Hotel Rooms in South Africa stay empty


Tourism industry members cannot be sure when people will start travelling again, writes Julius Baumann

In the run-up to the Soccer World Cup, hardly a week went by without a new five- star hotel in Cape Town or Johannesburg opening its doors hoping to capture their share of the fans that would flood into the country in June and July.

With the economy still moving full steam ahead, investment in the hospitality sector surged to record highs with groups such as City Lodge, Protea and Southern Sun spending billions on expanding their portfolios. SA also saw the entry of new operators such as Taj Hotels .

City Lodge alone has spent R1bn on 10 new hotels in the past two years, while Southern Sun last year spent R700m building a single mixed-use development that included the 194-room Montecasino Southern Sun, its first new hotel in nearly 20 years.

“We have seen about 9800 hotel rooms added in SA between 2007 and this year,” says Joop Demes, CEO of Pam Golding Hospitality.

However, after the tournament, the reality of the slowing economy has caught up with SA, with trading conditions in the past few months among the most difficult on record. “Everyone is looking to the skies, waiting for the next rain,” says Mmatsatsi Marobe, CEO of the Tourism Business of SA . “No one is sure when we are going to see a recovery in the travel sector. So far we are seeing no real sign that people are starting to travel again.”

City Lodge CEO Clifford Ross says it is going to take a number of years before the existing room capacity is absorbed by the market . Developers are still trying to recover from this last wave of new developments that has resulted in many hotel feasibilities being questioned.

“The demand side of the equation is of great concern at the moment, as there is no clear picture or prediction as to when this demand cycle is going to turn,” Mr Roos said.

The slowdown in trading has had a major affect on investment in new hotel developments.

The fact that many local and international groups had sped up their hotel developments for the World Cup coupled with the economic slowdown, has seen the appetite for new projects evaporate.

Well, almost.

Several hotel operators are still cautiously expanding their portfolios.

“There are still opportunities for new hotels in SA, but perhaps not in the five-star market. We still see opportunities in the smaller cities, particularly in the mid-market,” says Andrew McLachlan, hotel group Rezidor’s vice-president for business development in Africa and the Indian Ocean islands.

Then there is also huge interest in SA from global hotel operators, with many of the top brass of these organisations travelling to Johannesburg for next month’s Hospitality Investment Conference Africa .

“The fact that the likes of Ed Fuller, MD of Marriott Hotels, is coming to Johannesburg is a sign of how seriously these groups are taking SA. With the extremely slow recovery in the developed world, many of these groups are looking to the developing world for new opportunities. SA is high on their list because of the exposure we received from the World Cup as well as the fact that the country is an ideal launch pad for expansion into the rest of the continent,” says Ms Marobe.

There may be new opportunities and some interest, but is anyone ready to sign up new projects in this climate?

The answer is yes. Sun International is to begin a R1bn- development at the Broadwalk Casino in Port Elizabeth which will include a five-star hotel while Mr McLachlan is optimistic that Rezidor will sign four more hotels this year, two in SA. Taj Hotels is also close to finalising a proposal for a new hotel in Johannesburg. Even City Lodge, which is keen to bed down its recent rapid expansion, is eyeing one or two new projects.

Mr Demes says with the frenzy of the World Cup over and banks more circumspect in providing funding for new projects, there is now a more sober approach to new developments.

“Before the World Cup we saw some really irresponsible projects, particularly in Cape Town. For example, the building of Upper Eastside in Woodstock was a huge mistake. It was the wrong location for a four-star hotel and had no established hotel operator in place.

“That sort of development is not likely to take place in the current environment. While the banks are lending again, they are turning over every proposal several times to make sure it will work while owners are being forced to do their homework.”