New Zealand is increasingly experiencing what economists describe as a two-speed economy. While some sectors and regions are thriving, others, especially consumer-facing industries like hospitality — are still facing significant strain in many cases.
On one side, exporters and primary industries continue to benefit from strong global demand. On the other, many operators in our industry are battling reduced discretionary spending, higher input costs, and declining city foot traffic. The result is a widening gap in performance that carries risks for both businesses and communities.
How hospitality is being affected
Business are being impacted by tighter household budgets. With rising rents, mortgages, and everyday living costs are putting pressure on household finances. Dining out, socialising, and discretionary leisure activities are some of the first things New Zealanders cut back on. The silver lining here is that we have OCR cuts which means lower interests rates but we wont necessarily see that impacting households immediately.
Most members are saying revenue is down and costs are up
Operators are experiencing falling revenues at the same time as costs for wages, food, rent, utilities, and compliance continue to climb. For many businesses, this squeeze is unsustainable.
City centres under pressure
Office occupancy in Auckland and Wellington remains well below pre-pandemic levels. Fewer people working in the CBD translates directly into fewer weekday customers. In some reports occupancy is down 35-40%, meaning less office staff out for lunch or after work drinks. Concerns about parking costs, transport reliability, and safety are further discouraging people from spending time in central cities.
Regional differences emerging
Not all areas are affected equally. Regions such as Canterbury and Otago, and suburban or neighbourhood venues, are showing stronger resilience. Local patronage and tourism are helping support businesses outside the major centres.
Tourism recovery uneven
International visitor arrivals reached 3.38 million in the year to June 2025, an increase of 162,000 on the previous year. Spending rose to $12.2 billion, up 9.2 percent year-on-year. However, in inflation-adjusted terms, international spend is still only around 86 percent of pre-COVID levels. While hotspots like Queenstown and Rotorua are thriving, Auckland and Wellington are yet to see the full benefits of returning visitors.
Shifts in consumer patterns
Many New Zealanders are choosing to dine closer to home. Suburban and local venues are benefitting, while city-centre operators are seeing reduced evening and weekend foot traffic.
Why this matters
Our industry, hospitality, is more than just an industry — it is a marker of community wellbeing and vibrancy. Cafés, bars, and restaurants are where people come together to connect, celebrate, and build memories.
If parts of the economy thrive while others struggle, the gap creates long-term risks for jobs, communities, and local economies. Workers in vulnerable sectors face insecurity, while the social and cultural fabric of our towns and cities becomes weaker.
What needs to happen
For hospitality to remain strong, and to ensure our cities and communities continue to thrive, we believe the following are essential:
- Councils and central government must recognise hospitality’s unique exposure to economic shifts. Smarter fee structures, investment in major events, and immigration settings that match industry needs are critical.
- Policymakers need to understand that while some sectors can absorb higher costs, hospitality cannot simply pass them on without losing trade and in some cases our ability to pass costs on has recently been stopped!
- We need initiatives that draw people back into our city centres, promote domestic tourism, and support local events. When people come together, hospitality benefits.
- Long-term investment in training, development, and pathways is needed so we can attract and retain skilled people.
- Digital enablement is important, helping small operators adopt tools that improve efficiency and competitiveness will be essential for sustainability in a tight market.
- Reviewing the regulatory environment to ensure that fees and the costs of doing business are reasonable and not cumbersome.
Positive signs ahead
The signs of a two-speed economy are clear. While exporters thrive, hospitality is grappling with softening demand and rising costs. International tourism is slowly rebuilding, but unevenly across regions.
However, there are some positive signs ahead.
The current government has sighted its intention to invest in more events, invest in tourism and see it as a priority. We are already seeing Queenstown and Rotorua surpass pre-Covid numbers.
The Reserve Bank’s OCR cut to 3.00% is the first in three years, signalling a shift toward easing household pressure. Economists expect further cuts in late 2025, potentially bringing the OCR down to 2.5%. Lower rates should gradually help households and businesses free up cashflow, supporting discretionary spend.
Areas like Nelson, Canterbury, and Queenstown-Lakes are showing strong hospitality growth (Nelson up 17% in Q1 2025, Queenstown +13.4%).
Suburban and neighbourhood dining remains robust, as New Zealanders continue to support their local venues.
Despite budget pressures, New Zealanders still see cafés and restaurants as affordable luxuries compared to overseas travel or big-ticket items.
Industry research shows dining out remains one of the last discretionary spends to be cut entirely, meaning demand won’t disappear — it will rebound as confidence returns.
The Bottom Line
The current environment is undeniably challenging: consumer demand is tight, city centres are slow to recover, and costs continue to rise. But there are real reasons for optimism — tourism is climbing, interest rates are easing, events are returning, and locals are still showing up for their neighbourhood venues.
By weathering today’s pressures and preparing for the opportunities ahead, our sector can remain the beating heart of New Zealand’s communities.
Further reading:
- Inside Economics: The RBNZ’s dilemma – a two-speed economy and a one-speed OCR – NZ Herald
- ‘It will come’: PM promises brighter economic future for cities – Stuff
- Mixed Start to 2025 as Hospitality Sector Grapples with Flat Sales, Cost Pressures and Regional Divergence
- Restaurant Association Applauds Government’s Long-Term Tourism Strategy and Continued IVL Investment