Hotel sector under pressure

Johannesburg - While occupancy rates are at their lowest ebb since 2001, the number of new rooms in the hotel industry will escalate over the next year.

Kamil Abdul-Karrim, managing director of Pam Golding's tourism and hospitality division, says demand, which is under pressure, has stimulated several hotel developments which are systematically entering the market.

He says consistent growth from 2002 to 2008 boosted demand. Occupancy rates from 2006 to 2008 were over 70%. The planned new hotels are all entering the market between 2008 and 2011.

"Although there has always been a need for extra stock, it is coming at an inopportune time," he says.

Abdul-Karrim told the Hospitality Investment Conference Africa (Hica) that hotel development in South Africa, unlike that in mature markets such as Europe and North America, is not a means of creating capacity; it is driven by demand.

Between August 2002 and August 2009 the supply of hotel rooms rose 10.2% to 59 074, but demand fell 3.8%.

In the five-star market demand has remained steady, but supply is 18.2% up. Experts point to a 25% overcapacity. Abdul-Karrim says that many hotel operators are now suffering because of the oversupply of stock.

Many fresh new products are entering the market and he says that initially the increased supply will be absorbed by the demand that was previously under pressure. As soon as the supply and demand ratio stabilises, operators offering substandard products will be the first to drop out.

Abdul-Karrim labels these operators opportunists who tapped into the market in the good times without giving any consideration to standards or customer satisfaction.

According to the experts, unprofessional individuals create further problems on the market by offering their products too cheaply (at discount prices), or offering too many facilities with particular types of accommodation.

Analysts reckon that the first months of 2010 will remain challenging. The World Cup soccer tournament will offer some relief, but it is not expected to put the market to rights overnight.

Abdul-Karrim says there is still uncertainty as to how the broader tourism and hospitality sector will react once the recession is over.

- Sake24.com

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