But rival backpacker operators are questioning if the 81-room complex will be economically viable all year round and are concerned about the lack of parking.
The Queenstown Lakes District Council has given consent to GW Property Group (NZ) Ltd to establish visitor accommodation in part of its four-storey retail and office complex being developed in Church St.
The company is negotiating with an Australian-based backpacker brand, with fitting-out of the hostel being pencilled in for February.
However, when asked to comment on the development, Base Queenstown Discovery Lodge general manager Matthew Hirst said he did not think the market was big enough all year to support a hostel the size of the Church St development.
The lodge has 410 beds.
"To make any money, you need to be around the 80% occupancy mark, and while there are about two months where that's possible, it's going to be difficult [the rest of the year]."
Mr Hirst said while it was good to have another top-end backpackers in the resort, running costs were "extremely high" for a large hostel.
Pinewood Lodge owner Rob Greig said a gap in the hostel market and how viable it would be was a commercial decision for the developers. Pinewood had about 300 beds, he said.
"The concern is the lack of parking and the inability of buses to park and unload in town. There's a shortfall in the district plan in that it doesn't provide for car parking for major operators."
Mr Greig said he expected the proposed Church St backpackers would become an identical operation to the Discovery Lodge, "with a bar of young people spilling out on to the street", and was concerned about the impact on the resort's image.
GW Property Group director Rob Gardos, of Sydney, said he was not interested in commenting on the reactions to his company's hostel plans.
There are 22 backpackers and holiday parks in the central resort, according to Destination Queenstown.
Acting chief executive Graham Budd said Destination Queenstown assumed the developers were constructing the hostel because they saw an opportunity.
"It does appear with 22 current products in town that there's not an obvious gap, but we don't have any figures on growth in this segment available to hand so we don't how this new facility will impact on existing backpackers or Queenstown accommodation."
In its decision, the council retained control of the building's appearance, setback from internal boundaries and roads, access, landscaping and screening of outdoor storage and parking areas.
The council does not control noise or hours of operation for visitor accommodation in the town's centre zone. However, the decision considered there would not be any significant adverse affects.
GW Property Group applied for building consent for the fitting-out on November 14.
Lakes Environmental's building department has requested further information from the applicant.
Plans show the ground floor would feature the main entrance on to Church St plus a lobby, reception, two stairwells, lift, travel desk, Internet area, administration office, vending machines and laundry and luggage rooms.
The first floor would include a communal lounge, television room, kitchen, dining area, Internet, telephones and communal showers and toilets plus 21 multiple-bed dormitory rooms.
The second floor would consist of additional showers and toilets plus 28 multiple-bed dormitory rooms, six of which will be in a "ladies wing". The third floor would have 32 rooms with en suite facilities.
Car parking was not proposed in the application, although the site includes an underground car park.
