select
|

Current state of SA’s hotel market from a global perspective

“South Africa has very few distressed hotel situations when compared with other parts of the world and for hotels which do get into trouble, solutions can invariably be found,” says Demes. “Simply measuring the RevPAR (revenue per available room) for the first six months of 2011 and comparing it to the same period in 2010 does not reflect the full picture, as the Soccer World Cup during June/July last year saw a substantial influx of visitors to South Africa and a related increased demand for accommodation. As a result, while RevPAR for 1 January to 30 June 2011 reflected a decrease of 16.5 percent (measured in SA Rand), occupancy levels reflected a much lower decrease of 6.4 percent. And from an international perspective, South Africa’s July 2011 year to date RevPAR of US$ 64.39 declined by 14.9 percent compared to the same period last year, a figure that still compares favourably with the USA’s July 2011 year to date RevPAR of US$61.33.”

Demes says when viewed in the context of the increased occupancy level during the World Cup, coupled with the full absorption of increased hotel room inventory – much of which came on line just prior to the World Cup – it reflects a marked move towards a bottoming-out of the recession and global contagion which has driven consistent decline over the past three years.

“If the effects of the World Cup period demand were factored out, then we would see levels which were flat or at least stable year on year, as the drop in occupancy is directly driven by the increased demand during this major event. The next six months will be the acid test for whether the hotel industry is stabilising and moving toward a recovery phase in 2012. Rates, however, are not expected to increase substantially as the inventory-driven competitive environment remains a challenge to effective yielding in the industry.”

He says to gain a clearer perspective, by examining room rates further, and once again taking into account the recessionary trading conditions in recent years, South Africa’s hotel occupancy has decreased from 70.2 percent for the year ended December 2008 to the current level of 53.9 percent – driven by the global contagion, the recent South African economic recession and substantially impacted by the accelerated increase in hotel room inventory over the past three years. “However, the average room rate has increased from R795 for the year ended December 2008 to the current level of R847. While the average room rate is lower this year than last year, this is due to the considerably higher rates achieved during the World Cup, as before June 2010 the decline was only a few percent,” says Demes.

He reports that another factor which has impacted on the hotel market is a significantly reduced demand from the government sector, which is considerably down from the 2007/8 levels, while international corporate demand remains volatile with the erratic global economic environment debilitating the hotel industry’s recovery to past levels. In addition, while local corporate business demand remains more or less at the levels experienced in 2009, the challenge is that this demand has stagnated relative to the aggressively increased inventory base. A further challenge is that corporate buying habits have changed and the buying decision is considerably more price driven, leading to a concerted discounting regime in the hotel industry.

“Viewing the hotel market internationally, it should be borne in mind that traditional markets have reflected no growth in international tourist arrivals, and in most cases declined as a direct result of prevailing global economic conditions. Conversely, it is anticipated that the improvement in growth of global travel to South Africa will be substantially driven by the exploration of new markets, with the BRICS (Brazil, Russia, India, China, South Africa) relationship proving to be critical over the long term,” says Demes.

He points out that one of the key issues facing the industry is ‘cost-push’ related inflation affecting utility and transportation costs. The sustained abnormal increase in electricity costs, together with the substantial increase in water, gas and property rates cost present a significant challenge to hotel operators. “The fact is these costs have increased substantially above inflation rates while the current market dynamics are repressing room rates and the ability to yield pricing, while fuel price increases present a further ‘cost-push’ pressure on operating costs. As a result, turnarounds are debilitated by these uncontrollable factors as well as the prevailing market dynamics which are driven by increased inventory and the discounting regime.

“While we currently have too much inventory at the four and five star level in most cities in South Africa, there are a number of good joint venture opportunities available with existing hotels, as there is no doubt that in a competitive market, branding, together with global reach and sales and marketing, are very important factors. There are certainly a number of good opportunities in the budget or economy sector of the market in primary and secondary cities, and we also see an opportunity for a ‘budget boutique’ or a B&B type of hotel – a hotel room that is appealing and has all the ‘bells and whistles’ but is small in size and in its public areas. In other words, a large version of a business class seat, as opposed to the large rooms with large public areas which we have seen to date in Africa, mainly due to the fact that land has been relatively cheap.”
On a further positive note, Demes says South Africa continues to attract buyers for small hotels and guesthouses, with appealing lifestyle and value for money being key factors, and Pam Golding Lodges & Guesthouses has sold nine small hotels and guesthouses since the start of this year, mainly to European buyers, with an average selling price of R12 million.

He adds: “Looking ahead, the South African hotel industry still faces a challenging period of between two to three years. While 2012 is expected at best to reflect a marginal recovery on the 2010/11 period, the level of inventory dilution is considerable and demand needs to improve substantially to pre-2009 levels for a reasonable impact in the absorption of increased inventory. The years 2013 and 2014 are expected to reflect marked improvement, albeit strongly dependent on the local and global economic circumstances.

“With a presence in gateway cities in South Africa, the international and regional hotel operators will find it much easier to expand in a number of southern and western African countries. There are many hotels in our neighbouring states that offer an opportunity which, with a good refurbishment, strong global brand and a sound hotel operator, have the potential to operate so much better,” concludes Demes.


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 23 Nov 2017
      Reserve Bank Governor, Lesetja Kganyago, said that the Monetary Policy Committee had once again decided to let the interest rates remain unchanged with the repo rate at 6.75%, and the prime lending rate at 10.25%.
    • 23 Nov 2017
      As the holiday season approaches, most of us are counting the days until that year-end bonus hits our account. There’s nothing quite like a little bank balance booster to get us in the holiday spirit.
    • 23 Nov 2017
      The Adelphi Centre (now entitled “ARTEM") in Sea Point, Cape Town, is being extensively renovated, and once complete will offer an ultra-luxurious galleria style shopping centre unlike any other seen on the Atlantic Seaboard or in Cape Town.
    • 23 Nov 2017
      If you are looking to sell your home in today’s real estate market, there are certain things that you need to include both inside and outside your house. Today’s generation of home buyers is looking toward a more eco-friendly, energy and water conscious home, and if your house stands out then you are more likely to be able to sell it.
    • 22 Nov 2017
      Most people know of the Community Schemes Ombud Service (CSOS) and that levies must to paid to fund its operations. In this article the experts at Paddocks will address some of the issues that are causing confusion.
    • 22 Nov 2017
      While sales have noticeably slowed in most sectors in most Cape town suburbs, the security estate sector in Constantiaberg has bucked the trend by remaining buoyant, with sales by August this year already surpassing total sales in 2016.
    • 22 Nov 2017
      The end of the year is fast approaching, and so are all the travellers, tourists and holidaymakers. For those who live near or own a property in a holiday-hotspot, the festive season also brings with it an abundance of short-term rental opportunities. Its a great way for property owners to make a few extra rand for their own holidays or to put towards their savings.
    • 21 Nov 2017
      The buying process is over, and the moving truck has delivered your household goods to your new property. Now it’s time to unpack and turn your new house into a home.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK