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Investors reaping benefits as apartment-style hotels gain ground

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Five-star hotel occupancy in Cape Town, where many aparthotel operators are located, has increased by 4% over the last year.

South Africa’s hotel development market, and specifically Cape Town’s, is showing astounding buoyancy despite a tough economy and the after-effects of the drought.

Innovative ways of accommodating corporate and leisure travellers, such as “aparthotels” or serviced apartment-style hotels, are quickly gaining momentum, says Wayne Troughton, managing director of HTI Consulting, a development consultant for the hospitality sector across Africa and the Middle East.

Recent figures highlight that five-star hotel occupancy in Cape Town, where many aparthotel operators are located, has increased by 4% over the last year, while the average daily rate (ADR, the average realised room rental per day) has grown by 2.6%. The four-star sector’s occupancy, despite new hotel entrants, has also increased, by 1.6% and with a 2.2% increase in ADR.

“Cape Town’s tourism resilience and attractive rate of return are making property buyers move to other, non-traditional options of buying property, like buying an apartment in a hotel property and then leasing it back to the hotel and enjoying a good monthly return that mirrors the uptick of local tourism,” Troughton says.

A working example of this is Romney Park Luxury Apartments, previously a five-star all-suite hotel, in Green Point. Here, owners of one-bedroom apartments have been seeing an average occupancy rate of 77.1% for the past 12 months, with an average monthly revenue of R34026,” says Heino Reuling, director of Romney Park’s The Stay Collection.

“For a two-bedroom apartment, the average occupancy rate has been 75.9% and the average monthly revenue R45170. Our three-bedroom apartments have provided an average of 53 6% occupancy, with an average monthly revenue of R42476.”

The 12J investment option, derived from section 12J of the Income Tax Act, has had a strong influence on the development of aparthotels because it offers a tax rebate to investors in apartments that are operated as hotels, Troughton says.

He adds: “Aparthotels offer a more flexible product, whether staying on a short- or long-term basis, giving guests more space, and the opportunity to self-cater while also enjoying the food and beverage amenities on the property, such as a restaurant or room service. And prices aren’t vastly different when compared to traditional hotels, so it represents a greater value for spend.”

Romney Park traded as a five-star hotel for 21 years, during which time it built a repeat-guest client base, especially among film and photographic crews who wanted the comfort of its rooms and premises, as well as the appeal and convenience of its Green Point location, Reuling says.

“Since our redevelopment, the repeat-guest client base has been a massive attraction for property owners buying our apartments, as it offers them some kind of guarantee that they will earn a return fairly quickly, and this mitigates risk to some extent.”

Serviced apartments in Africa represent less than 1% of all hotel rooms, whereas internationally the figure is closer to 10% of supply. South Africa’s highest concentration of serviced apartment-style hotel developments, with 1% of total rooms, is in Cape Town.

Several new aparthotel developments have entered the Cape Town scene in recent years, including The Protea North Wharf, Capital Mirage, Onyx, Radisson Blu Hotel and Residences and Harbour Bridge Hotel & Suites. The Marriott Residence Inn, which forms part of the Harbour Arch development on the Foreshore, will start trading once it is completed.

While there’s a strong indication that the market is recovering post-drought and the entry of new supply is improving, Troughton says the highs achieved in 2017 have yet to be recovered.

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