'Green shoots' evident in SA hospitality industry

"South Africa's hospitality industry is proving very resilient amid the global economic downturn. The fact is that as a country we are far less dependent on the overseas market as most of our business is generated from South Africa's own domestic market and its neighbouring countries. In much the same way, and on the European continent, the German hotel market relies far more on a domestic as opposed to a foreign market, and as a result is trading relatively well," says Demes.

The core business of Pam Golding Hospitality - the facilitation of transactions in the hotel, lodge, guesthouse and restaurant industry together with operator procurement and hotel feasibility studies - is close to achieving a record of R5bn in terms of capital value of transactions facilitated in the Southern African hospitality industry - the bulk over the past six years. Pam Golding Hotels has recently been awarded mandates regarding a number of high profile hotel investment opportunities in Johannesburg and Cape Town as well as a prestigious mandate to sell a portfolio of leading boutique hotels and lodges around South Africa. Rapidly expanding and with offices in Johannesburg, Somerset West in the Winelands, Durban, Port Elizabeth and Knysna, Pam Golding Lodges & Guesthouses over the past five months to date facilitated nine transactions at a total value of close to R50 million - six concluded on behalf of overseas investors and the balance for South African upcountry buyers.

Good news for job creation

During 2008 Pam Golding Hospitality & Tourism Consulting was awarded 22 assignments and feasibility studies - 65% commissioned by international hotel operators and/or investors. Good news for South Africa's construction industry and job creation is that these are now being converted into real projects representing an estimated capital investment of R4.3 million and providing 2423 rooms and 2062 direct jobs.

Says Demes: "Widespread across the country are some remarkable and encouraging 'green shoots' in the industry. According to Smith Travel Research's (STR) global hotel benchmark survey, in June 2009 the SA hotel industry as a whole achieved a 4% increase in Revpar (revenue per available room) compared to June 2008. To place this in perspective, this means that the effective room revenue or turnover for an average hotel across the country has actually increased by 4% despite the fact that the number of rooms in South Africa is increasing due to the opening of new hotels and lodges as well as the launch of new B&B's and guesthouses. A further positive is that this in turn creates new employment opportunities."

Hotels doing well outweigh the others

The STR global survey reveals that in the Free State hotels have on average experienced an increase of 7.4% in Revpar for the first six months of this year (2009) compared to the same period in 2008, while those in the Eastern Cape saw an increase of 3.4% and the 4-Star market in Durban achieved an increase of 3.4% in Revpar during the same time frame.

Comments Demes: "While some hotels are suffering in a highly competitive and challenging marketplace, these are outweighed by those which are doing well, thereby resulting in overall growth." For the month of June 2009 compared to June 2008 further evidence of positive 'green shoots' are revealed by the STR survey as being widespread across the various segments and the country, with Revpar growth of 20.3% for hotels in the Cape Town central city, Foreshore and Waterfront; 14.2% growth for the 5-Star market in Durban, 9.1% growth for hotels in Sandton CBD and 24.6% Revpar growth for hotels in Stellenbosch.

Well-branded hotels in good shape

Demes says contrary to negative comments recently published regarding hotels in the Mother City of Cape Town, the well branded hotels in South Africa and in Cape Town remain in good shape unlike those in many other cities and countries in the world. "It must be born in mind that in Cape Town we are in the middle of our low season, which in any other city in the world routinely prompts special rates being offered and is certainly not indicative of a 'price war'. As an example of the resilience shown locally, the Radisson Blu in Cape Town has recorded a similar Revpar for the first six months of this year compared to the same period last year, despite the opening of the One&Only Hotel virtually next door, while the same is true of the Table Bay Hotel, also in Cape Town. Results such as those achieved by large, well-branded hotels are in fact far more relevant than isolated results in a market which is indeed very competitive."

On an advisory note Demes comments: "It is unfortunately true that in South Africa many of the hoteliers and developers have all been 'overspending', from a space point of view and therefore in terms of cost per key. We need to be far more aware of the square metreage utilised for a hotel - from bedrooms to circulation areas, public areas and back of house." And with the advice comes a strong appeal from Demes to the commercial banks to carefully consider the viability of finance applications for hotels which do have the correct competitive cost per key. He adds a reminder, perhaps, to devote due attention to basic economic principles such as demand, supply, cost, income and return.

"Unfortunately it is too easy to say no in times when liquidity is scarce - thereby missing opportunities to improve on South Africa's infrastructure and create much-needed employment," he says.

For further information email Joop Demes jdemes@goldinghotels.co.za .