Strong Demand Pushing Hotels to Choking Point

New Zealand, H1 2017 Strong Demand Pushing Hotels to Choking Point OCCUPANCY 0.4 p.p. ADR 11.8% y-o-y RevPAR 12.4% y-o-y International Arrivals 10.2% y-o-y Chart 1: International Visitor Arrivals 3,800,000 3,600,000 3,400,000 3,200,000 3,000,000 2,800,000 2,600,000 2,400,000 2,200,000 2,000,000 Source: StatsNZ The strong growth in international visitor arrivals continues to deliver strong occupancy levels at hotels across the country. In the 12 months to June 2017, international visitor arrivals increased by 10.2% over the previous year with a total of 3,648,204 international visitors arriving in the country across the year. This is a marginally slower rate of growth than in the year ending June 2016 when international visitor arrivals increased by 10.6%. The growth in visitors from China has slowed to only 0.3% in the last 12 months following three years of growth at an average rate of 21.2% p.a. Meanwhile visitors from the USA, our third largest source market, increased by 26.4% in the last 12 months as a result of increased air capacity across the Pacific. In addition to the strong growth in arrivals, these international visitors are staying for longer with stays of between 8 and 21 days growing at an average of 10.1% per annum over the last four years while shorter visits have grown at an average of 7.4% p.a. All of this growth combined with a local economy that is continuing to improve is underpinning strong demand for hotel rooms across most of the country with the largest portion of these visitors stating Holiday as their primary travel purpose. New Zealand is expected to remain an attractive travel destination and should continue to experience growth in visitor arrivals as long as the infrastructure has capacity. Nationwide hotels achieved an occupancy rate of 80.9% in the year to June 2017 up 0.4 percentage points on last year. ADRs increased to $182.63 (up 11.7%) and RevPAR increased by 12.3% to $147.79. H1 2017 CBRE Research CBRE Ltd. 2017 1

AUCKLAND OCCUPANCY Auckland occupancy rates have displayed a rising trend since mid 2009 due to a combination of limited new hotel supply, increasing international visitor arrivals and an improving economy. With monthly occupancy levels nearing in peak months, hotels are at full capacities on regular occasions and future occupancy growth potential is limited. AUCKLAND AVERAGE DAILY RATE (ADR) The ADR achieved by hotels is closely related to occupancy rates, and depends on seasonality and capacity utilization. The sharp increases seen in 2011 were a result of Rugby World Cup influenced demand. The current growth in ADR is a direct result of occupancy rate increases, with the pace of growth intensifying dramatically when city wider occupancy levels surpassed. The current Lions Tour is expected to test the ADR peak, which may be followed by slower growth as domestic and corporate visitors start searching for cheaper accommodation, or opt for day travel instead. AUCKLAND REVPAR Revenue per Available Room (RevPAR) is the product of ADR and Occupancy. The post GFC reductions in RevPAR correspond to the decreases in occupancy rates, and the rapid increases seen in 2011 are associated with Rugby World Cup demand. The current sustained growth results from both increases in international travel, and general economic growth, which in turn stimulates domestic travel. When Occupancy rates and ADRs are both increasing, as has been the case since 2013, RevPAR growth is amplified. Chart 2: Auckland Occupancy Chart 3: Auckland ADR Chart 4: Auckland RevPAR Change 4 3 - - As an aftermath of the Lions tour ending, and new stock supply, which is expected to happen next year, the possibility exists for occupancy to plateau or even decrease, and with lower ADR growth expected, RevPAR growth rates are likely to reduce reversing the current trend. Table 1: Auckland KPIs YTD Jun-16 86.7% $180.54 $156.58 YTD Jun-17 87.7% +1 p.p $214.00 18.5% $187.77 19.9% YE Jun-16 85.5% $172.48 $147.53 YE Jun-17 87. +1.5 p.p $200.03 16. $174.05 18. H1 2017 CBRE Research CBRE Ltd. 2017 2

ROTORUA OCCUPANCY Rotorua is a leisure market and suffers from strong seasonality, with room supply underutilized during the winter months. The current occupancy rate being close to is a result of high occupancies during the summer periods driven primarily by growth in international visits, but also stronger local demand. In the last few years increases in occupancy rates during the low season have also been recorded. These are partly related to the sharp increases in room rates during the high season, forcing some low paying segments to delay travel to the low season instead. Chart 5: Rotorua Occupancy Chart 6: Rotorua ADR ROTORUA ADR Historically the long decline in ADRs between 2008 and 2011 was due to low occupancy rates and competition among the hotels. The 2011 jump in rates was due to the Rugby World Cup. The current surge in rates, which began in 2014 is due to occupancy crossing the critical threshold. There is a high confidence among the providers at this stage as during the summer there is full capacity utilization as well as growth in occupancy during the low season. While the current rates are high, the recent drop in occupancy may result in a subsequent retraction in growth rates of ADRs. The recent increases in ADRs are most evident during the summer months when the utilization reaches and monthly ADRs can be up to higher than in the low season. ROTORUA REVPAR The rate of RevPAR change has been decreasing in the last two years as a result of occupancy rates reaching capacity especially during the high season. There has been no new stock supply in Rotorua recently. However, a new 130 room Pullman hotel has recently been announced which would increase hotel supply by 8.4%. Chart 7: Rotorua RevPAR Change 4 3 - - There has been no new stock supply in Rotorua recently. However, a new 130 room Pullman hotel has recently been announced which would increase hotel supply by 8.4%. Table 2: Rotorua KPIs YTD Jun-16 82.3% $119.93 $98.68 YTD Jun-17 81.1% -1.2 p.p $131.28 9.5% $106.48 7.9% YE Jun-16 78.6% $116.02 $91.20 YE Jun-17 78.9% +0.3 p.p $126.88 9.4% $100.14 9.8% H1 2017 CBRE Research CBRE Ltd. 2017 3

WELLINGTON OCCUPANCY The Wellington market is largely driven by the domestic FIT and Corporate sector. Due to its corporate and government focus, the market does not respond readily to changes in international tourism. Moreover, the seasonality of the market is associated with the public office activities, and the low season occurs during the summer holiday period. The steady trend in growth seen on the chart is influenced by economic growth which translates into increased business travel. WELLINGTON ADR Similar to other markets, Wellington was experiencing a declining ADR trend post GFC with a spike in 2011 due to the RWC. Since 2013 an increasing ADR trend has been experienced with the pace of growth increasing as occupancy levels increased. Chart 8: Wellington Occupancy Chart 9: Wellington ADR WELLINGTON REVPAR Historically the largest increases in RevPAR were recorded during the 2011 Rugby World Cup. Those changes were short lived and became negative afterwards. The recent positive changes in Revenue per Available Room are influenced by both increases in occupancy and ADR growth and are a result of positive economic growth and increased business activity. Again, similarly to Rotorua, the change in RevPAR peaked about a year ago when the growth in occupancy lost momentum. With new supply planed for 2018 it is expected that the RevPAR change will decrease further due to occupancy declines. Wellington is a relatively small market and is heavily influenced by individual supply events. Chart 10: Wellington RevPAR Change 4 3 - - More text in here if needed Table 3: Wellington KPIs Occupancy ADR RevPAR YTD Jun-16 80.4% $167.28 $134.50 YTD Jun-17 82.2% +1.8 p.p $177.16 5.9% $145.69 8.3% YE Jun-16 79.2% $163.81 $129.77 YE Jun-17 79.4% +0.2 p.p $173.43 5.9% $137.66 6.1% H1 2017 CBRE Research CBRE Ltd. 2017 4

CHRISTCHURCH OCCUPANCY The main feature of the Christchurch hotel market performance is the earthquake related loss of stock and subsequent influx of earthquakerelated business associated with the planning of the rebuild. These combined to result in a sharp increase in occupancy post 2011. Since then however, the available stock has increased resulting in occupancy rates gradually decreasing. Christchurch is the main entry point to South Island leisure destinations, and is affected by the summer related seasonality. February is the strongest month with occupancy exceeding. In June the occupancy falls tonear levels. Chart 11: Christchurch Occupancy Chart 12: Christchurch ADR CHRISTCHURCH ADR The loss of stock and the influx of earthquakerelated business pushed ADRs up after the earthquake reversing a rapidly declining ADR trend. The subsequent stabilization of ADRs is influenced by stock coming back against recovering visitor numbers. The current ADR stands well above pre-earthquake levels mainly due to the hotel stock still being substantially lower than pre-earthquake. CHRISTCHURCH REVPAR The effect of the earthquake related loss of stock and the influx of rebuild related occupancy is clearly visible on RevPAR change chart. The current state of the market is flat with uncertain future demand and supply. The convention centre is to be constructed in CBD by the end of 2019, which is expected to substantially increase the demand for hotel rooms when completed. While the addition of new hotel stock has affected market performance, the total stock is likely to remain at pre-earthquake levels in the medium term. Chart 13: Christchurch RevPAR Change 4 3 - - More text in here if needed Table 4: Christchurch KPIs YTD Jun-16 78.9% $155.94 $122.98 YTD Jun-17 77.1% -1.8 p.p $160.86 3.2% $123.97 0.8% YE Jun-16 77.6% $155.03 $120.25 YE Jun-17 75.3% -2.3 p.p $160.05 3.2% $120.53 0.2% H1 2017 CBRE Research CBRE Ltd. 2017 5

QUEENSTOWN OCCUPANCY Queenstown is a leisure destination and reacts readily to the change in international visitor numbers. The effect has been boosted through the Airport upgrade which allowed for night flights and substantial increases in arrivals, especially from Australia. While the occupancy levels decrease in May and June it remains strong throughout the rest of the year with well over in winter and over in summer. QUEENSTOWN ADR The growth in ADRs is sustained throughout the last ten years with the current surge experienced since the occupancy crossed the threshold. While the hoteliers adjust the ADRs during the low periods, a clear growth, which is independent of the seasonality, is also observed for each month over the last three years. Queenstown attracts the highest proportion of international demand, which tends to experience greater price elasticity than domestic demand sources. Chart 14: Queenstown Occupancy Chart 15: Queenstown ADR QUEENSTOWN REVPAR The RevPAR change has been positive for the last five years resulting firstly, from occupancy increases, and then from ADR growth which followed. The rate of growth peaked in the middle of 2016, and is a result of occupancy rates levelling out at above levels. Currently occupancy appears to be running at capacity levels during the summer peak, and stabilising during the winter at above. The only occupancy growth in the past 12 months has been experienced in the off season periods (June/September) with some visitors shifting to more financially accessible periods. This suggests that the current ADR growth may be approaching the peak, and the rate of RevPAR change may continue to decline. Chart 16: Queenstown RevPAR Change 4 3 - - More text in here if needed Table 5: Queenstown KPIs YTD Jun-16 82.8% $185.90 $153.95 YTD Jun-17 81.5% -1.3 p.p $216.40 16.4% $176.31 14.5% YE Jun-16 82.4% $178.40 $147.02 YE Jun-17 82. -0.4 p.p $209.22 17.3% $171.50 16.7% H1 2017 CBRE Research CBRE Ltd. 2017 6

NEW ZEALAND RESEARCH GLOBAL RESEARCH AND CONSULTING Peter Hamilton Director Hotels & Leisure Level 14, ANZ Centre 23-29 Albert Street Auckland t: +64 9 359 5430 e: peter.hamilton@cbre.co.nz Zoltan Moricz Head of Research, New Zealand Level 14, ANZ Centre 23-29 Albert Street Auckland t: +64 9 359 5399 e: zoltan.moricz@cbre.co.nz Moshe Szweizer Senior Research Analyst Level 14, ANZ Centre 23-29 Albert Street Auckland t: 64 9 359 5428 e: moshe.szweizer@cbre.co.nz Nick Axford, Ph.D. Global Head of Research t: +44 20 7182 2876 e: nick.axford@cbre.com Follow Nick on Twitter: @NickAxford1 Richard Barkham, Ph.D., MRICS Global Chief Economist t: +44 20 7182 2665 e: richard.barkham@cbre.com Neil Blake, Ph.D. Head of Research, EMEA t: +44 20 7182 2133 e: neil.blake@cbre.com Follow Neil on Twitter: @neilblake123 Henry Chin, Ph.D. Head of Research, Asia Pacific t: +852 2820 8160 e: henry.chin@cbre.com.hk Spencer Levy Head of Research, Americas t: +1 410 951 8443 e: spencer.levy@cbre.com Please visit the Global Research Gateway at www.cbre.com/research-and-reports Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE.