Cape Town in line for new Hotel Investment

Joop Demes, CEO of Pam Golding Hospitality, said for the last two years, South Africa's hotel sector has enjoyed double-digit growth in Revenue per Available Room (RevPAR), as tourists flock to the increasingly popular holiday destination.

With a growing number of foreign tourists visiting, Cape Town has emerged as the most popular city in Southern Africa for new hotel investment despite the oversupply that depressed the industry since 2010 World Cup.

Joop Demes, CEO of Pam Golding Hospitality, said for the last two years, South Africa's hotel sector has enjoyed double-digit growth in Revenue per Available Room (RevPAR), as tourists flock to the increasingly popular holiday destination.

According to Demes report, there are currently 11 hotel projects in the pipeline, eight are well-advanced and three are at a feasibility stage. The newly developed and pipeline hotel projects are scheduled to open within the next four years, creating a collective investment in excess of ZAR 3.5bn and in excess of 2,000 jobs.

The Western Cape has been outperforming every other province and recorded phenomenal revenue growth of 19.2% per available room for the first nine months of this year compared to the same period last year.

The mid-market hotels in Cape Town have enjoyed in excess of 25% revenue growth per available room at the end of September this year compared with the same period a year ago. At the end of 2013, midmarket hotel rooms made up about 25% of hotel rooms in Cape Town.

“There is without doubt currently an undersupply of midmarket rooms in Cape Town,” said Demes.

He said the acquisition of the Protea Hotel Group by Marriott earlier this year had sparked foreign direct hotel investment focused on the Western Cape and Johannesburg with the US, China and the Middle East leading the surge. “There is strong interest and demand for existing underperforming hotels as well as for green-field opportunities.”

International demand is increasing due to a favourable exchange rate, with Europe and the US as the key markets, coupled with a sharp increase in inquiries and investment from China.

The hospitality side of Pam Golding Lodges and Guesthouses has facilitated 56 foreign direct investment transactions, worth almost half a billion rand.

The recent opening of the new Park Inn in Newlands will add 122 rooms in the mid-market sector in the last quarter of this year. Next year, Hotel Le Vendome re-opens as Radisson Blu with a further 143 rooms. There is the delayed Bloubergstrand Hotel with 144 rooms and another 67 rooms in De Waterkant. Demes forecasts one further hotel opening in 2016 with 120 rooms, 1060 rooms in 2017 while 2018 will see a further 450 rooms.

Demes said most of the new rooms expected to become operational in 2017 and beyond were strategically well balanced and thought-through. The strong double-digit growth in room demand in Cape Town for the past two years has started to find traction in the Winelands and the Garden Route.

In Johannesburg and Durban the market was very different. Growth of 6.8% in the overall revenue per available room for Gauteng in the nine months ending September, compared with the same period last year, has further entrenched the gap between Cape Town and Sandton luxury hotels.

The overall revenue per available room in Durban for the nine months ending September this year declined 5.7%, while Umhlanga has increased 7.2% in the same period. Wayne Godwin, senior consultant with Pam Golding Tourism & Hospitality Consulting, said of the three major cities, they were most cautious about the merits of new hotel development in and around Durban.

The outlook for South Africa's tourism industry is extremely bright, attracting considerable interest from property investors in the most popular cities such as Cape Town and Johannesburg.