Boost in hotel development sector has more than 2010 soccer as the catalyst

Source: Business report

August 22, 2008

The boom in the fast expanding hotel industry is the result not only of preparations for the soccer World Cup in 2010 but also of the strength of the economy for the past five years, which has resulted in huge growth in business travel, according to Joop Demes, the managing director of Pam Golding Properties.

He said that 75 percent of room nights were taken up by local people at present. "Business travel has grown, with more meetings and conferences, and the World Cup is just the cherry on the top," Demes said this week. "It usually takes from nine to 12 months for the state of the economy to have an impact on the hospitality industry, so there is no sign of a slowdown yet."

He added: "There is a shortage of hotel rooms at present, so the downturn will not affect the industry before new developments are opened."

As stated in Business Report last week, a Deloitte study showed that the South African hotel industry had experienced double-digit growth in revenue per room in 2006 and last year, and this was continuing in the current year. Demes said that this trend was increasing, with June reflecting a healthy increase of 15 percent over the same month last year. Many groups were building new hotels all over the country or expanding existing ones.

He said new long-term investments in the planning and preparation stage included a study his firm was carrying out for a company in Dubai that had planned two theme parks. One of these, to be located in KwaZulu-Natal, would include 20 hotels and the biggest shopping centre in the country. Protea Hotels, which caters for a high proportion of business travellers, is preparing to develop 40 more hotels, some in South Africa and others in other parts of the continent.

Allan Duke, its marketing services director, said this "reflects confidence in our future. We are not immune to pressures like food price inflation that are affecting the rest of the world, but our economy has not been affected by subprime debt like the US and UK."

He said the group had "committed considerable capital outlays to various developments, which include complete new builds as well as extensive refurbishment programmes to existing hotels".  Among these developments was a new hotel that was due to open in Clarens next week, and the R700 million, five-star Crystal Towers at Century City in Cape Town.  "Century City is a success story of mixed residential and shopping development and is in desperate need of hotels catering for different income groups," said Duke.

The City Lodge group, which caters mostly to business travellers but also attracts leisure visitors at weekends, is adding seven new hotels to the group in preparation for the soccer World Cup. Chief executive Hans Enderle said that if World Cup visitors had a positive experience, it would result in an increase in investment and business travel, as well as in tourism.

The Radisson hotel group is preparing to manage three new hotels now being constructed by property developers: the R315 million Radisson Port Elizabeth, with 173 rooms; and two in Sandton - one a R522 million development and the other costing approximately R280 million.  New developments that have opened in the past year include the 121-room, R85 million Mapungubwe Hotel near the head office of Anglo American in Main Street, Johannesburg, which was officially opened by Fair City Hotels in March. 

Sue Morris, a spokesperson for the group, said it was an income pool hotel: all the rooms were privately owned under sectional title, with 30 permanently occupied and the other 91 available for transient guests, most of whom were on business. The hotel occupied the 50-year-old premises of the former French Bank, which had been refurbished and converted for hotel use.

Fair City is an unlisted South African group formed about six years ago, originally to let furnished apartments. Gustav Holtzhausen, the managing director, said it had two operations in Cape Town - Fairview in Vredehoek and Greenmarket Suites in Greenmarket Square - and intended to acquire more properties in the city.