Jet set turbocharges South Africa’s hotels

South Africa’s hotels are back in the black as revenue improves and operating efficiencies come into their own — even if occupancies have yet to return to pre-pandemic levels. And while investment in new builds still lags, the owners of landmark properties around the country are spending hundreds of millions on upgrading their offerings.

That’s no great surprise: after the first democratic election there was a slew of investment in travel and tourism as South Africa opened its doors to the world. But the hotels built then are showing their age. And even those built for the 2010 Soccer World Cup are in need of softer nips and tucks.

Take the Table Bay Hotel at the V&A Waterfront in Cape Town. Its location is one of the best in the city: close to the harbour and with views of the mountain. Built at a cost of R450m and opened by Nelson Mandela 25 years ago, its classical maritime design is starting to look dated.

The V&A Waterfront is now taking ownership of the landmark establishment, which will be rebranded as the InterContinental Table Bay Cape Town. V&A owners Growthpoint and the Public Investment Corp will invest about R1bn in the renovation, designed by Dubai-based DSA Architects in line with InterContinental brand standards.

Though Sun International will continue to manage the hotel, the association with the InterContinental Hotels Group brings with it a global marketing presence and loyalty programme, with more than 130-million members worldwide.

It’s a big thing, says V&A CEO David Green. “We’re a major international city, and we haven’t got the leading hotels from the international brands with their powerful loyalty programmes, and I think that’s such an opportunity.”

Things are changing though, with a fresh wave of new international hotel management companies operating in South Africa for the first time as owners realign for the future. 

Also at the V&A Waterfront, Fairmont Hotels & Resorts — part of Accor — has come in to run the Cape Grace, owned by Kasada Capital Management (backed by Qatar’s sovereign wealth fund). It bought the 120-room hotel from Meikles in 2018 and reopened its doors this year after a “refashioning”.

There are not a lot of assets up for grabs in South Africa, especially if you’re looking at conversions

—  Amir Golbarg

Meanwhile, in Joburg, NH Hotel Group has taken over management of the old Hilton Sandton, rebranding it NH Collection Sandton.

NH is part of the Spain-headquartered Minor Group, which has a portfolio of 550 hotels in 56 countries.

Renovation of the 12,000m² property will start next year, paid for by its owner, the Cavaleros Group, which also owns The Maslow Hotel Sandton. That will take the establishment from four to five stars.

According to Amir Golbarg, senior vice-president for the Middle East & Africa at Minor Hotels, the key to the group’s entry into South Africa was finding a local partner with which the group can “expand together jointly across the continent”.

“There are not a lot of assets up for grabs in South Africa, especially if you’re looking at conversions,” says Golbarg, who adds that the group is looking at other management options in South Africa, including in Joburg and Cape Town, and is considering bringing in the Anantara and Elewana brands.

While investment in new hotels is subdued, there are developments on the horizon. The Steyn City Hotel by Saxon will open in October, and Club Med South Africa Beach & Safari resort will open on the KwaZulu-Natal north coast in 2026. The Radisson Hotel Group, meanwhile, is set to double its presence in South Africa by 2030, targeting 25 hotels.

There are smaller, more niche hotel openings too. In Cape Town, Mama Shelter will open in City Park, in what was once the Christiaan Barnard Memorial Hospital, the luxury Novis hotel is being built in Camps Bay and The Canopy by Hilton is set to open in the first quarter of next year in the Longkloof precinct.

Harbour Arch has tabled its intent to build hotels but there are no details as yet.

In Joburg, Anew Hotels & Resorts opened its Anew Hotel & Convention Centre at OR Tambo at the beginning of July. It’s also launched a self-catering collection with Hluhluwe Lodge and Hilton Homestead in Pietermaritzburg. The group is also doing significant refurbishments across its key properties in Pretoria and White River.

—  NEW DEVELOPMENTS

A sector on the up

South Africa’s hospitality sector was hit hard by Covid, with travel restrictions and lockdowns bringing global and local travel to a standstill. The contribution of the travel and tourism sector to the economy nosedived, from 3.7% of GDP in 2019 to just 2.1% in 2020, according to Stats SA, and many of the country’s establishments shut up shop.

Now, revenues are on the rebound. In part, that’s thanks to slimmed-down operating models. Since Covid, the hotel industry has focused on holding onto a reduced cost base while managing the variable costs, making the sector more profitable than it has been for years.

As Sun International CEO Anthony Leeming explains it, the fundamentals of the hotel operating model have not changed since Covid, but lessons learnt include the need to bed down the cost structures and be as efficient as possible to drive margin. “It’s all about trying to create effectiveness and efficiencies and take advantage of technology to maintain margins while ensuring the guest experience is enhanced,” he says. “All this needs to be achieved in the wake of increasing costs, particularly inflation-related payroll costs.”

Contributing to the bump in revenue is that hotel guests are forking out a hefty 42% a night more on average than they did in 2019, according to the most recent data from global data analytics firm CoStar. It places the average daily room rate in South Africa at about R1,798 for January to May, compared with R1,261 in 2019.

In addition, revenue per available room (revpar) — a widely used metric to assess the profitability of hotels — reached R1,000 for the first time this year. It averages R1,051.48, up 18.6% year on year and 35% ahead of 2019.

Still, while revenue is up, occupancy rates have yet to catch up with pre-pandemic levels. The year-to-date average sits at 58.5%, down 0.5 percentage points (pp) from the same period last year. Occupancy rates reached a four-year peak of 60.7% in 2023, still marginally below the 61.7% recorded in 2019. 

Not all regions are benefiting equally from the sector’s improved fortunes. A deeper dive into CoStar’s data reveals a large divergence among the country’s best- and worst-performing hotel nodes.

Among the laggards are the safari resort areas of Limpopo and Mpumalanga, and Joburg. The metro is struggling with the highest number of empty hotel rooms in the country, at an occupancy rate of only 40.9%. (Though occupancy in Sandton is finally recovering, up 4pp year to date to 55.2%, and room rates have firmed 8% to an average R1,427.)

The only other hotel node tracked by CoStar with an occupancy below 50% is the Drakensberg/Midlands area, at 49.9%.

A deeper dive into CoStar’s data reveals a large divergence among the country’s best- and worst-performing hotel nodes

Durban’s poor performance doesn’t come as a surprise given the decline in the city’s tourism sector, which in recent years has struggled because of beach closures due to high E. coli levels, civil unrest and floods. There is an outlier: the upscale beachfront town of Umhlanga, just north of Durban, boasts the highest room (R1,662) and occupancy (60.7%) rates in South Africa after Cape Town. That’s against an average room rate in Durban of R816 — down 20% year to date; Durban is the only hotel node in the country where rates are still languishing below R1,000 a night.

With less traction, there’s less business action — just a trickle of development and overseas management contracts, but no new investment, says Marc Wachsberger, CEO of The Capital Hotels, Apartments & Resorts. And while new brands are coming into Cape Town as hotel managers, “I don’t see any other new operators really penetrating the other nodes in South Africa”, says Leeming.

Comeback kid

Cape Town, of course, continues to streak ahead, and so has helped prop up national figures. Room rates (and revpar) in the Mother City are up an impressive 30% in the year to date. Hotel guests in Cape Town are now paying a record R2,718 a night — 65% more than 2019’s average R1,647.

Cape Town also boasts the highest occupancy rate in the country at 68.5%, comfortably ahead of 2019’s 65.8%. It’s the only city or node in South Africa where occupancy rates have already surpassed pre-pandemic levels.

In part, the uptick will have been supported by the strength of the luxury market. As Southern Sun CEO Marcel von Aulock explains it, the biggest change since Covid has been that the luxury and leisure market has come back stronger than before. At the same time, the conference market has rebounded (see box), but the contribution of the individual business traveller is taking time to recover.

“So your economy hotels have been generally weaker,” Von Aulock says. “There’s a portion of travel where money is not the deciding factor, but local business travel is very dependent on the economy and it hasn’t turned yet. If that happens you will see a big uptick.”

Leeming says something similar, telling the FM that while inbound travellers from source markets such as the US, the UK, Germany, France and Italy have not recovered to pre-Covid levels, “what we are seeing is a higher-quality traveller spending more; it may not be higher in numbers but higher average spend”.

The V&A is banking on an influx of foreign visitors at the high end of the travel spectrum. Given the resilience of the luxury market, “we’re strengthening our position on that, doubling the size of the space”, says Green.

He says the bullish outlook on Cape Town as an international destination is driving investment in the V&A. The precinct already has 13 hotels, but “we can see a market for 18”, he says. At least, that’s the plan for the next 15 years, as the V&A extends its reach by 440,000m² around the Granger Bay precinct — a development with a price tag of about R20bn.

Already, another hotel is being built near the Table Bay with the working name Quay 7. It’s supposed to exude calmness, offering guests something of a sanctuary, says Green. It will have 140 rooms and six “branded residences” — a popular concept internationally, where one can own an apartment in the hotel. “We’re aspiring [for this to] be the most luxurious hotel in Cape Town, though not a boutique offering,” says Green.

Other brands at the V&A are shifting gears too; apart from the revamp of the Cape Grace, the One&Only completed an extensive refurbishment last year.

There’s been a decent rebound in the meeting and conference tourism sector. As Southern Sun CEO Marcel von Aulock tells the FM, there is strong demand for bigger conferences of 100 to 500 people, as well as exhibitions.

Southern Sun manages the Sandton Convention Centre, and he points to high demand; bookings for the venue need to be made up to three years in advance.

Then there’s the Cape Town International Convention Centre. In the 2023 financial year, it hosted 427 events and reported a total contribution of R5.7bn to the national GDP. The centre’s book highlights 382 events, of which 84 are international, extending through to 2031.

Marc Wachsberger, CEO of The Capital Hotels, Apartments & Resorts, says the “Mice” (meetings, incentives, conferences and exhibitions) market continues to perform well post-Covid. “What we’re seeing is a reduction of offices. People don’t want to work in the office any more so companies are shrinking offices, moving to flexible and hybrid workspaces at home. As a result, they’re coming to us to help improve their company culture, conduct training and socialising in the form of Mice travel.”

He adds: “To be more cost-effective with Mice, we’re finding that companies are holding conferences in Sandton where the head office is, and bringing in people from around the country.”

Sun International CEO Anthony Leeming says the level of Mice interest in South Africa has certainly increased and the market is growing strongly, though it’s not yet at pre-Covid levels. “At Sun City in particular it’s been heartening to see the first quarter of 2024 with three sizeable bookings,” he says, adding that he expects this to grow.

—  THE RETURN OF EVENTS

Too much of a good thing?

With Cape Town booming, is there a concern that investors are hanging back for fear of being seared by an oversupply of hotels, as happened after the 2010 World Cup? Not likely at this juncture, say the industry hands the FM spoke to.

Green, for one, sees no chance of the metro being overtraded, as has happened in the popular European cities of Barcelona and Venice. “If you look internationally, we’re a million miles from being overtraded with our offer. No matter where you go, our offer is spectacular.”

If anything, he adds, “we would love to see the international visitor numbers and attendant job creation these cities enjoy”.

Wachsberger, too, wouldn’t put Cape Town in the overdeveloped category — even if there is more opportunity in the rest of the country. (His group, for example, is focusing on secondary towns in South Africa such as Gqeberha and Bloemfontein.)

“The last time there was an overdevelopment of hotels was in 2010, and in 2017 finally the swear word of ‘hotels’ for investors started disappearing,” he says. “People started building hotels that year and then the swear word started again with Covid.”

In any event, he adds: “The operators say they’re coming ... there’s always talk, but they don’t necessarily have a clear and viable project. There’s a lot of talk but no action, a lot of waiting for elections, waiting for lower interest rates because it’s not viable at the moment with high interest rates. There’s not a lot of hotel projects apart from the pipeline in Cape Town, and what we’re building for secondary cities.”

Van Aulock doesn’t see a big risk of overdevelopment in the medium term. He reckons the Cape Town boom needs to last a couple of seasons and the economy needs to start growing before there is likely to be any large new investment. “However, the industry is known for being cyclical and perpetually in a state of under- or oversupply. It comes with the territory. We have made our best acquisitions rather than new builds during periods of oversupply or industry distress.”

While there are no direct barriers to entry when it comes to building new hotels, “with current build costs relative to potential returns it’s not an obviously lucrative investment”, Von Aulock says. “Unless you have sunk land costs or a bigger precinct you’re trying to enhance, such as the V&A, the economics of a new build is the natural barrier to entry.”

For that reason, Southern Sun is focusing on its current portfolio of 87 hotels in South Africa and eight offshore, spending several hundreds of millions on refurbishments.

“We have this incredible portfolio you couldn’t replace,” says Von Aulock. “You’d have to spend R30bn-plus to get something similar and the locations are simply not available, so putting money into our existing portfolio to maintain [it] and ultimately get higher room rates makes sense to us.”

Leeming also doesn’t see overdevelopment on the horizon in Cape Town, given an increase in airline capacity coming into the city. Elsewhere, he reckons Umhlanga could probably take more hotel inventory without a risk of oversupply, but demand in regions such as Durban central “has pretty much stagnated” as a result of some nodal shift and decay on the beachfront. Sandton, for its part, still suffers from oversupply — a few additional hotels opened slightly before Covid and after, such as Hotel Sky Sandton and @Sandton Hotel, which together added 1,400 rooms to a node suffering from a lack of transient corporate demand.

Still, Cape Town should be wary of pricing itself out of the market. Already the locals are feeling the pinch. As Brett Hoppé, GM of Sun City Resort, tells the FM, the foreign traveller boom experienced by Cape Town is boosting growth, “but if you speak to most South African businesspeople, they’re mortified because the rates are so high”.

The Capital Hotels, Apartments & Resorts CEO Marc Wachsberger sees big uptake for digital nomads, especially in Cape Town, where “laptop warriors” stay in the city during the European winter, while visitors from Zimbabwe and Botswana make Sandton their home.

Thanks to changes to visa requirements, these visitors have been staying longer, which boosts occupancies. “They’re spending in our restaurants, our bars, and the GDP multiplier effect of their spending is massive, and that’s simply because they [the authorities] fixed a visa regulation issue,” he tells the FM.

He believes the tourism sector has benefited from a “brilliant” tourism minister in Patricia de Lille. “Now we’re looking at a new home affairs minister and we have very high hopes they will permanently resolve the visa issues, particularly around work visas; it’s so easy to fix.”

He says to rebuild the country South Africa needs IT and engineering skills, but such talent is often unable to secure visas in time, and this results in no-shows and booked rooms standing empty.

—  RISE OF THE DIGITAL NOMADS