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| DESPITE
RECESSION, LONG TERM OUTLOOK FOR HOTEL INDUSTRY
REMAINS HEALTHY |
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The South African hotel industry
has enjoyed extremely sound growth
from 2002 to 2008, with double-digit
growth over the past three years (as
reported by Smith Travel Research
(STR) in their SA Hotel Benchmark
Survey), with occupancy levels over
the past four years averaging at a
consistently high 71%.
Unfortunate Timing
The pent-up demand initiated substantial
new hotel developments, which are
now gradually coming into the market,
and while the need has always been
there for additional inventory, their
market entry is at an unfortunately
inappropriate time, says Kamil Abdul-Karrim,
MD of Pam |
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Golding Tourism & Hospitality Consulting
– a member of Pam Golding Hospitality.
Difficult Year
"The
past year from July/August 2008 to date
has been an extremely difficult trading
environment for the hotel industry, with
a domestic economy experiencing high inflation
levels with the associated high cost of
money.
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Reduced Revenue
“As a result, there was a considerable
reduction in hotel occupancies and
conferencing revenue, coupled with
a worldwide recessionary economic
environment, which exerted further
pressure on corporate and government
spending in South Africa.
Cushioned Decline
“While the current occupancy
level of 60.4% is the lowest level
experienced for well over the past
eight years (based on the earliest
available data from STR), rates have
held and in fact increased by 5% over
the period January to August 2009.
As a result, the industry decline
of 9.6% has been somewhat cushioned,"
says Abdul-Karrim.
Hotel
Performance Dilution
Abdul-Karrim says the forthcoming
FIFA 2010 World Cup will provide some
level of reprieve during the effective
40 days of the event. However, the
fact that substantial new hotel room
inventory is being introduced in time
for the event - as well as numerous
other projects planned prior to the
recession and expected to come online
over the next six to 18 months - hotel
performance will undoubtedly be diluted. |
Apartments Operating as Alternative
An added pressure from an inventory perspective
is the fact that numerous residential apartment
developments, which became distressed with
the credit crunch, have been introduced
in the short term rental market and now
operate in the same space as conventional
hotels.
Unlikely Marriage
These are either self-operated or operated
by opportunistic hotel management companies
that often raise a curiously high management
fee structure to the distressed developer
and make overtly optimistic revenue promises
that are invariably never met. This unlikely
'marriage' of developer and manager ultimately
dilutes the reputation of the SA hotel industry,
which adopts among the highest standards
in the world.
Challenges
Says Abdul-Karrim: "The challenge
is that these apartments, which are
often perceived to be better living
environments than traditional hotels
as a result of their contemporary
lifestyle offering, are rented out
on a daily basis at considerably lower
rates, driven by the fact that they
do not have the necessary hotel infrastructure
behind the property or operation.
Questionable Sustainability
“But the jury is out as to the
sustainability of this business model.
Of course the developer has the option
when the residential apartment market
turns of reselling these units as
individual apartments. However, this
is not what the hotel industry is
all about, which is commitment, passion
and service."
Development Spikes |
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He says unlike mature markets in Europe
and North America, hotel development in
South
Africa has always been demand driven as
opposed to capacity creating. "In a
demand-driven environment such as ours,
we typically encounter development spikes
as experienced in the past and present,
which create oversupply situations.
Market Dynamics
“And as there is a substantial lag
before demand absorbs the supply, the result
is that developers seem to catch up on the
market dynamics only when demand is reaching
saturation levels. With the typical lifecycle
of hotel development being 20 years or more,
the gains over the longer term are there
for the developer who fully appreciates
the market dynamics."
Healthy
Outlook
Abdul-Karrim says that despite the impending
oversupply of hotel room inventory, the
longer-term outlook for the hotel industry
remains healthy and affords ongoing benefits
and viable returns for the hotelier who
is in the market for the typical lifecycle
of the product.
Post 2010
The trading environment post 2010
will be challenging probably for 18-14
months while demand grows and ultimately
absorbs the new inventory, he adds. |
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Foster
Growth
What is critical for destination South
Africa to remain sustainable and foster
growth in the tourism and hospitality
industry is to ensure there is appropriate
capacity to service growing demand.
Perception of Capacity
Lack of capacity results in loss of
bed nights, and sustained lack of
capacity creates the perception that
a prospective visitor will never find
accommodation. As a result, the destination
slowly excludes itself from travel
plans and coupled with this –
as seen in busy hubs in Africa –
is that lack of capacity and growing
demand drives prices to unnatural
levels with sub-optimal products ultimately
demanding extremely high dollar-based
rates, a situation that is not sustainable.
Industry Thinkers
"With a revised focus on Africa
and the entry of a new group of thinking
hotel development and management companies,
we are starting to see a spread of
fresh, new product entering the market
at prevailing market rates. |
Cause & Effect
“The net effect
of this is that at the early phase, the
increase in inventory is absorbed by the
pent-up demand, however when the supply-demand
equation stabilises, the first to suffer
are those operators who have bled the market
in good times, without due consideration
to standards and guest satisfaction.
Weeding the Greedy
“These properties will then be the
first affected by demand stabilisation,
and will rightfully be weeded from the market
– proving without doubt the non-sustainability
of limiting development and creating a sub-optimal
product through demand-driven complacency
in product development," says Abdul-Karrim.
Patterns Emerging
"It's not clear at this stage whether
the expected reversal of the prevailing
recessionary conditions will have the desired
effect on the broader tourism and hospitality
sector. What is evident is that spending
patterns have changed and the phenomenon
of opulent consumerism may be transforming
into a more discreet pattern.
Conclusion
“The South African hotel industry
has previously experienced volatility,
albeit not to the current extent,
but what is clear is that as an industry,
hospitality is an embedded element
of economic and social development.
Furthermore, hospitality is an age
old tradition and while there is a
difficult patch ahead, there is light
at the end of the tunnel," he
adds. |
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Pam Golding
Hospitality comprises
Pam Golding Hotels, Pam
Golding Lodges & Guesthouses,
Pam Golding Hospitality
& Tourism Consulting
and Pam Golding Restaurants.
For further information
contact Kamil
Abdul-Karrim
on +27 (0) 82 902 0533
or email kamil.abdul-karrim@goldinghotels.co.za |
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ECONOMIC
AND EMPLOYMENT SPIN-OFFS FROM OVERSEAS
GUESTHOUSE INVESTORS
By Peter Bruil, Director, Pam Golding
Lodges and Guesthouses |
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Foreigners
who purchase property
in South Africa
in order to relocate
often launch new
businesses here,
thereby creating
job opportunities
while injecting
much-needed capital
investment into
the country.
Reasons to Relocate
"Such
immigrants often
make the decision
to relocate after
spending a holiday
in South Africa,
and as many hail
from a successful
but hectic corporate
background, they
seek a more relaxed
lifestyle,"
says Peter Bruil,
a director of Pam
Golding Lodges &
Guesthouses (PGLAG)
– a division
of Pam Golding Hospitality.
Popular Areas
"As a result,
they tend to look
to purchase a hospitality
establishment such
as a guesthouse
or lodge –
acquiring comfortable
owner's accommodation
as well as a lucrative
business. Generally
they look for property
with spacious grounds,
with areas such
as Somerset West,
Stellenbosch and
Franschhoek in the
Cape Winelands and
upmarket Constantia
in Cape Town the
most preferred areas.
"We see interest
from those from
a wide variety of
European countries,
but predominantly
from Holland, Germany,
Italy, England,
Sweden, Belgium
and Switzerland.
The economic crisis
in Europe has made
the outlook for
many corporates
bleak and with South
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Africa in the global spotlight
in 2010 - and offering
affordable and viable
opportunities - former
executives are taking
the decision to follow
their dreams of owning
a successful guesthouse
in Africa," says
Bruil.
Lots
of Potential in SA
"The potential for
realising this goal is
very positive," says
Leonard Brewer, who is
also a director of PGLAG.
"South Africa's tourism
statistics show this is
still an under-visited
destination compared to
many other long haul tourist
centres in the world.
Healthy Growth
Coming off a very low
base in 1994, our tourism
sector has experienced
healthy growth over the
past 14 years, boosted
by a government which
has had the vision to
recognise the potential
and injected new life
into the industry via
a tourism investment incentive
scheme."
|
Peter
Bruil, PGLAG;
Paul Langeveld
outside Colourful
Manor |
|
Success
Story
A good example of
a success story
is that of Paul
and Marjolein Langeveld
who moved from Holland
to South Africa
about seven years
ago after several
years in Beijing,
representing a large
Dutch catering company.
Western
Cape a Winner
A year prior to
settling in South
Africa they were
holidaying in the
Western Cape and
decided that was
the part of the
world they thought
surpassed many other
possible destinations
in terms of natural
beauty, opportunity,
climate, space and
a more relaxed attitude
towards business
and life in general.
Somerset
West has the Value
Combination
After careful consideration
they eventually
decided that Somerset
West was the location
offering the most
value for money
while meeting the
above criteria.
Since relocating
to South Africa
Paul Langeveld has
developed and established
two guesthouse businesses
in Somerset West,
the second of which
was sold by PGLAG
to a German investor.
Cape Winelands
Potential
Langeveld is currently
busy developing
a third guesthouse
business in Gordon's
Bay, which is part
of the Winelands
and situated on
the False Bay, backed
by a consortium
of Dutch investors
who have realised
the potential South
Africa has to offer.
Each time he |
embarks on a new project,
the scale is larger and
more capital is injected
and more jobs created.
Foreign Investment
Valuable
The foreign investment
brought in to date by
Langeveld's operations
is approximately R27 million
and has resulted in full
time employment for 10
South African citizens,
with the Gordon's Bay
guesthouse to employ a
further five local staff.
The PGLAG
Team
PGLAG is ideally placed
to advise foreigners wishing
to relocate to South Africa,
for both Bruil, fellow
director Leonard Brewer
and Pam Golding Hospitality
CEO Joop Demes are originally
from Holland.
Peter Bruil
Bruil, who has broad experience
in the hospitality industry
having worked in the Marriott
Hotel in Amsterdam, managed
a hotel in Europe and
owned a restaurant in
Stellenbosch, moved to
South Africa 10 years
ago.
Leonard
Brewer and Joop Demes
Brewer, who has lived
here for 14 years was
originally a banker then
purchased a guesthouse
in Stellenbosch, while
Demes, who has vast experience
in the Southern African
hotel industry settled
in South Africa in 1997.
Together they have approximately
48 years of experience
in the hospitality industry.
Comprehensive
Services
Says Brewer: "Having
relocated to South
Africa ourselves
we are well suited
to assist those
wishing to acquire
guesthouses here.
We offer a comprehensive
range of services
for prospective
buyers, advising
on immigration laws
and procedures,
legal structuring
and establishing
a company.
Investor
Information
We also provide
them with business
models backed up
through empirically
collected data in
terms of average
occupation rates
per area and their
respective achieved
room rates, and
we provide direction
and contacts for
many operational
queries. |
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Conclusion
Running a guesthouse
is not rocket science,
and as many prospective
owners will have
experienced hospitality
at the receiving
end in many forms,
they are already
aware of the basics
of providing good
service." |
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Pam Golding
Hospitality comprises
Pam Golding Hotels,
Pam Golding Lodges
& Guesthouses,
Pam Golding Hospitality
& Tourism Consulting
and Pam Golding
Restaurants.
For further
information contact
PGLAG on +27 (0)
21 852 5155 or email
Peter
Bruil
or Leonard
Brewer |
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