Glut of 5-star hotel rooms in SA
Fin24

Glut of 5-star hotel rooms in SA

2010-06-24 08:08

Cape Town - Hotel occupancies are down on last year’s levels after too many new hotel rooms were apparently built in the run-up to the World Cup soccer tournament.

About 10 000 new hotel rooms have been introduced countrywide since the beginning of last year, says Clifford Ross, chief executive of City Lodge Hotels and chairperson of hospitality organisation Fedhasa’s committee for group hotels.

The biggest expansion has been seen in five-star hotel rooms. According to Pam Golding these have increased close on 30%.

Gavin Wood, head of investments at Kagiso Asset Management, said the group does not currently regard the hotel sector as a good investment opportunity because too many new rooms were added in the run-up to the World Cup soccer tournament.

Kagiso’s data indicate that from 2006 to 2010 the number of hotel beds countrywide climbed 40%.

Wood does not believe the country can sustainably expect many more tourists over the next couple of years. There will be an oversupply of hotel rooms, he reckons.

Much of the expansion is concentrated in particular areas, such as Sandton and Rosebank in Johannesburg, as well as in Midrand and Cape Town.

Ross said that, of the 10 000 total, 4 390 new rooms were opened in Johannesburg.

According to Pam Golding the number of rooms in Johannesburg has risen 29% in the past three years.

Dirk Elzinga, managing director of the Cape Town International Convention Centre and the new Fedhasa Cape chairperson, said that since the beginning of last year 10 new hotels with 1 579 rooms have opened in Cape Town.

Six of these are five-star hotels: Crystal Towers, 15 on Orange, Taj, One & Only and Coral International and Pepperclub. Together they have more than 1?000 rooms.
Pam Golding says that rooms in Cape Town have risen close to 20% in the past three years, and the five-star segment has expanded by 51%.

The Durban environment has seen a rise of almost 36% in hotel rooms, according to the property group.

This is an oversupply that will take years to work out of the system, said Wood, and it will result in competition, which will impact profits.

Kagiso expects a significant decline in occupancy rates and consequently a downward trend in profits and share prices, he said.

Many people in the hotel industry do not believe that the oversupply is related only to the World Cup soccer tournament.

The oversupply is the result of increased occupancies in these areas prior to the economic recession and cannot now be ascribed to the World Cup alone, said Ross.

The industry did very well before 2008 and because hotel developments take many years to plan and develop hotels were caught by the economic downturn which led to an oversupply in certain areas.

Kamil Abdul-Karrim, managing director of Pam Golding Tourism and Hospitality Consulting, reckons it's a misconception that the increase in rooms was motivated by the World Cup.

He thinks it was also driven by the strong economic growth after the previous decade and would not have been a problem had it not been for the 2008 economic crisis.

According to Ross, national occupancies are now about 55%. For the same period in 2009 they were 61% and in 2008 71%.

Johannesburg's occupancy rate is also currently 55%, compared with 63% and 76% in the previous years.

- Sake24.com

For business news in Afrikaans, go to www.sake24.com.

Comments
  • solo - 2010-06-24 08:13

    I hope this will bring down the prices of 5 star hotel rooms dramatically. Joburg's room rates have always been over the top. We need to have 5 Star rates similar to the Asian cities.

  • Cynic - 2010-06-24 09:30

    Once again FIFA leaves us with the hangover. And now the clowns are talking about hosting the Olympics while the rest of the world cuts back on spending.

  • Al - 2010-06-24 11:38

    I tried to organise my global management meeting in South Africa and I am not suprised that the hotels are empty. I was pushed from pillar to post by most of the hotel chains and the only hotel that could accomodate 150 people quoted R 2800 per night plus R 500 per day for the conference fee. Unbelievable that we are able to do a 5 star in Singapore for cheaper. The hotels greed is costing SA a number of these kinds of oportunites!

  • Rick - 2010-06-24 11:50

    Can the hospitality industry not read the market? We are in for tough times for the next 5 years yet they keep adding luxury unaffordable rooms. Where is the cheap family accomodation of yesteryear. My parents were of very low income but we could afford a hotel holiday once a year in the 1950- 70's so why can't we do it today?

  • lovey - 2010-06-24 12:23

    What was their demand analysis saying to them. Because supply has to be met by demand. So hotels must be cheap, so that ordinary South Africans can also afford hotel, so we keep the business going

  • Traveller - 2010-06-24 12:43

    If the SA Police wernt so utterly useless and did something about crime, the hotel rooms would be full, all year round. Unfortunatly they appear to be focussed on other things besides crime and the hotel rooms will continue to operate at 50% of potential capacity just like the rest of the country. KortBroek is too scared to tell his masters the truth - it hurts...

  • Ken - 2010-06-24 13:54

    The hotels do truly charge far too much for very little service, It is true that our hotels services do not comapre to that of Asia. I would rellok the star ratings of establisments not only based on the infrastructure but on the service received. There should surely be better standards set but this is a huge story and hotels also function on casual staff, so hospitality is truly a mess and a rip off.

  • M - 2010-06-24 18:13

    I agree with Rick. Finding affordable family accommodation - even self-catering - in this country is liking looking for hen's teeth. South Africa is definately not geared to the family and not all of us have extended family in our coastal resorts that we can rock up to come Xmas and Easter. How about spending a few extra rand converting these "luxury" rooms into family suites or putting in inter-leading doors, charge the same for one room and bam, I am sure these rooms will be taken up very quickly. And take a leaf out of the US's book. Weekdays are peak days, weekends are off peak days - log onto any hotel reservation sight on the internet to check. Here it is the other way round. SA hoteliers must get there ducks in a row. And take note - not every mom wants to spend her "holiday" in self-catering cooking, cleaning, making beds, washing, ironing etc. Then we may as well just stay at home. Sometimes we would also like the little luxuries of having a bed made. Oh, and that brings me to another point. R120.00 for breakfast for a 12 and 9 year old (that is some very, very expensive Kellogs Cornflakes), or even an adult. Please, get real, no one can eat that much for breakfast so perhaps hotels should re-think their meal charges as well.

  • AJ - 2010-06-29 06:01

    DO SA hotel operators EVER go and check out what hotels cost overseas. There ia huge naivety here on the part of hoteliers. Why is Manhattan cheaper than Sandton?

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