult to achieve than previously. The benefits of evolving communication technology for international conferences relate to marketing opportunities. Only a limited amount of marketing to potential conference delegates is now done via print. A website is now the main repository for information about a conference. However, it is not enough to just ensure a website has a top place in the search engine listings. Marketing support is required to drive website hits. Different tools are needed depending on the target audiences, eg: well presented e- mail broadcast to Baby Boomers, SMS text to Gen X and YouTube clips or Twitter for Gen Y. Marketing tools continue to evolve. It is important to incorporate new tools into marketing as they become mainstream for the particular target audiences for each conference. 3.4 COMMUNICATIONS AT CONFERENCES Interactive learning is now an integral part of conferences. This has an impact on convention centre design and technical fitout. Examples include: pre-conference and onsite webinars on selected topics to simulate interest in the programme highly interactive satellite-linked sessions, eg: live broadcasts from operating theatres immersive telepresence (higher quality video-conferencing). Delegates are now being asked to turn their mobile phones on rather than off in sessions, as software provided at the conference enables them to be used as an audience response system. International Convention and Exhibition Centre Feasibility Study Page 46

47 Facilities which have been used for some time continue to be popular: badges with barcodes or magnetic strips internet cafes programme downloads to PDAs SMS to notify a change to the programme or remind speakers of their session time / venue. Gadgets using RFID (radio frequency identification) facilitate networking amongst delegates and also give exhibitors information about interest in their stand, eg: which products delegates looked at and how long for. Electronic scientific posters (read via computer) are becoming the norm rather than displaying them on panels. This does save space, but it is important that there are plenty of computers/work stations available to access the technology. 3.5 VIRTUAL CONFERENCES Aspects of virtual conferencing already feature in many conference sessions, eg: speakers presenting via satellite links, webinars, and live broadcasts. While virtual conferencing, in its truest form, may be a feature of corporate life within multinationals, it is not used often (at least at present) in the association convention environment. The adage that you can t have a virtual beer, and all that means in terms of human connection and communication, seems to be prevailing. 3.6 SOCIAL FUNCTIONS Presentation of Awards at a gala function is often a feature of a congress. However, there are few venues which are large enough or have the right ambience for these functions. Marquees are costly, difficult to light, not particularly comfortable and, when it is wet, very unpleasant spaces. There is a trend to more post-session drinks rather than multiple dinners, but there is always at least one special dinner during a congress. 3.7 HIGH AMBIENT LIGHT VENUES A discussion on AV solutions in high ambient light venues is interesting and raises many other issues that venue managers and designers need to consider at the concept stage. International Convention and Exhibition Centre Feasibility Study Page 47

48 Over the past 15 years projection equipment has become brighter and it is now possible to view video and data information in daylight. However there is a price to pay. From a venue perspective, it means heavier power requirements, higher running costs and having the ability to manage and pass on those costs. The AV supplier has a higher investment to make, maintenance and and running cost increases exponentially. And finally the client needs to have the budget to be able to pay for this brighter picture. 35mm slide projectors and 3 gun video projectors were in use in the mid 90s. Sony Superbright was rated with an output level of 350 ansi lumens. By comparison, 5000ansi lumen projectors are in common use today. During the Beijing Olympics 30,000ansi lumen projectors were used in the main arena. And LED video walls are used for daylight applications. High brightness solutions are already available. However, bright screens usually dictate the need for a brighter stage, hence more lights and a higher load on the available power within the venue. More power consumption also means more heat generated and more noise from fan cooling of equipment. Air-conditioning has to work harder and acoustics treatment is even more important because of equipment noise. On top of all this, is the capacity to be able to support this equipment from the roof structure because we have now introduced some very heavy truss, motors, lights and projectors. And there are still set elements to think about that will add more weight. 3.8 OTHER AV / TECHNOLOGY TRENDS Rooms that allow for turnaround from conference to dinner setting within hours Truck access to room Lots of parking Ceiling height 12m minimum Full height walkway above ceiling Full scaffold grid to hang lights, sound, AV Grid to allow sufficient space to pinspot every dinner table, hang stage lights, set and audio system Ceiling able to support an additional mother grid International Convention and Exhibition Centre Feasibility Study Page 48

49 Data and Power patches from ceiling to utilities room and conference floor; audio, video, power and data patch around the room. Cable trenches that are accessible All power on common technical earth 3 phase power in every sector of the venue Service corridor right around the room Store rooms available for empty boxes off service corridor Storage space for portable stage and sets Crew room near green room for performers with audio / video links to performance area. Fibre optics to venue and data bandwidth available on demand (user pays ) Venue to be able go from daylight to full blackout at the touch of a button Acoustics suitable for musical performance Access to roof for install of temporary satellite dish and internal wiring from room to roof Direct dial telephone lines Network capacity for internet cafes and exhibition needs Parking outside for Outside Broadcast ( OB ) trucks, power and cable reticulation for OB facilities Velcro sensitive walls Allow perimeter grid to hang banners Sufficient number of Breakout Rooms Display / exhibition space Pre-function areas Theatre with full fly tower and seating that can accommodate a dinner setting (nice to have if money is no object) International Convention and Exhibition Centre Feasibility Study Page 49

50 4. NEW ZEALAND S COMPETITIVE POSITION Based on ICCA data, New Zealand currently attracts approximately 0.5% of all international association conferences, similar to the levels achieved by Indonesia, Croatia, Colombia, and Uruguay. Our competitive position is currently compromised by the fact that three of our largest venues (THE EDGE, Wellington Convention Centre and Christchurch Convention Centre) are all multi-purpose venues that rely on arts-focused spaces to provide them with the critical scale. Furthermore, for conferences of any significant size (eg: 600 delegates plus) that require exhibition space, it is necessary to have delegates moving between multiple buildings. These current arrangements mean that from a pure physical facility perspective, New Zealand is becoming an increasingly uncompetitive destination, particularly as cities in Australia and Asia continue to upgrade and expand their facilities. Despite this, New Zealand is continuing to attract a small number of international conferences. This can partly be attributed to the increased marketing effort that is being applied (eg: the Ministry of Tourism-funded Conference Assistance Programme operated by Conventions and Incentives New Zealand). There is an inherent interest on the part of many conference organisers to bring their events to New Zealand 20. However, it is unrealistic to expect that these marketing activities can continue to overcome our facility deficiencies. This was highlighted with the staging of the 2006 International Bar Association Conference in Auckland, one of the largest conferences ever to be held in New Zealand. Despite the conference generally being regarded as a success, the organising committee has since re-written the event guidelines to preclude the conference being held in another venue where multiple buildings are required. This was a direct response to the logistical issues faced during their Auckland event. Detailed comments regarding the IBA Conference are contained in Appendix 4. In a general sense, therefore, New Zealand s key current weaknesses relate to venue scale, quality, and functionality while the country s key strengths relate to its destination appeal and support infrastructure. The section below provides a brief overview of New Zealand s specific strengths and weaknesses in targeting the international conference market. 20 Alan Trotter, CEO, Conventions and Incentives New Zealand International Convention and Exhibition Centre Feasibility Study Page 50

51 4.1 CURRENT STRENGTHS AND WEAKNESSES OF NEW ZEALAND New Zealand s key strengths are as follows: based on our industry consultation, we are advised that New Zealand enjoys strong destination awareness and profile assisted by the international marketing of a variety of New Zealand agencies including Tourism New Zealand 21 New Zealand has a wide range of strong local host organisations 22 that are well respected internationally and have representatives regularly attending international conferences throughout the world. Conventions and Incentives New Zealand is actively working with many of these host organisations through the conference assistance programme to develop conference business for New Zealand Auckland enjoys good international air connections to a wide variety of countries Auckland offers a good range of accommodation options from five star to three star hotels that suit the various needs of different conference delegates our existing venues are generally well located in relation to support infrastructure including hotels, bars, restaurants, etc we have good capability in relation to plenary capacity due to the large auditoriums at most of New Zealand s major convention centres, which have allowed these venues to host large conferences that have been able to compromise other elements of the conference (eg: exhibition, banquet, breakout sessions). These strengths are, however, not all exclusive to Auckland and New Zealand, and are countered by some significant weaknesses including: a general lack of flexibility within our major conference venues as the spaces typically have not been developed specifically for the needs of conferences and exhibitions a general inability to accommodate all conference requirements on site for larger conferences due to a lack of flat floor space, which particularly impacts on exhibitions, banquets, and break-out sessions generally poor circulation within the venues due to the fact that most venues are multi-purpose and have not specifically been designed to facilitate large flows of delegates need to work in precincts of venues for the larger conferences in Auckland Wellington and Christchurch international buyers are becoming less 21 Alan Trotter, CEO, Conventions and Incentives New Zealand; Jan Tonkin, Managing Director, The Conference Company 22 Examples include medical and science associations, university departments, and leading industry (eg; dairy, forestry) organisations. Examples of local host associations and conferences held in New Zealand are included in Appendix 3. International Convention and Exhibition Centre Feasibility Study Page 51

52 prepared to accept this compromise, as demonstrated by the International Bar Association significant venue / precinct compromises are increasingly unacceptable for the organisers of major conferences (eg: international association conferences) who are becoming increasing selective in relation to their requirements and spoilt for choice in terms of dedicated international-standard facilities throughout the world relatively low resourcing of international marketing by comparison with overseas competitors, including Australia. 4.2 OPPORTUNITIES TO BE LEVERAGED There are a number of specific opportunities that New Zealand can leverage in order to optimise the outcomes from developing an international standard convention centre. Key opportunities we have identified include: % Pure New Zealand The convention industry, as with many elements of the travel industry, is becoming increasingly focused on environmental initiatives. New Zealand has chosen to market itself as 100% Pure and this positioning should be leveraged to offer conference organisers a conferencing option that is environmentally aware. The importance of environmental considerations is highlighted by the fact that all four of Australia s largest conference venues feature environmental information on the home pages of their websites. 2. Targeting international conferences hosted in Australia ICCA data shows that in the ten years ending 2007, Australia has hosted over 1,700 international conferences. In effect these conferences have demonstrated a willingness to travel to this part of the world and represent a significant pool of potential conferences that should be targeted for the proposed convention centre. The rotational nature of international association conferences means that New Zealand would have a good opportunity to secure these conferences when they next look to travel to Australasia. 3. Development of a distinctive venue that showcases New Zealand A common criticism of international convention centres is that they could be anywhere in the world and that delegates fail to get a sense of the destination they are visiting. An opportunity exists for New Zealand to develop a distinctive conference venue that showcases the country and reflects our 100% Pure positioning. 4.3 CHALLENGES TO OVERCOME In seeking to pursue a larger piece of the international conference market, it is important to acknowledge key challenges that New Zealand will need to overcome. International Convention and Exhibition Centre Feasibility Study Page 52

53 The first is that New Zealand is a long-haul destination. This has implications in terms of the carbon miles associated with delegates travel and means the on-ground components of the conference will need to be very efficient to deliver an overall conference that is as sustainable as a short-haul competitor. The long-haul travel will also likely have implications in terms of wash-down in delegate numbers. As such, a conference in the northern hemisphere might attract 2,500 delegates but this might reduce to 2,000 delegates in a long-haul destination such as New Zealand. A second key challenge is the emerging tendency for conference venues to buy conferences. This trend has emerged as conference organisers have begun to recognise that their events are of value to destinations for the economic impact they bring. As a result, many organisers are seeking direct or indirect financial incentives to bring their events. This trend means it will be important that the venue has sufficient sales and marketing budget to develop appropriate strategies. International Convention and Exhibition Centre Feasibility Study Page 53

54 5. SITE SELECTION CRITERIA AND LOCATION ANALYSIS We have reviewed the previous reports regarding an international convention centre in Auckland and engaged with key stakeholders as part of this study to ascertain the key criteria that should be adopted in identifying the appropriate precinct location for the proposed convention centre. The criteria are based on consultation with conference industry representatives, including the important buyer perspective. The attributes are summarised in Table 5.1 in order of importance. Proximity to a critical mass of appropriate standard hotel rooms is regarded as the single most important attribute due to the convenience this provides conference organisers and delegates. The second most important attribute has been identified as the ability to accommodate the proposed venue (as specified in Section 6) within the precinct. The three following attributes all relate to components of transport and venue accessibility including ease of pack-in / out, car parking, and public transport. The other attributes relate to profile, synergy with existing meeting infrastructure, and proximity to entertainment precincts for delegates. Table 5.1: Location Selection Attributes (in order of importance) Attribute Proximity to necessary number of hotel rooms (widest range preferable; predominantly 4* - 5* rooms) Potential site size relative to proposed venue floor area requirements (cost / benefit issue) Site access / egress Proximity to car parking Proximity to public transport facilities Profile / icon potential (especially internal) Flexibility / synergy with existing / nearby meetings infrastructure Proximity to entertainment / retail / food and beverage (Source: Horwath HTL) These attributes tend to mainly reflect, either directly or indirectly, the perspective of the conference buyer / organiser or delegate. These are the factors that will, ultimately, determine the long-term success and competitive advantage of the convention centre, including its location. The location selection attributes do not specifically factor in other considerations, such as stakeholder views about the priority of location options, or the potential to maximise economic (or other) outcomes for financial stakeholders in the facility. These additional factors could become important, and relevant, decision factors. 5.1 CBD VERSUS NON-CBD Based on the location attributes identified above, a CBD location is the most obvious and advantageous option for an international convention centre. International Convention and Exhibition Centre Feasibility Study Page 54

55 This is primarily because the CBD is the only precinct that provides the critical mass of appropriate accommodation to support the centre s operation. Furthermore, existing transport links and infrastructure have been designed to primarily service the CBD area, and the CBD has the greatest concentration of existing meetings infrastructure and entertainment facilities. All existing major Australian venues are, for these reasons, located in the CBD or CBD fringe, as opposed to non-cbd locations. 5.2 ALTERNATIVE CBD PRECINCTS As part of this study we have been asked to consider the relative potential of three CBD precincts being CBD Fringe, Core CBD, and Waterfront. We have undertaken this using the attributes identified above and drawing on our discussions with key stakeholders CBD Fringe For the purpose of this study we have interpreted CBD Fringe to be the area extending west from Lighter Quay through to Wynyard Point. This precinct is an area identified for significant redevelopment and therefore has appeal in terms of the potential to create a site of appropriate size (including flexibility for future expansion). In addition, if located at the Lighter Quay end of the precinct there could be potential to leverage off the proposed Marine Events Centre. The key disadvantages of this precinct include the relative distance from most hotel accommodation (the Westin Hotel excepted) and the inferior transport links compared to the Core CBD and Waterfront locations. These precinct attributes may, of course, be remedied over time but will have implications regarding the timeframes for development of a convention centre Core CBD The key advantages of the Core CBD precinct relate to the close proximity to the vast majority of Auckland s hotel accommodation and the proximity to key public transport nodes and car parks. The developed nature of the Core CBD means it is highly likely that demolition of existing buildings will be required to create a site of sufficient size for the proposed facility. In creating a site of appropriate scale it will also be necessary to ensure the centre can be developed with its own profile Waterfront In recent years a number of significant convention centres around the world have been developed on waterfront sites. Advocates for these facilities focus on their International Convention and Exhibition Centre Feasibility Study Page 55

56 iconic nature and contend that these attributes assist the venues in achieving higher levels of activity than they otherwise would. In the context of Auckland we have focused on the Waterfront precinct being the area east of Princes Wharf. A facility in this area would enable some leveraging of Auckland s harbour location but would also likely add to the capital cost of the development due to: having to build at least some portion of the building over the water having to build a more iconic facility that is sympathetic to the high profile waterfront location (especially given the significant bulk of a convention centre and that most local residents would only observe the building from the outside). Compared to the Core CBD, the Waterfront location would be at a relative disadvantage in terms of proximity to the majority of Auckland s CBD hotel accommodation. International Convention and Exhibition Centre Feasibility Study Page 56

57 6. SCALE We have reviewed the three convention centre scale options contained in the February 2006 research report New Zealand Convention Centre Business Case and Facility Recommendations (Horwath Asia Pacific Ltd). These were described as: medium / base case facility option (20,700m 2 Gross Floor Area ( GFA )) smaller facility option (15,350m 2 GFA) larger facility option (26,950m 2 GFA) The report found that the medium facility and the larger facility deliver a similar benefit / cost ratio, significantly above that for the smaller facility 23. The Executive Summary 24 included the following conclusions: Based on our market research, estimates of potential new market demand creation / stimulation and other analysis contained in this report, we conclude that: there is sufficient evidence to justify progressing further in the planning and advocacy for the development of an international standard convention and exhibition centre to be based in the Auckland CBD of the three scenarios we have analysed, the scale of the smaller option does not adequately meet current and emerging market expectations for such a facility over the period of the next 10 years (and beyond) the scale of the medium scenario meets current and emerging market expectations to a reasonable extent but has some limitations in terms of its ability to host larger scale conference-related exhibitions and allow fullscale banqueting concurrently, or to allow concurrent independent events to be hosted without compromises the scale of the larger scenario fully meets current and foreseeable market expectations including in relation to the hosting of larger scale conference-related exhibitions full-scale banqueting concurrently, and allowing concurrent independent events to be hosted without compromises while the Cost Benefit Ratio of the larger-scale scenario, based on our analysis, is slightly lower than for the medium scenario, the ratio does not take into account greater intangible benefits of the larger-scale scenario because none of the scenarios take into account land costs, location issues and therefore other potential location or operating cost synergies, it is not yet possible to be conclusive as to which option is either technically or financially feasible or optimal 23 Page 102, February 2006 research report New Zealand Convention Centre Business Case and Facility Recommendations (Horwath Asia Pacific Ltd) 24 Page 26, February 2006 research report New Zealand Convention Centre Business Case and Facility Recommendations (Horwath Asia Pacific Ltd) International Convention and Exhibition Centre Feasibility Study Page 57

58 further detailed research and planning is justified into the development of an international standard convention and exhibition centre to be located in downtown CBD Auckland which meets (as a minimum) the criteria of the medium scenario contained in our analysis. We have undertaken limited interviews with key buyer and seller representatives in New Zealand and the leading Auckland venues 25 to verify these conclusions and to obtain an updated view of which option should be regarded as the optimal scale for the current feasibility analysis. The clear view is that the larger facility (27,000 m 2 GFA) should be regarded as the optimum on the basis that: it provides much clearer incremental capability to any existing or planned conference facilities in New Zealand it is more clearly competitive with the ever-expanding capacities and capabilities of the Australian and Asian venues it provides the highest degree of flexibility and convenient and effective flow while minimising compromises it provides the highest degree of future proofing it provides the greatest future potential for generating maximum venue operational cashflows through maximising event numbers and utilisation. Figure 6.1 below shows the larger facility option contained in our February 2006 report. It should be noted that this was developed for the purposes of producing initial quantity survey estimates, and does not represent an indicative or recommended floorplan or layout. In our 2005 consultation with other major New Zealand convention centres (in Christchurch and Wellington) the key message was that their support for a national convention centre was conditional on the national facility being clearly differentiated in scale and capability from other New Zealand facilities, and not be compromised in terms of capability, thereby maximising the chances of the new facility growing the overall market and increasing New Zealand s overall capability, and minimising the risk that a new facility would cannibalise existing business. This position appears to be fully reflected in the position of VBase, the Christchurch City Council-owned manager of the Christchurch Convention Centre, in their February 2009 LTCCP submission to Christchurch City Council regarding a proposed $82 million expansion of the existing convention centre facilities. The paper states, in the Executive Summary and Section 5.2: This paper further proposes the Convention Centre expansion be incorporated into a national strategy as stage one of a roll out of infrastructure investment that includes the building of a national convention centre in 25 Conventions & Incentives New Zealand (including IAEG-funded CAP programme); Tourism Auckland (including Business Events team); SkyCity Entertainment Group; THE EDGE International Convention and Exhibition Centre Feasibility Study Page 58

59 Auckland. The expanded Convention Centre can play a complimentary and supporting role in delivering a stronger overall position for New Zealand in the lucrative international conference market 26. An expanded Convention Centre could play a critical role in a national strategy for attracting more international conferences to New Zealand. The debate around the development of a national convention centre has been around for many years with a number of reports commissioned in support of the centre being based in Auckland. More recently there have been calls for public funding to support the building of a national convention centre. Convention and Incentives New Zealand (CINZ) released its International Strategic Plan in June 2008 and committed to supporting, through its lobbying role, a national centre being built. The Tourism Industry Association (TIA) 2008 election manifesto calls for the Government to support building a $200 million - $300 million national convention centre in Auckland. Industry insiders say the figure being spoken of is $400 million. Our proposal contemplates a national convention centre being built in Auckland. As part of a national strategy, the expansion of the Christchurch Convention Centre would be stage one of a two-staged infrastructure investment plan to deliver a stronger overall position for New Zealand in the lucrative conferencing market. Stage Two would be the development of the national convention centre. A further benefit of this approach is that if the development in Auckland proceeds in the Aotea Square precinct, as has been proposed, the existing Auckland facility would be out of action for many months, affecting New Zealand s ability to maintain its profile in the competitive international market. The expanded Christchurch venue would provide a facility of substantial scale to protect New Zealand s position while investment in Auckland was undertaken to support the roll out of the longer-term strategy. The proposed development of the Christchurch Convention Centre would therefore play a complimentary and supporting role to the proposed national convention centre in Auckland. The investment in both convention centres, as part of a government-driven strategic plan, would leverage New Zealand s two international airport gateways as well as other tourism infrastructure in the international conferencing season. That season extends for a period of 8-9 months and is complimentary to the peak season for leisure tourism which is a comparatively narrow window of only 2-3 months Executive Summary, page 2 27 Section 5.2, pages 9-10 International Convention and Exhibition Centre Feasibility Study Page 59

60 Figure 6.1: Larger Facility Option Indicative Spacial Bulk and Location Analysis (Source: JASMAX) International Convention and Exhibition Centre Feasibility Study Page 60

61 Based on our February 2006 report, the key features of the public space within this venue are: a dividable plenary auditorium seating for 3,000 delegates (although the facility has the potential to host more than 3,000 delegates if necessary) a high-tech flexible flat-floor space for exhibition / break-out space / banquet of 6,000m 2 a medium-tech flexible flat floor space for exhibitions of an additional 3,000m 2 this could subsequently be fitted out to the high-tech standard if required a lower-tech flexible flat floor space for exhibitions of an additional 3,000m 2 pre-function space of 3,500m 2 flexible and sizeable break-out space of varying sizes with [some] natural light, now assumed at 2,600m 2 (up from 1,000m 2 assumed in 2006, transferred from back of house space) potential for a purpose-built dedicated lecture theatre in addition to the auditorium, or moveable raked seating built into an exhibition hall (not specifically costed) allowance for rooms and offices for speakers, preparation, media, interviews, secretariat, storage, etc (costed either as part of the 4,400m 2 back of house space, or incremental break-out space). Key strengths of this concept are: the plenary auditorium is of sufficient size to meet the needs of at least 95% of international conferences the flat floor space is of sufficient scale to meet the full conference requirements of at least a 3,000 delegate conference, including exhibition, break-out space, and banquet the flat floor exhibition space is of sufficient scale to meet the size requirements of all trade exhibitions currently held in New Zealand, including TRENZ the size of the various elements within the venue are of sufficient scale to allow the concurrent hosting of two conferences of up to approximately 1,500 delegates, or a conference and public tradeshow / exhibition concurrently the flat floor exhibition space is approximately the same as that currently available at the ASB Auckland Showgrounds and is of sufficient scale to host all of the public shows currently hosted in Auckland the flat floor exhibition space is 6.5 times larger than the main hall of the [existing] Christchurch Convention Centre (which is proposed to be replicated by a second hall of approximately the same size) International Convention and Exhibition Centre Feasibility Study Page 61

62 A potential weaknesses of this concept is: the flat floor exhibition capacity of the venue (excluding the flat floor auditorium of 4,500 m 2 ) does not lift New Zealand s capability above the level at the ASB Auckland Showgrounds. However, the rationale for developing an international convention centre for New Zealand is not predicated on developing an exhibition centre for stand-alone tradeshows and exhibitions, or replicating or competing with the ASB Auckland Showgrounds. Such an expansion could only be contemplated if it was planned to close down the recently expanded ASB Auckland Showgrounds. We have not assumed that the proposed convention and exhibition centre will win any exhibition business at the expense of the ASB Auckland Showgrounds. The substantial expansion of facilities in the Asia / Pacific region (especially in Asia, and in Australia) to cater for such shows and exhibitions is, in our view, not justified in New Zealand. International Convention and Exhibition Centre Feasibility Study Page 62

63 CAPITAL EXPENDITURE ANALYSIS International Convention and Exhibition Centre Feasibility Study Page 63 A summary of capital cost estimates of alternative convention centre scenarios follows, as explained further in Section 7. 7.

64 7.1 SCHEME COMPOSITION AND ASSUMPTIONS Scheme composition The convention centre costs have been based on and should be read in conjunction with the following information: Larger Facility Convention Centre plan indicating a total floor area of 27,000m 2 of which only the 2,600m 2 breakout rooms are at an upper level The scheme comprises the following accommodation assumptions: High Tech Exhibition Hall 6,000m 2 Subdividable Auditorium 4,500m 2 Prefunction Foyer 3,500m 2 Low Tech / Medium Tech Hall 6,000m 2 BOH / Kitchen and Storage 4,400m 2 Breakout Rooms 2,600m 2 Total Accommodation 27,000m 2 Cost options include the assumed siting of the convention centre on: Waterfront Options full convention Centre on Bledisloe Wharf half on and half off Bledisloe Wharf non specific wharf (not Bledisloe) CBD Site non-specific location Wynyard Point non-specific location Basis of costing Convention Centre costs have been benchmarked against the Melbourne Convention and Exhibition Centre that achieved a 6 star Green Star Environmental rating and was completed in We have obtained construction costs / m 2 from Multiplex who were the Design and Construction main contractor. These costs have been adjusted to compensate for the scale of the development the Melbourne Convention Centre comprised 70,100m 2 of accommodation. Escalation the Melbourne Convention Centre was tendered in International Convention and Exhibition Centre Feasibility Study Page 64

65 7.1.3 Location specific costs Waterfront Waterfront costs options include an iconic building cost premium. A median cost premium of 30% addition to the base construction costs has been included in each of the three cost scenarios. We understand that a number of locations for the siting of a convention centre at the waterfront are under consideration. A number of reports on the structural capacity of the various wharfs have been undertaken by consultants for both the Auckland City and Auckland Regional Councils. From the information we have reviewed, the Bledisloe Wharf is the only wharf with the structural capacity for a major building to be constructed without significant upgrade or rebuilding of the wharf. In this respect, we have considered three alternatives for the waterfront: convention centre on Bledisloe Wharf half convention centre on Bledisloe Wharf other wharf site no wharf upgrade / rebuild 12,200m 2 of wharf rebuild full 24,400m 2 of wharf rebuild. Escalation Provisions of 4 years to the 3rd quarter 2013 included in the costs assessment. This allows for 2.5 years negotiation and implementation of the port relocation/ design to ensure wharf availability and 2.5 year construction Wynyard Point No iconic cost premium included although this may apply depending on the final location on the point to be considered (ie: Point Park). Escalation Provisions of 9 years to the 3rd quarter 2018 included in the costs assessment. This allows for a protracted negotiation and site remediation programme with the various tenants on Wynyard Point prior to construction Core CBD No iconic cost premium included although this may apply depending on the final location in the Central Business District (eg: Aotea precinct) Escalation Provisions of 4 years to the 3rd quarter 2013 included in the costs assessment. This allows for 2.5 years design and 2.5 years construction. International Convention and Exhibition Centre Feasibility Study Page 65

66 7.2 EXCLUSIONS The following exclusions apply to all sites except where noted: GST finance charges land purchase costs including compensation payments or relocation costs of affected tenants site remediation costs including demolition / alteration of existing structures to accommodate the proposed convention centre and removal of contaminated ground. major service diversions / relocations all costs assume the services for each option are readily available at the chosen site boundary construction of new buildings required to be demolished for the convention centre ie: the Civic Admin Building in Aotea Square or new wharf and admin buildings for the Ports should Bledisloe Wharf be the preferred option. marketing costs dredging of sea bed / sea wall upgrades or reclamation of additional land (Wynyard Point / new wharf options only) public open space/ street works / landscaping outside of the footprint of the convention centre including pedestrian bridges / underpasses / additional wharf construction for pedestrian and vehicular access development contributions icons, artworks and feature sculptures pumping stations for drainage stand-by generator. International Convention and Exhibition Centre Feasibility Study Page 66

67 8. OPERATING PROJECTIONS We have developed operating projections for the proposed international standard Auckland Convention Centre in the context of: the strong destination appeal of New Zealand that has been developed through the long-standing marketing activities of Tourism New Zealand and Conventions and Incentives New Zealand the types of conferences that have been attracted to New Zealand s largest existing venues (as identified in Section 2) the record levels of activity and financial performance at many of Australia s large convention centres (as identified in Section 3) the relative strengths and weaknesses of Auckland as a conference destination (assuming a new convention facility) the scale of facility, as identified and justified in Section 6, which will ensure the facility is clearly positioned as New Zealand s only international standard facility thereby avoiding the internal competition that exists amongst Australia s state facilities the range of non-conference activity that typically is accommodated in convention centres (as evidenced in Australian venues) the assumed supply of other convention venues / facilities in Auckland. With regard to this last point, consistent with our 2006 analysis, we have assumed that there will ultimately only be two major facilities in Auckland, including the Sky City Convention Centre. The rationale for this assumption is that a proliferation of venues in Auckland competing for conference and exhibition market share would almost certainly mean: an unreasonable amount of price competition, to the extent that venue pricing is discounted to an excessive extent some venue stakeholders deciding ultimately to exit the conventions and / or exhibitions market to concentrate on other uses. Assuming that is a major stakeholder in at least one major venue, we suspect that the City would not tolerate a long-term proliferation of major venues competing for much the same business if the City is also, as a result, funding larger than necessary cash operating deficits. The projections outlined below are for a stabilised year of operation (which we would anticipate to be around Year 5). Activity levels in the initial years are more difficult to project as they are likely to be influenced by two conflicting factors. The first is that conferences have a long lead time (particularly larger international conferences) and the conference organisers are generally reluctant to commit major conferences to venues that have not been completed at the time of the conference bid process. The second is that conference organisers are always seeking new destinations for conferences (particularly more regional and domestic conferences that rotate International Convention and Exhibition Centre Feasibility Study Page 67

68 between a relatively small number of destinations). This can create a honeymoon effect for a new venue. 8.1 PROJECTED ACTIVITY LEVELS Conference Activity In developing conference activity projections, we have considered the activity both in terms of the origin of the conferences (as per Section 2) and the average size of the conferences. As detailed in Table 8.1, we project the proposed facility could, on average, attract approximately 35 conferences per annum. In total, this is below the number of conferences held at the leading Australian venues (eg: Melbourne Convention Centre hosted 41 conferences in 2007/08) and reflects the smaller domestic market in New Zealand relative to Australia. In terms of international conferences, however, we believe the facility is likely to have a higher number of conferences than many of the Australian venues due to the relative lack of internal competition for international conferences. This is reflected in the 25 international conferences projected in a stablised year, compared to the 18 international conferences hosted at the Melbourne Convention Centre in 2007/08. New Zealand s strong relative performance in the international conference market, in the context of the size and standard of our current venues (as illustrated in Section 5.2), provides confidence that this level of performance is achievable. Table 8.1 Mix of Conferences Attracted by the Proposed Facility Conference Size Global Asia-Pacific Australasian Domestic Total (delegates) Major (2,500 average) Large (900 average) Medium (400 average) Small (150 average) Total Average Size 1,440 1, Note: We have assumed that 1 medium Australasian, 1 medium Domestic and 5 small Domestic conferences per annum are not incremental to Auckland and are therefore excluded from our subsequent economic impact analysis (Source: Horwath HTL Ltd) Eight global conferences with an average size of 1,440 delegates represents a strong lift in New Zealand s existing market share of global conferences, with ICCA data showing that New Zealand hosted 35 conferences in 2007 with an average size of 527 delegates. International Convention and Exhibition Centre Feasibility Study Page 68

69 The size profile of the global conferences broadly reflects the range of activity currently experienced by the major Australian venues and reflects the fact that only 6% of all international conferences have more than 2,000 delegates. We have made an allowance in our assumptions for an average of five Asia-Pacific conferences per annum. Our enquiries of existing New Zealand venues indicate that New Zealand is increasingly being successful in penetrating this market that has long been regarded as challenging because of the number of Asia-Pacific conferences that tend only to rotate mainly within Asia and also because of the greater number of venues that can now cater to the many smaller Asia-Pacific conferences. The Australasian conference market has been identified by many industry participants as having significant potential for a new New Zealand national convention centre as it has the ability to position itself as a new domestic conference option. This potential is further aided by what we understand is an increasing trend towards joint Australasian associations. We have allowed for an average of twelve Australasian conferences per annum with the new venue, focusing on the larger end of the market with exhibition requirements. Our projection of an average of ten domestic conferences per annum represents 29% of the projected annual number of conferences. This is relatively low compared to our understanding of the average for the major Australian venues, but reflects the smaller domestic market in New Zealand and the lower number of large domestic conferences that require facilities, such as those proposed in a new National Convention Centre in Auckland Conference Related Exhibitions Conference related exhibitions are becoming an increasingly important component of the overall programme for many conferences as they are significant sources of revenue for conference organisers. Based on our enquiries of PCOs, we have made the following provisions for exhibitions at the different types of conferences: 1. Global: 100% 2. Asia-Pacific: 100% 3. Australasian: 75% 4. Domestic: 50% The number of conference-related exhibitions, categorised by the average amount of flat floor space required, is summarised in Table 8.2 below. International Convention and Exhibition Centre Feasibility Study Page 69

70 Table 8.2 Number of Conference-Related Exhibitions Conference Size Global Asia-Pacific Australasian Domestic Total (delegates) Major (4,000m 2 average) Large (2,000m 2 average) Medium (1,000m 2 average) Small (500m 2 average) Total (Source: Horwath HTL) Conference Banquets Based on industry norms, we have allowed for an average of one in-house banquet per conference. The average size of the banquet is projected to match the number of conference delegates on the basis that attendance by accompanying persons will off-set the number of non-attending conference delegates. The number of conference banquets is summarised in Table 8.3 below. Table 8.3 Number of Conference Banquets Conference Size Asia- Global (delegates) Pacific Australasian Domestic Total Major (2,500 average) Large (900 average) Medium (400 average) Small (150 average) Total (Source: Horwath HTL Ltd) Other Banquets Non conference-related banquets (eg: awards dinners, fundraising dinners, etc) are a significant component of the overall business mix for many major convention centres. It is reasonable to assume this will also be the case for the proposed facility although it will face strong competition from the larger Auckland hotel facilities, especially those at the Sky City Auckland Convention Centre and Langham Hotel. The extent of business that the venue receives from this segment is likely to be significantly influenced by the icon nature of the facility. International Convention and Exhibition Centre Feasibility Study Page 70

71 Table 8.4 Number of Other Banquets Banquet Size (attendees) Number Major (1,500 average) 1 Large (1,000 average) 3 Medium (500 average) 4 Total 8 (Source: Horwath HTL Ltd) Trade & Public Exhibitions The proposed facility will represent a high-end quality alternative to the redeveloped ASB Showgrounds for exhibitions requiring flat-floor space of up to 12,000 m 2 plus ancillary facilities. Our previous market enquiries have indicated that there is a level of demand for high quality CBD exhibition space, particularly in relation to trade exhibitions. The venue is also likely to have appeal for certain higher-end public shows seeking higher quality exhibition than is available elsewhere. However, we have assumed that the Auckland Showgrounds will remain as the primary exhibition venue in Auckland given its scale and location, which is suitable for large scale public exhibitions. Furthermore, we have assumed that the proposed Marine Events Centre will capture the majority of CBD / harbour focused exhibition activity. As detailed in Table 8.5, we believe the base case facility could cater for an average of six trade and eight public shows per annum. Table 8.5 Exhibition Mix Per Annum Trade Exhibitions Public Exhibitions Large 2 4 (8,500m 2 average) Medium 2 4 (4,000m 2 average) Small 2 - (2,000m 2 average) Total 6 8 (Source: Horwath HTL) Other Events Once a venue is developed in Auckland, it is likely to host events other than conferences, exhibitions, and banquets. This will primarily be driven by a need to obtain additional business to fill gaps between major events. We have, therefore, allowed for the venue to host: an average of three entertainment events per annum. The venue s ability to attract significant business of this type will be limited by the presence of the Vector Indoor Arena International Convention and Exhibition Centre Feasibility Study Page 71

72 an average of 15 day meetings per annum. These are more likely to be larger-scale meetings such as company AGMs Overall Event Days Allowing for the average length of different events, we estimate that the proposed facility could cater for an average of approximately 190 event days per annum. In addition to this, pack-in / pack-out requirements for events will likely represent 118 days per annum. Table 8.6 Overall Event Days by Event Type Conferences* Exhibitions Exhibitions Events Meetings Trade Public Entertainment Day Banquets Total Events Average Length (days) Event Days Average Pack-in / out Pack-in / out Days Potential Days Used Days Used (allowing for concurrent events) 250 * Conference related exhibitions and banquets have not been separately counted as they do not drive incremental event days. (Source: Horwath HTL Ltd) 8.2 FINANCIAL PROJECTIONS We have prepared high-level indicative operating cash flows primarily to provide an input into the economic impact and benefit-cost analyses. The cash flows are based on benchmark data and have been verified at a high-level through discussion with existing convention centres. For the purpose of the projections it has been assumed that the facility will be operated with a stand-alone overhead structure and will operate the food and beverage operation in-house. There is, therefore, significant scope for different outcomes depending upon the operational model that is applied. The operating cash flows for a stabilised year are summarised in Table 8.7. These cash flows are after allowance for rates and a contribution towards an asset replacement fund, but are before any finance costs. International Convention and Exhibition Centre Feasibility Study Page 72

73 Table 8.7: Indicative Operating Cash Flow Stabilised Year ($000s) Revenue Conference Revenue 13,329 Other Revenue 4,321 Total Revenue 17,650 Variable Costs Conference Costs 6,683 Other Costs 2,677 Total Variable Costs 9,360 Overhead Expenses Salaries & Wages 1,650 Sales & Marketing 2,000 Building Services & Maintenance 2,250 Other 1,000 Total Overhead Expenses 6,900 Asset Replacement Fund 706 Net Operating Cash Flow 684 (Source: Horwath HTL Ltd) Based on the projections, we anticipate the facility will operate broadly on a breakeven cash flow basis. This level of cash flow performance is consistent with that achieved by the major Australian venues including Melbourne and Adelaide. International Convention and Exhibition Centre Feasibility Study Page 73

74 9. ECONOMIC IMPACT ANALYSIS / BENEFIT COST ANALYSIS 9.1 INTRODUCTION This section provides NZIER s estimates of the economic impact of a possible convention centre in Auckland, under two analytical frameworks: Benefit Cost Analysis General Equilibrium modelling. In undertaking this analysis, NZIER have relied upon data provided by Horwath HTL with regard to visitor numbers and expenditure, and facility capital and operating costs (see Tables 9.1 and 9.3). The analysis is undertaken from a national perspective, ie: in terms of the impact of the facility on the New Zealand economy. 9.2 INITIAL IMPACTS To estimate economic impacts, we need to consider broader effects from the facility, which arise from the additional spending it generates. Total spending results from expenditure: at events at the facility by participants - conference delegates, exhibitors and other attendees by persons accompanying participants (eg: spouses) from tourism before and after the events by participants and accompanying persons in Auckland and in other parts of New Zealand. From a national perspective, the relevant expenditure is that of international visitors. Expenditure by New Zealand residents is assumed to be a transfer between expenditure types: it represents a diversion of other spending to facility events and related activities (eg: tourism in Auckland from visitors from elsewhere in New Zealand), and is excluded from the analysis 28. From an Auckland regional perspective, the relevant expenditure is by international visitors in the region (excluding tourism before and the events in other parts of New Zealand), and by visitors from elsewhere in New Zealand. The underlying assumptions are detailed in Appendix 1A. The results are shown in the following tables, with data provided by Horwath HTL. 28 Conceptually, it would be preferable to include this expenditure by both Auckland and other New Zealand residents; and offset this by reductions in other spending. There might be a net increase or decrease in national income, depending on differences in impacts of facility-related and other expenditure. Time did not permit us to do this. However, the net effects are not likely to be material, so we do not consider this imprecision is likely to alter our conclusions. International Convention and Exhibition Centre Feasibility Study Page 74

75 The Horwath HTL projections suggest that when fully operational, events at the facility will attract almost 22,000 additional international visitors, who would not otherwise visit New Zealand, and more than 200,000 extra visitor days. As a result of this, there will be an increase of $85.4 million in tourism-related expenditure. Table 9.1 shows total expenditure by international visitors according to the type of event at the facility including expenditure at the event itself, by accompanying persons, and for tourist activities before and after the event. Table 9.1 International visitors and expenditure by event type Visitors Visitor days Expenditure $m Conferences 17, , Conference Exhibitions 2,518 20, Banquets Trade Exhibitions - Attendees 1,454 12, Trade Exhibitions - Exhibitors Public Exhibitions - Attendees Public Exhibitions - Exhibitors 140 1, Total 21, , Source: Horwath HTL Table 9.2 shows expenditure according to the type of activity undertaken. Table 9.2 International visitors and expenditure by activity Visitors Visitor days Expenditure $m Event participation 20,201 81, Accompanying persons 1,485 6, Auckland Pre/post 16,822 33, Rest of NZ Pre/post 12,490 79, Total 200, Notes: (1) The total number of event participants and accompanying persons is the same as the total number of visitors associated with all event types in Table 1. The figures for visitors Pre/post represent the numbers of these people who engage in tourism activities before and after the event, in Auckland and the rest of New Zealand Source: Horwath HTL As can be seen from the above, conferences are by far the most important activity for increasing national income 84% of visitor expenditure is associated with people who participate in conferences. International Convention and Exhibition Centre Feasibility Study Page 75

76 However, Table 2 illustrates the fact that while most of the visitor expenditure is at the events themselves, there is a significant spin off from associated activities. These account for over half of the visitor days, and 39% of visitor expenditure. The overall daily expenditure across all visitor types is $425. Approximately 95% of the incremental expenditure is attributable to conferences. The average daily expenditure figure for conferences is $424. This weighted average figure reflects a wide range of different daily expenditure levels for conference delegates, exhibitors, and accompanying persons. Different expenditure levels have also been adopted for each type of conference with global conferences assumed to have the highest delegate daily spend of $700. This reduces to $450 for international delegates attending domestic conferences. This reduction reflects the higher propensity for lower-yielding Australian delegates to attend domestic conferences. Average daily expenditure for accompanying persons is assumed to range between $160 - $200, while pre- and post-conference daily expenditure is assumed to range between $150 and $350. The daily spend figures adopted in this analysis are the same as those adopted in our 2006 economic impact analysis. They draw on the limited survey data available in relation to conferences held in New Zealand, as well as conference delegate spend from Australia. International Visitors Survey data has also been used as a basis for accompanying person expenditure and pre- and post-conference expenditure. These expenditure assumptions were reviewed by Covec as part of their 2008 review of Horwath Asia Pacific s economic impact analysis for. Based on their review of available data, Covec concluded that the expenditure assumptions were reasonable. 9.3 BENEFIT COST ANALYSIS Inputs This section follows the methodology outlined in Treasury (2005) 29, with the following assumptions: a twenty year time horizon all revenues and costs expressed in real, GST-exclusive prices 30 a real discount rate of 8% per annum the default rate, which is also recommended for special purpose buildings (Treasury 2008) 29 The Treasury (2005) Cost Benefit Analysis Primer, Wellington, December While Treasury ibid expresses a preference for expressing prices in GST-exclusive terms, it suggests that Economic analysis on a GST-inclusive basis would be equally valid provided GSTinclusive figures are used consistently (p17). 31 The Treasury (2008) Public Sector Discount Rates for Cost Benefit Analysis, Wellington, July 2008 International Convention and Exhibition Centre Feasibility Study Page 76

77 a weighting of 20% on all costs funded by public sector, to reflect deadweight losses. Note that in this instance we do not need to formally establish and estimate a counterfactual from which to estimate the effects of the change. The counterfactual is, in effect, the economic status quo, i.e. the situation in the absence of the convention centre. The additional number of international visitors and their expenditures is on top of what would happen in the absence of this facility. The following costs and benefits are incorporated in the analysis Capital costs Capital costs have been estimated (by WT Partnership) for the five options three on a waterfront site, and one each at Wynyard Point and the CBD as follows: for all options, construction of the convention centre is projected to cost $191.7 million for options on a waterfront site, there is an iconic enhancement of 30% of costs, $57.5 million for options on a waterfront site, there is are additional costs in improving wharf structures, ranging from zero to $54.9 million to $109.8 million for all options, there are additional costs of: o 15% for professional fees o 1.5% for securing consents o 1.0% for insurances all figures are GST exclusive. With regard to timing, it is assumed that: the pre-construction phase will take 2.5 years, during which costs relating to professional fees and consents will be incurred the construction phase will take 2.5 years, with all other costs incurred the pre-construction phase will commence from year 1 of the analysis (from 1 April 2010) for all options; except for Wynyard, when it will commence from year 5. This yields the following: Table 9.3 Construction cost and time profile Option Design Construction Design/constr'n Year of 32 As noted in Treasury (2008), there is a range of methodologies for estimating a suitable discount rate. Although that document does not engage in an extensive discussion of alternatives, there is a significant body of opinion among economists that different methodologies should be used, resulting a lower discount rate. Effect of lower rate International Convention and Exhibition Centre Feasibility Study Page 77

78 costs $m costs $m period (years) opening Waterfront Waterfront Waterfront Wynyard CBD Source: WT Partnership Note: Design costs refer to professional fees plus consent costs. Insurance costs are included in the construction cost column. It is further assumed that 80% of capital costs will be funded from the public sector. This means the above capital costs are increased by 16% ie: a 20% increment on the public sector contribution to recognise the effect of deadweight losses. In addition, land costs have been included, on the basis that these represent an opportunity cost, ie: the value of the land in its next-best use. The value considered can also be thought of as the present value of the rent lost rent in the sense of the profits earned through ownership of the resource. Estimating land values for the different sites is problematic, as many of the potential sites have not been finalised, and there are no obvious market comparators (we understand that parcels of land in central Auckland large enough to accommodate a convention centre rarely come onto the market). Moreover, there may be additional pre-construction costs such as demolition and relocation of current occupiers that were excluded from the WP Partnership s estimates. 33 Given these uncertainties, we have used a common value of $75m for each site, with the cost incurred in the first year of construction (ie: when the land becomes unavailable for other uses). We acknowledge that the value is likely to vary significantly between sites Income Per section 9.2 above, the annual income generated by the new convention centre is estimated at $85.4 million when the facility is fully operational. This is the net additional national income resulting from the facility, comprising all expenditures by international visitors coming to New Zealand for events associated with it. GST is removed from this figure, leaving an annual increment of national income of $75.9 million. 33 Alternatively, if we think in terms of the value of a bare plot of suitable land, a purchaser would reduce the purchase price by the costs of clearing the site ready for construction. International Convention and Exhibition Centre Feasibility Study Page 78

79 It is assumed that the facility will take four years from opening to reach its fully operational level of activity, at which point it will be generating the above increments to national income. In the preceding period, it will operate at: 50% of capacity in the first year, $38.0 million 70% in the second year, $53.1 million 80% in the third year, $60.9 million Operating Costs and Subsidies We have not included the operating costs of the convention centre, on the assumption that these will be common between the options and covered by the facility s revenues. The exception is where costs will not be covered by revenues, in the pre-opening phase, and the initial years of operation when the revenues are building up and will not be sufficient to fully cover costs. We understand that subsidies will be required over this period, as follows: $2.0 million per annum in each of the three years before opening, for setting up operations and initial marketing $2.9 million in the first year after opening $1.4 million in the second year after opening $0.5 million in the third year after opening with no subsidy after this time, when the facility is fully operational. These subsidies represent a transfer rather than a use of resources from a national perspective, and as such should not be included in the BCA. However, 20% of the subsidies have been included to represent the effects of deadweight losses, which are a real cost to the national economy Results In the chart below we illustrate the profile of benefits and costs over the twenty year time horizon for the CBD option. Full results are included in Appendix Alternatively, the deadweight losses from these subsidies could reasonably be regarded as too small relative to the overall size of the project to be material, and omitted. International Convention and Exhibition Centre Feasibility Study Page 79

80 Figure 9.1 Profile of benefits and costs CBD option $ million Benefits NPV benefits Costs NPV costs Source: NZIER Years Actual costs are high in the initial year when land value is included in the analysis; peak in years four and five during the construction phase; then decline to zero from year nine when the facility is fully operational. The track of the NPV of costs is a lower version of the actual cost track, reflecting the impact of discounting. Benefits commence from year six when the facility is opened, and rise to a steady level from year nine onwards when it is fully operational. The track of the NPV of benefits is lower over successive years, reflecting the effect of discounting at a progressively higher rate in later years. All of the other options show similar profiles albeit with the cost tracks at different levels. Table 9.4 shows the Net Present Value (NPV) of the benefits and costs of each option over a twenty year timeframe, after discounting the annual values by the 8% discount rate. Table 9.4 Net Present Value of Auckland convention centre benefits and costs Net Present Values $m Option Benefits Costs BC Ratio Waterfront Waterfront Waterfront Wynyard CBD Source: NZIER International Convention and Exhibition Centre Feasibility Study Page 80

81 A Benefit-Cost Ratio (BCR) of greater than 1.0 indicates that the benefits of the individual project exceed its costs over this time horizon, on a NPV basis. The usefulness in calculating BCRs is not necessarily to assess whether or not individual projects are worth undertaking in their own right. Rather, they enable us to rank the projects, and highlight the circumstances and assumptions that give rise the differences in BCRs. The NPV of benefits is $396.7 million for all options (except Wynyard). This is to be expected, given all options assume the same income stream. The CBD option has the lowest total NPV of costs (except Wynyard), as its capital costs are purely for construction of the convention centre. The addition of an iconic structure for the waterfront options, and the varying costs of wharf strengthening, raises the NPV of their costs. The Wynyard option differs from the others primarily in terms of its timing, with no additional site costs or iconic enhancements. In fact, its annual benefits and costs are identical to those of the CBD option, but deferred by four years. Hence the numbers for Wynyard illustrate the impact of deferral, with the NPV of costs 26% lower than the CBD option, and benefits 40% lower. When we compare benefits and costs: the CBD option has the highest BCR, of the lowest-cost waterfront option and the Wynyard option have similar BCRs, of and respectively the effect of additional costs of wharf strengthening is to reduce the BCRs of other waterfront options further in the case of the most expensive waterfront option, its NPV costs exceed NPV benefits, resulting in a BCR of less than 1.0 (0.888) Alternative scenarios Given the potential uncertainties about these estimates, we have examined the effects of changes in the number of events in particular, major global conventions and land values. As is normal with scenario testing, we examine alternative assumptions individually to highlight the impact of different assumptions Alternative scenarios income The benefits and BCR could vary markedly if the number of events at the centre, and resulting visitor numbers and expenditure, proves to be different to those that have been projected. International Convention and Exhibition Centre Feasibility Study Page 81

82 To test this, we have examined different numbers of major global conferences. As theses are the largest events and have the greatest impact, any variation in these will have a mach larger effect on total benefits than variations in other types of event. The two scenarios we tested involved: two fewer major global conferences, resulting in 5,000 fewer attendees one more major global conferences, resulting in 2,500 extra attendees with other assumptions average daily spending, international / domestic visitor mix, accompanying persons and pre / post-conference tourism unchanged. Under these two scenarios, total income when the facility is fully operational would be: $64.3m per annum with two fewer major global conferences (-$21.1m) $96.0m per annum with one more major global conference (+$10.6m). Figure 9.2 Benefit Cost Ratios under different income assumptions Ratio of NPV Benefits to NPV costs Waterfront 1 Waterfront 2 Waterfront 3 Wynyard CBD BASE LOW HIGH Source: NZIER International Convention and Exhibition Centre Feasibility Study Page 82

83 Table 9.5 Net Present Value of Auckland convention centre benefits and costs LOW scenario Net Present Values $m Option Benefits Costs Benefit-Cost Ratio Change from Base scenario BC Ratio Waterfront Waterfront Waterfront Wynyard CBD Source: NZIER With fewer major conferences, BCRs at all sites fall markedly (as would be expected). Only the CBD option has a BCR greater than 1.0. Table 9.6 Net Present Value of Auckland convention centre benefits and costs HIGH scenario Net Present Values $m Option Benefits Costs Benefit-Cost Ratio Change from Base scenario BC Ratio Waterfront Waterfront Waterfront Wynyard CBD Source: NZIER The addition of an extra major global conference raises BCRs across the board, so that all options have a BCR greater than 1.0, except for the most expensive Waterfront option, which is virtually equal to Alternative scenarios land values As noted initially, there are potentially major variations in land values between different sites, and this may change the relativities of BCRs. Moreover, we do not have any robust information about what the costs might be of purchasing suitable sites and required preparatory work before construction of the convention centre could begin (excluded from WT Partnership s estimates). To allow for this, we have estimated the value of land for each site that would make the project break-even in NPV terms, ie: that would result in a BCR of 1.0, with all other costs remaining the same. The results are shown in Figure 9.3 below (relative to the common $75 million land value used above). International Convention and Exhibition Centre Feasibility Study Page 83

84 Figure 9.3 Break-even land values $ million Source: Waterfront 1 Waterfront 2 Waterfront 3 Wynyard CBD NZIER This calculation shows that the CBD option would have a BCR of 1.0 even if the land values were more than doubled (increasing by over $110 million). Conversely, the most expensive waterfront option would need land costs more than 60% lower than the standard figure (ie: $47 million cheaper) to achieve a BCR of 1.0, and the intermediate waterfront option would be able to support only a small increase in land costs (+$5 million)before its BCR would fall below 1.0. The least expensive waterfront option could support an increase of almost $60 million (+76%) before its BCR would fall below 1.0, and the Wynyard option over $40 million (+58%) Interpretation Given the inputs, these results are not unexpected. In particular, if these assumptions are considered realistic, a CBD option would be favoured a priori, as it delivers the benefits from increased tourism at the earliest date and least capital costs. In comparison, the waterfront options incur additional capital costs but secure no additional benefits. They provide additional amenity values from iconic structures in a signature location. Hence we would need to ask whether the enhanced amenity values contribute to higher tourism expenditures; and / or whether the intangible benefits are sufficient to justify the higher costs. The Wynyard option assumes the same costs and benefits as the cheapest CBD option, but with a four year delay. Given the fact that the options generally deliver net benefits, the impact of deferring these is to reduce the value of the project. Though the estimated benefits exceed costs in all but one option, the BCR is low in most cases, in the sense that a relatively small variation in actual costs and / or International Convention and Exhibition Centre Feasibility Study Page 84

85 benefits may affect the economic viability of the project. The highest value is only 1.4:1. As mentioned earlier, a change in the value of land would change the benefit to cost ratio. However, if the assumption of the same land value for all options is appropriate, then the relativity between the BCRs would not change, ie: CBD would remain the best option, followed by Waterfront 1, Wynyard, Waterfront 2 and then Waterfront 3. The relativity would change if there were differences in land values between options which exceeded the differences in the break-even land values (shown in Figure 9.3), with all other costs and benefits remaining the same. 9.4 GENERAL EQUILIBRIUM MODELLING In this part of the analysis, we apply the above results through the NZIER Computable General Equilibrium (CGE) model of the New Zealand economy, to estimate the total effects from the initial impacts of capital and tourism expenditure About the model NZIER developed a CGE model in conjunction with the Centre of Policy Studies (COPS), Monash University, Australia. The model is a New Zealand-specific version of COPS ORANI-G model (the G stands for generic ). The ORANI framework has been extensively used in policy analysis in Australia for nearly two decades, and has been adapted for countries all over the world, including China, Brazil, Ireland and Denmark (COPS, 2008). In Appendix 2 we provide a description of the key model features. Full documentation regarding the ORANI-G model is available at the COPS website ( The model is a static CGE model, designed for comparative-static simulations, which estimate the comparative position of the economy after some shock, compared to what might have otherwise been. The modelling process is to introduce to the model a shock, of a given value and incidence (in terms of the commodities affected by the shock). The model then determines a new value and composition of GDP, with the difference between this and the original values representing the impact of the shock. It does this by estimating the second-round and subsequent effects as resources (labour, capital) are reallocated between the industries which are directly affected by the shock and the rest of the economy. Hence the economy-wide impact of the initial shock may be greater or lesser than its initial value, depending on how the model determines the reallocation of resources. Note that because this analysis uses a comparative static simulation, it gives a before and after picture, and does not the capture the path as the economy adjusts International Convention and Exhibition Centre Feasibility Study Page 85

86 over time to the shock. Therefore it does not allow us to determine the time profile of the costs and benefits between the project s inception and its conclusion Results In this case, we model the effect of two shocks on the New Zealand economy associated with the convention centre: additional expenditure by international visitors, per Table 9.1 additional capital spending, per Table 9.3 using the lowest cost options, Wynyard and CBD, with total capital costs of $225.2 million. 35 The results are shown in Table 9.7 below. Table 9.7 Impact of additional tourism expenditure Initial impact $85.4m Increase in GDP $31.0m (+0.02%) Increase in employment 418 FTEs (0.03)% Notes: (1) Value added is the value of production after deduction of costs of goods and services used in production; and is made up of wages, profits and depreciation, plus indirect taxes less subsidies. The sum of value added across all businesses is Gross Domestic Product (GDP). (2) Employment is expressed in Full-Time Equivalents (FTEs), which is a measure of total labour input, calculated as the number of full-time jobs plus half the number of part-time jobs Source: NZIER The effect of the additional $85.4 million in tourism expenditure is an increase in national GDP value added of $31.0 million, which represents 0.02% of GDP. This increase is concentrated in tourism-related industries accommodation, cafés & restaurants, retail trade and passenger transport. Note that the $85.4 million and $31.0 million figures are not directly comparable. The additional tourism expenditure technically, a gross output measure - would result in multiple transactions across the economy. What we are measuring is the cumulative increase in value added from these transactions, comprising (mostly) additional wages and profits, after allowing for any reallocation of resources from other industries. We estimate that the above $85.4m equates to $40.3m in additional value added (47 cents in every dollar). Associated with this impact is an increase in employment of 418 FTEs, which represents 0.03% of total employment. 35 Note that, as in the Benefit-Cost Analysis, the value of subsidies is not included in the modelling, as they represent a transfer. The deadweight effects included in the BCA are not explicitly included as an input to the modelling, as they are picked up in the model s resource reallocation. In any event, they are too small to be material from an economy-wide perspective. International Convention and Exhibition Centre Feasibility Study Page 86

87 As these expenditures are recurrent, the above impacts are also recurrent ie: the level of national GDP and employment will be permanently higher than would otherwise have been the case. Table 9.8 Impact of additional construction expenditure Initial impact Increase in GDP Increase in employment Source: NZIER $225.2m $46.1m 751 FTEs The effect of the additional $225.2 million in construction expenditure 36 is an increase in value added of $46.1 million concentrated in construction and related industries. Associated with this is an increase in employment of 751 FTEs. These effects are spread over the five years of the design and construction phase ie: the increase in GDP is $46.1m in total, not $46.1m per annum and would be concentrated in the final two years when construction is underway. Similarly, the employment effect is of an additional 150 FTE jobs per annum, on average. The effects would not persist after construction is completed. Even allowing for the time spread, the differences between the impacts of tourism and construction are striking although the value of construction shock is more than 160% higher that of the annual tourism increase, its effect on value added is only about 50% higher, and on employment about 70% higher. The reason for this difference is that construction is less labour intensive than tourism-related industries, and uses much more capital and materials. Hence the initial impact in terms of value added is proportionately lower; 16 cents of every dollar of construction expenditure is value added, versus 47 cents for tourism related industries Alternative scenarios income We have also tested the effect of different numbers of major global conferences in the CGE modelling framework, per section 9.0 above, ie: two fewer major global conferences, resulting in $21.1m less tourism expenditure per annum one more major global conferences, resulting in $10.6m more tourism expenditure per annum. The results are shown in Figure 9.4 below. 36 modelled as an increase in investment in Non-Residential Buildings International Convention and Exhibition Centre Feasibility Study Page 87

88 Figure 9.3 Economy-wide impacts of different scenarios $millions (right hand scale): Full-Time Equivalents (left hand scale) Initial impact (RHS) Increase in GDP (RHS) Increase in employment (LHS) Source: NZIER BASE LOW HIGH 0 Table 9.7 Impact of additional tourism expenditure LOW scenario Change from Base scenario Initial impact $64.3m -$21.1m Increase in GDP $23.6m (+0.02%) -$7.4m Increase in employment 318 FTES (+0.02%) -100 FTEs Source: NZIER Table 9.8 Impact of additional tourism expenditure HIGH scenario Initial impact $96.0m $10.6m Increase in GDP $35.6m (+0.02%) $4.6m Change from Base scenario Increase in employment 479 FTES (+0.03%) 61 FTEs Source: NZIER International Convention and Exhibition Centre Feasibility Study Page 88

89 9.5 OTHER EFFECTS There are other potential effects which are not included in the above analysis Savings of offshore expenditure Approximately 46,000 New Zealanders are projected to participate in events (other than public exhibitions) at the convention centre every year when it is fully operational. Their expenditure has been excluded from the analysis, on the basis that this is a diversion of spending from other types of domestic activity (a normal convention in this type of analysis). However, all or nearly all of the events will occur at locations in other countries, and it is likely that some New Zealanders would attend these events. Hence one potential benefit from a convention centre in Auckland would be the savings in expenditure that would have otherwise occur abroad. This effect is quantifiable, albeit with some uncertainty about the numbers of saved journeys abroad and associated expenditures. We have not been able to derive robust estimates of savings and incorporate them in the above BCA and GE modeling in the time available to prepare this report. However we consider that if time were available to undertake a more comprehensive analysis, these savings should be included Intangible effects A second set of intangible benefits might result from the convention centre or to be more precise, from the events held at the centre. Other studies of convention centre proposals have identified a number of these, which we would group into three categories: reputational effects learning and relationship effects / "global connectedness" local networking. Reputational effects arise as hosting major conventions with a global catchment reinforces the perception of Auckland (and indirectly, New Zealand) as a centre of international standing. Alternatively, the absence of such conventions undermines Auckland s reputation as a global city. These effects are not universal they are focused on people active in the fields in which the events are organised but these may include business and academic leaders among whom we would most wish to enhance this country s reputation. International Convention and Exhibition Centre Feasibility Study Page 89

90 Moreover, reputational effects will be most pronounced for conventions in fields in which we wish to establish New Zealand s standing (eg: emerging technologies). One of the key benefits cited from conventions is the personal contacts that participants make, and subsequent exchange of information, collaborative activities, business ventures etc (KPMG 2005) 37. Electronic communications have reduced the tyranny of distance, but have not eliminated it face-to-face contacts remain critical to developing and sustaining relationships in business and academia. The availability of a suitable facility and the events held at it, can be expected to contribute to cross-border exchange of information and relationship building, by bringing global experts (speakers and delegates) to New Zealand, and providing their local counterparts with increased opportunities to build global contacts. As KPMG (2005) notes, major conventions may also provide a catalyst for local networking in planning and presentations for conventions (rather than necessarily at the conventions themselves). The local networking typically includes business, academia and/or the public sector, and may lead to ongoing collaboration. In keeping with Treasury (2005, S4.5) we would highlight these effects as potentially significant but non-quantifiable. 37 KPMG (2005) Economic Impact of the Proposed London ICC Final Report to the London International Convention and Exhibition Centre Feasibility Study Page 90

91 10. PUBLIC / PRIVATE OWNERSHIP, GOVERNANCE, OPERATIONS 10.1 PUBLIC VERSUS PRIVATE SECTOR FUNDING Convention and Exhibition (Convex) Centres are substantial real estate investments (in terms of capital cost) and are not generally run on a commercial basis. The key reasons for developing international standard convention centres revolve around their ability to generate substantial economic impact and facilitate the transfer of valuable knowledge and contacts to the benefit of the local economy. It is because of these public good aspects and the large capital costs that large convention centres tend to predominantly be funded by the public sector. Having reviewed funding arrangements at other international centres, it is evident that the primary opportunities for private sector funding input relate to: 1. funding of ancillary services (eg: hotel, car park) on which the private sector can earn a commercial return and assist the overall development by providing synergistic infrastructure and contribute towards funding of associated land costs. The extent to which these opportunities can be pursued will depend upon the nature of the specific site that is chosen for the proposed facility 2. outsourcing of venue management and food and beverage services in return for key money contributions. These contributions are likely to be minimal in the context of the overall capital costs 3. structuring of the development as a Build, Own, Operate, Transfer ( BOOT ) scheme between the public and private sector. Locally this has been achieved with the development of the Vector Arena and in Australia the Perth Convention Centre has been developed under a BOOT scheme. The BOOT scheme results in the private sector contributing capital funding up to the level on which it believes it can earn a commercial return over the period of its operation prior to transferring the asset into public ownership. A key potential drawback of a BOOT scheme is that for the duration of the private sector s ownership, it will operate the venue so as to maximise profit and return on investment. This could result in a mix of activity and events that does not maximise economic impact, which is normally the original reason for developing the facility. The experience with both Vector Arena and the Perth convention Centre suggests significant private sector funding could be difficult to achieve through a BOOT scheme. In Perth the State government provided the developer with: a. Cash of A$100 million, which is to be ratcheted over the development period by the rate of interest, and is estimated to finally be approximately A$125 million b. The convention centre site rent free for 35 years before it reverts back to government c. land worth approximately A$90 million surrounding the convention centre site for 99 years rent free. This enables the developer to International Convention and Exhibition Centre Feasibility Study Page 91

92 leverage an above average commercial return off the associated facilities to off-set the convention centre return. 4. the levying of a bed tax on commercial accommodation. It is common in the United States for bed taxes to be implemented to assist in the funding of tourism infrastructure such as convention centres. We are not aware of any precedent in Australia for implementing a bed tax to raise funds for a convention centre development. The NSW State government did, however, implement a temporary bed tax to assist in raising funds to off-set the cost of hosting the 2000 Sydney Olympics. Bed taxes have previously been criticised on the basis that they are a blunt instrument that target a select group of service providers, rather than all industry participants who benefit from the presence of a convention centre. However, this bluntness can be mitigated by using a bed tax as one part of an overall funding package. The use of a bed tax as part of an overall funding package can be supported by the high proportion of conference delegate expenditure that accrues to hotels. 5. the imposition of a targeted rate. It would be possible to implement a targeted rate on all businesses within a certain geographic area as a means of collecting private sector contributions for a convention centre. The rationale for a targeted rate would be similar to that for a bed tax, in that the contributors would, in theory at least, benefit from the presence of the convention centre to a greater extent than the general ratepayer. This policy would have the benefit of spreading the funding impact more widely. Key issues with such a policy would be agreeing the appropriate geographic area and the fact that many businesses within the geographic area would likely receive no direct benefit from the presence of the convention centre. In order to optimise private sector funding contributions it is likely that a range of funding mechanisms will need to be pursued OWNERSHIP MODELS From our review there are three broad ownership options available for an international standard convention centre. The first option is for private ownership through a BOOT scheme, as discussed in Section The second option is for direct ownership by the public sector. The primary example of this model in Australasia is the Wellington Convention Centre. The most popular model is the creation of special purpose entities that are accountable to the public sector. These entities take a diverse range of forms and include: International Convention and Exhibition Centre Feasibility Study Page 92

93 VBase in Christchurch, which is a Council Controlled Organisation that owns a diverse range of public assembly facilities including the Christchurch Convention Centre (excluding Town Hall), AMI Stadium, and Westpac Arena The Melbourne Convention and Exhibition Trust, which was established under the Melbourne Convention and Exhibition Trust Act 1996, that owns and operates the Convention and Exhibition Centres and is responsible to the Victorian Minister for Tourism and Major Events The Sydney Harbour Foreshore Authority, which was formed under The Sydney Harbour Foreshore Authority Act 1998, and owns a number of significant assets including Sydney s heritage, cultural and entertainment precincts at The Rocks and Darling Harbour. The Authority has a broad portfolio of assets totalling A$1 billion including the Sydney Convention Centre and is responsible to NSW Minister for Planning South Bank Corporation, which owns the Brisbane Convention and Exhibition Centre, was established under the South Bank Corporation Act 1989 and has broad responsibilities for the development and management of the 42 hectare South Bank precinct The Adelaide Convention Centre Corporation, which is a subsidiary to the Minister for Tourism by regulations issued under the Public Corporations Act The benefit of these entities is that they are fully accountable to the public sector but are able to operate at arms length to ensure the public sector s objectives are met in the most efficient and effective manner. We note that the Royal Commission on Auckland Governance has recommended the establishment of a Council Controlled Organisation to own all regionally significant event venues, which would logically include the proposed international convention centre GOVERNANCE MODELS The on-going governance model for the proposed centre will be a product of the ownership model that is adopted. However, we do note that there may be merit in establishing an interim governance structure to oversee the development of the facility. This could be akin to the Redevelopment Board that has been established at Eden Park and have specific responsibility for ensuring key stakeholder requirements are met in the development of the physical building. The skill-sets of the representatives on this governance structure are likely to differ significantly from the skill-sets sought for those on the governance structure of the ownership entity although some continuity of representation would be highly desirable. International Convention and Exhibition Centre Feasibility Study Page 93

94 10.4 OPERATIONAL MODELS In Australasia there is a reasonably even split between in-house venue management and out-sourced venue management. Examples of out-sourced management include: 1 AEG Ogden, which manages the Brisbane and Cairns Convention Centres on behalf of South Bank Corporation and the Queensland Government, respectively 2 Spotless Services, which manages the Perth Convention Centre on behalf of the Wyllie Group 3 Convention Centre Management Pty Ltd, which is a consortium jointly owned by hotel group Accor Asia Pacific and food services organisation Compass Group, that manages the Sydney Convention and Exhibition Centre. By way of contrast, the Wellington Convention Centre, Christchurch Convention Centre, Melbourne convention and Exhibition Centre, and Adelaide Convention Centre are all managed in-house. The primary advantages of contracting out venue management include realising key money in return for the commercial opportunity and the potential to obtain specialist operational expertise to improve performance levels, particularly during the establishment phase. The key risks of contracting out the venue management is the potential for misalignment of objectives and the potential that revenue performance may not be improved to the extent necessary to off-set the associated management fees. Historically, there has been a tendency for venue managers to out-source food and beverage services to specialist caterers. However, in recent years there has been a trend towards venue managers bringing these services back in-house to assist their profitability and ensure greater control over service standards. International Convention and Exhibition Centre Feasibility Study Page 94

95 APPENDICES International Convention and Exhibition Centre Feasibility Study Page 95

96 APPENDIX 1A: BENEFIT-COST CALCULATIONS Option Waterfront 1 Year Year in which operations commence Year in which operations "stabilise" BENEFITS Income Total benefits Annual NPV Total NPV COSTS Capital costs Land costs Pre-inception costs - deadweight Ongoing subsidy - deadweight Total costs Annual NPV Total NPV NET BENEFITS (COSTS) Net benefits (costs) Annual NPV Total NPV BC Ratio International Convention and Exhibition Centre Feasibility Study Page 96

97 Option Waterfront 2 Year Year in which operations commence Year in which operations "stabilise" BENEFITS Income Total benefits Annual NPV Total NPV COSTS Capital costs Land costs Pre-inception costs - deadweight Ongoing subsidy - deadweight Total costs Annual NPV Total NPV NET BENEFITS (COSTS) Net benefits (costs) Annual NPV Total NPV BC Ratio International Convention and Exhibition Centre Feasibility Study Page 97

98 Option Waterfront 2 Year Year in which operations commence Year in which operations "stabilise" BENEFITS Income Total benefits Annual NPV Total NPV COSTS Capital costs Land costs Pre-inception costs - deadweight Ongoing subsidy - deadweight Total costs Annual NPV Total NPV NET BENEFITS (COSTS) Net benefits (costs) Annual NPV Total NPV BC Ratio International Convention and Exhibition Centre Feasibility Study Page 98

99 Option Waterfront 3 Year Year in which operations commence Year in which operations "stabilise" BENEFITS Income Total benefits Annual NPV Total NPV COSTS Capital costs Land costs Pre-inception costs - deadweight Ongoing subsidy - deadweight Total costs Annual NPV Total NPV NET BENEFITS (COSTS) Net benefits (costs) Annual NPV Total NPV BC Ratio International Convention and Exhibition Centre Feasibility Study Page 99

100 Option Wynyard Year Year in which operations commence Year in which operations "stabilise" BENEFITS Income Total benefits Annual NPV Total NPV COSTS Capital costs Land costs Pre-inception costs - deadweight Ongoing subsidy - deadweight Total costs Annual NPV Total NPV NET BENEFITS (COSTS) Net benefits (costs) Annual NPV Total NPV BC Ratio International Convention and Exhibition Centre Feasibility Study Page 100

101 Option CBD Year Year in which operations commence Year in which operations "stabilise" BENEFITS Income Total benefits Annual NPV Total NPV COSTS Capital costs Land costs Pre-inception costs - deadweight Ongoing subsidy - deadweight Total costs Annual NPV Total NPV NET BENEFITS (COSTS) Net benefits (costs) Annual NPV Total NPV BC Ratio International Convention and Exhibition Centre Feasibility Study Page 101

102 APPENDIX 1B: TECHNICAL DETAIL OF THE NZIER MODEL ORANI-G Our results were produced on a model of the New Zealand economy based on a tried and tested generic model (ORANI-G) that has been found effective for policy analysis in Australia and around the world. The model has been calibrated to the local setting and loaded with New Zealand data. The assumptions needed are based on consultation with industry specialists and reflect best practice. The model has been developed with considerable assistance from CGE modeling experts at the Centre for Policy Studies at Monash University in Melbourne, Australia. Database structure The ORANI-NZ model consists of: 131 industries 210 commodities 14 regions 1 household 24 occupations. The database has been sourced initially from Statistics NZ 1995/96 Inter-Industry tables, updated using the subsequently released 2003 Supply and Use Tables, and finally up-scaled to 2007 levels using latest Statistics NZ macroeconomic data. International Convention and Exhibition Centre Feasibility Study Page 102

103 Figure A The ORANI-NZ database Source: Horridge, 2008; NZIER Production structure (Horridge, 2008) The production structure of the model is presented in Figure B and follows Horridge (2008) 38. Each industry can produce a number of different commodities. Production inputs are intermediate commodities, both domestic and imported, and primary factors - labour, land and capital. Working from bottom to top, we see constant elasticity of substitution (CES) production nests for occupations, primary factors and the choice between imported and domestic commodities. In this case, an increase in price moves sourcing towards another input, for example if the price of imports increases, more domestic commodities are demanded in the intermediate sourcing CES nest. 38 Horridge, M (2008) ORANI-G: A generic single-country computable general equilibrium model. Centre of Policy Studies and Impact Project, Monash Australia. International Convention and Exhibition Centre Feasibility Study Page 103

104 Figure B Production structure Source: Horridge, 2008 At the activity level, intermediate goods, primary factors and other costs are combined using a Leontif production function. This means the proportion of production inputs does not change. On the output side, there are two further constant elasticity of transformation (CET) 39 nests. The production mix of each industry is 39 A CET function is identical to a CES function except that the transformation parameter has the opposite sign (ie: increasing price increases output in a CET; in a CES, increasing price reduces demand). International Convention and Exhibition Centre Feasibility Study Page 104

105 dependent on the relative prices of each commodity. Similarly, the export nest determines local and export market shares depending on relative prices. Model outputs The modeling process is to introduce to the model a shock, of a given value and incidence (in terms of the commodities affected by the shock). The model then determines a new value and composition of GDP, with the difference between this and the original values representing the impact of the shock. Figure C illustrates an example, plotting employment with and without the implementation of a given shock, for example a policy change. Without the policy, employment reaches point B after T years. With the policy, employment reaches point C after T years. In such a simulation, the model would report a percentage change in employment of 100*(B-C)/B (Horridge, 2008). Figure C Comparative static interpretation of model results Source: Horridge, 2008 Regional extension Policy impacts are often unevenly spread across industries and regions. To capture these heterogeneous effects, the model is extended to include a regional component. A top-down approach is used to decompose national impacts to the regional level, using regional employment data as weighting. If a region has a high share of national output, then its regional industry output will be proportionally affected. The exception is industries that produce commodities (mostly services) that are largely consumed within a region. These are deemed to be local industries, and it is International Convention and Exhibition Centre Feasibility Study Page 105

106 assumed that their output moves in line with the local demand for the corresponding commodity, rather than with the national industry output. Note that an inherent assumption in the top-down approach is that industries uses the same production technology across all regions (Horridge, 2008). Using models There are some important caveats that need to be considered with CGE modeling in general: they are based on neoclassical microeconomics this presumes all markets base decisions on relative prices they assume smooth responsiveness the model does not capture step-wise industry and economy-wide adjustments but assumes smooth and continuous changes. In reality, industries with large capital resources face discrete production and investment decisions they are subject to aggregation bias the model aggregates the economy into 131 industries and 210 commodities; this level of detail is normally sufficient to capture the key economic issues across the economy, but some effects may not be identified due to aggregation bias database dependency the model status-quo structure is based on the snapshot of the economy provided by Statistics NZ in their latest 2003 Supply and Use Tables, which are in turn an update on previous, more comprehensive input-output tables from 1995/96. Structural changes to the economy over the last 5 years are therefore not captured in the model database. We acknowledge these issues, and highlight the need for more regular release of input-output tables to enhance policy analysis in NZ comparative static equilibrium analysis the model reports the likely change in the economy at a given time; it does not capture the gradual implementation effects of a shock as the economy adjusts over time. In the long run, these restrictions aren t important as we assume that the economy can adjust to the desired point. International Convention and Exhibition Centre Feasibility Study Page 106

107 APPENDIX 2: INTERNATIONAL PCO SURVEY Note: Still awaiting expected information from Spain and Australia A. CONVENTION CENTRE FACILITIES Below are the capacity specifications developed by an IAPCO working group in 2006 for a convention of 3,500 delegates. The Numbers Auditorium: 3500 seats Main Halls: seating 1000, 500, 500, 500 (theatre) converting to a dinner of 2000 guests Breakout Rooms: 10 of varying sizes (max. 400, min. 150) The Numbers Exhibition: 10000sqm gross, 5000sqm nett nett (actual exhibition space) Very flexible spaces for: offices, small meeting rooms, posters (printed or electronic), etc. Please review these specifications and advise of any changes you think need to be made to this in light of (a) current requirements and (b) future requirements. In particular, please comment on the exhibition space is the ratio of exhibition space to meeting space and the number of delegates correct? UK I think the exhibition space maybe a little large for the average event/organiser. Personally I like the exhibition to house everything: registration, catering, posters, rest areas, lounges, cyber cafes, exhibitors lounge, offices etc. If you work on that basis you are looking at a ratio of probably 30% net space to gross. Potentially, 6-7,000 m 2 is probably sufficient with some ability to divide the hall up sensibly for smaller exhibitions. Netherlands If the exhibition space can be divided into other catering and breakout space, then fine. 10,000 m 2 gross is a lot but is needed for public exhibitions. Italy Even though there is a reduction in exhibition space requirements at present I would not change the numbers. Italy (No. 2) also worked in Turkey & Netherlands The exhibition space could be bigger, as it would then be more attractive for small commercial fairs as well. The number of offices and small function rooms is also very important. Switzerland Exhibition space sounds right, but some additional lost spaces (for receptions, smaller exhibits, coffee breaks, etc) would be mandatory. Spacious corridors, open spaces that can be segmented off etc. are very useful. Don t create boxes, be creative in size, dimensions, levels, views, etc. Expect to use AV in these spaces (as a whole, or segmented). International Convention and Exhibition Centre Feasibility Study Page 107