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Big investment in hotels

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Close to 4000 new rooms will be added to the country’s offering over the next few years

DESPITE facing the same economic headwinds plaguing the rest of the commercial property industry, investment in the country’s hotel sector continues to increase, with almost R2billion predicted to be put into new premises this year alone.

Over the next three years, it is expected total investment in this industry in South Africa will hit R6.9bn, translating to 3900 new hotel rooms across the country, according to JLL’s latest Hotel Investment Outlook.

More than 80% of new investments will be concentrated in the Joburg, Pretoria, Cape Town, Durban and Umhlanga areas. 

Some developments in the pipeline include:

◆ Capital Melrose (2019) – 103 rooms.

◆ Hilton Garden Inn Umhlanga Arch (2020) – 200 rooms.

◆ Marriott Melrose Arch (2019) – 310 rooms.

◆ Radisson Blu Umhlanga (2020) – 207 rooms.

Hotels that were completed last year include Protea Loftus, Signature LUX Cape Town, and AC Cape Town. Investors, however, need to focus more on value if they are to combat rising vacancy levels as a result of the economic climate.

JLL reports that demand for rooms has been low in recent years. When previous supply cycles began in about 2006, most markets were achieving occupancy levels of 70%. Last year, however, the national average was 62%.

Regionally, these levels were:

  • Cape Town: 65% (decrease of 6.5%)
  • Sandton: 62.6% (decrease of 0.4%)
  • Durban: 64.2% (decrease of 3.9%)
  • Pretoria: 56.6% (decrease of 6.4%).

JLL’s figures show the average daily rate in the Mother City is R1765, compared to R1292 in Sandton, R968 in Durban and R954 in Pretoria.

In February, income generated by hotels in South Africa decreased by 1.7%, reveals Stats SA’s latest Tourist Accommodation publication.

This decrease follows a 1% drop in January and 2.8% decline in income in December. From December to February these decreases amounted to R4.3bn. 

The Hilton Garden Inn Umhlanga Arch is expected to be completed next year. Picture: Supplied

Even though the figures paint a bleak picture, JLL says the long-term fundamentals of South Africa’s hospitality market “remain strong”, despite the short-term challenges.

It further states: “Economic prospects are expected to improve in the medium to long term with the short-term prospects still subdued due to uncertainty around whether the ruling party will emerge from the elections with a pro-business and growth agenda, while policy around land expropriation and Reserve Bank nationalisation constrain economic and corporate activity, which ultimately constrains hotel demand.”

Looking at the African picture, Knight Frank’s Africa Horizon 2019 report indicates by 2023 almost half of African households will have an annual income exceeding $5000 (about R72000) which will spur greater demand for consumer goods and services which, in turn, will lead to greater demand for hotels, among other commercial property types.

The report also says Africa’s hospitality sector, which includes luxury safari camps, island retreats and conference hotels, among others, is booming. 

Average occupancy levels throughout Africa rose to 61% last year from 58% in 2017. Mauritius and Seychelles were last year’s top performing markets in terms of both occupancy and room rates.

Mixed-use precincts that include hotels is also a growing trend in Africa because they not only provide international hotel guests with a level of urban comfort, but are also in the best financial interests of hospitality developers and investors, says Tim Smith, managing partner at HVS Africa.

“For all occupiers of the development, the benefits are significant as there are no security risks or traffic challenges during your stay, both of which can deter first-time visitors to Africa in particular.”

While there is a lot of publicity around the success of these developments in South Africa, Smith is of the opinion that the mixed-use development model is seeing increasing replication in other African countries too.

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