Wellington Scoop

The council states its reasons for supporting the convention centre

convention centre
There are four more days for Wellingtonians to tell the city council what they think about the plan for the council to support the creation of a new convention centre opposite Te Papa.

Consultation started on 8 July and ends on 14 August. The council reports that feedback is “generally very positive.”

At a council workshop last week, the mayor and Councillor Coughlan stated the case for the convention centre. Here’s a summary of what they said.

Mayor Wade-Brown:

The need for upgraded conference facilities is an integral part of the Council’s economic growth agenda and is one of the eight “Big Ideas.” The need has been known and considered over many years – this is a tangible project to deliver these to Wellington in a timely manner without any capital investment or need to borrow by the Council. Leading the consortium is Wellington developer Mark Dunajtschik in a three-way partnership to develop a 5-star hotel and a significantly over-scale (“city scale”) convention centre.

The council would get involved in order to get a “city scale” convention centre. The proposed centre is significantly larger than the conference facilities required for a hotel of this size. To contrast this, the Auckland Hilton is also 165 rooms and its conference facilities are less than half the scale of the proposed Wellington centre.

The site for the new centre is a major gap in our urban landscape and sits directly opposite the most visited attraction in the country, the national museum. What an opportunity to address this and for Te Papa and the Hilton to leverage off each other.

We looked at building our own convention centre – at a cost of >$50m (borrowing and construction risk) with … ongoing ownership costs of >$5m per annum. Plus we would need to operate the centre and take on the operating risk.

Councillor Jo Coughlan:

The sector is a large and an important component of the Wellington economy. Linda Sissons makes the point very well that the ability to host a strong education sector relies on the availability of work for students. The hospitality sector provides this and supports over 1000 jobs and it is important to protect and grow this sector.

Without upgrading the city offering, it is likely that Wellington will not directly benefit from the Crown’s significant investment in marketing NZ as a business event destination . The international conference market has been steadily growing and to access this market particularly in the Asia/Pacific region the city needs to be able to offer modern purpose built facilities.

Our current facilities have served the city well but are compromised by their multi-purpose nature – for example WOW takes TSB/Shed 6 out of the market for basically 6-8 weeks, the Town Hall, the Amora.

The market will only get tougher for Wellington with new modern and purpose built faciliities proposed for Auckland, Christchurch and Queenstown. If you want to see the potential impact of quality facilities look no further than Claudelands – arguably the best conference facilities in NZ and growing strongly despite it being in a moderate location.

The future for Wellington in this market is one of contrast.

Do nothing and see our share of the conference business and the economic benefits for the city reduce (8% likely 17% worst case) ; or
Invest in upgraded facilities to maintain this business and grow the Wellington market.

Do nothing = losing 86-171 jobs and the economy shrinking by $6.4 to $12.8m
Invest = preserve those benefits and gain extra 172-247 jobs & grow GDP $12.8m to $18.4m

The real impact from this proposal is the combined impact of these factors in retaining and growing the sector, the jobs and the GDP –> 258 to 418 jobs and GDP $25.6m to $31.2m (taking the investing impact plus do nothing)

The total number of delegate days in Wellington is currently just over 700,000. With investment in suitable facilities we can expect to be able to grow this by approximately 10% (68,000 new delegate days)

The Wellington share of the conference market has been declining for a number of years … The main area of decline has been in the multi-day event area – this is the area that brings the economic benefits to the city. It helps fill hotel rooms, restaurants and bars, museums, shops etc and introduces visitors to what Wellington has to offer and attracts them back as tourists…

The 10% growth projected for Wellington in context would take us back to a similar market position as in 2011. The benefits outlined in the business case and proposal do not rely on Wellington achieving an unrealistic or optimistic market position. The inherent characteristics of Wellington together with new facilities to complement our current offering will provide a strong market offering.

Mayor Wade-Brown:

The developer would build and own the hotel and convention centre. This is a development project of over $100m and the Council would not be exposed to any construction or funding risk. In the unlikely event that the convention business did not generate operating profits, the Council would be protected from and would not bear that direct financial risk.

This is a partnership model and it is important to ensure all the parties are aligned and share similar incentives for success. The Council would lease the Convention Centre from the developer and Hilton would manage and operate the centre alongside the hotel. (Lease 20 years with right of renewal in year 15). Hilton would receive a management fee based on revenue and a share of the operating profits as an incentive. (same basis as the hotel).

All residual profits from operating the convention centre will return to the Council. An owners’ committee would operate across the partners and would agree and monitor operating budgets and performance and agree how costs are shared…

…The worst case for the Council is where the convention centre returns no operating profit to the Council. The cost to the Council is therefore the lease cost plus share of rates/insurance less the incremental rates revenue.

The best case projects an average cost over 10 years to ratepayers of $1.5m and implies an expectation that the convention centre will return an operating profit of $2m to the Council. (Our own venues operate at better than break even). We expect Hilton to operate the centre profitably.

The most likely case sets shows an average cost to ratepayers of $2.0m per annum. The average over 20 years is quite similar, as the profile of operating profits starts low and then grows before tapering off.

Based on the most likely case – the GDP benefit is estimated to be $23.7m (based on the do-nothing impact of $6.4m plus the mid-point of the investing case)…

… Construction benefits over the build project will be >$100m.

The benefit from having the Hilton brand in Wellington is significant: the international exposure, access to their massive membership base and position as leaders in the field provide additional benefits and confidence that the proposal has the best chance of success.

Employment – the sector already drives employment of over 1,000 FTE, this proposal would protect (86-171 existing jobs) and generate an additional (172-247 new jobs)

Sector support – it is important that we are able to hold conferences in Wellington that showcase, complement and support our business sectors including the tech and film sectors. Modern purpose built facilities will assist in ensuring we can as a city host appropriate events.

The education opportunities include – hospitality education and training, career opportunities in the sector and increased jobs in the hospitality sector.

Secondary investment (growing the rating base which reduces costs to ratepayers)
Urban regeneration in an area that is under-developed opposite our Natioanl Museum!
Potential for hotel development downstream.

Growth in the rating base as a result of secondary investment of an additional $200m would be sufficient to offset the expected rates funding requirement.

Before Te Papa, the Wellington hotel sector was static at c65% occupancy … We are currently hitting 75% levels and additional hotel space is underway at the Sofitel. If this proposal goes ahead, the new hotel space from the Hilton will take the occupancy rate to around 72% and as the conference business grows this is forecast to rise to close to 85%. In this scenario you would expect to see additional investment in hotel space to meet the demand. This is secondary investment that directly grows the rating base.

The Council currently funds around $4m in ownership costs related to the existing civic centres. This is funded annually by ratepayers. 40% is directly recovered through the Downtown Levy and 60% is funded through the General Rate (remembering that the General Rate is funded 45% by Commercial ratepayers and 55% by Residential ratepayers.)

Based on the Most Likely scenario and the current Funding Policy, the impact on a residential ratepayer with a $500k value property would be a rates increase of $12 in year 1 – this would reduce thereafter to the point where in year 5 the incremental amount of rates going towards the Convention Centre would be $4. (Due to costs in first few years being highest as the centre starts operating and builds its business).

In the event that the centre drove secondary investment, the impact on ratepayers would be less; in the event that the operating profits were lower then the figures would increase.

Where to make your submissions:
Online: Wellington.govt.nz/conventioncentre
• Email: conventioncentreproposal@wcc.govt.nz
• Post: Wellington City Council, Att. Baz Kaufman, PO Box 2199, Wellington 6140.

Read also:
The reasons why the convention centre plans must be improved
New 300-bed 5-star hotel and laneway for Auckland
Auckland Convention Centre can accommodate 3500 delegates