Is Cape Town over its World Cup hangover?

The outlook for the 5-Star hotel market in South Africa is looking brighter, according to Joop Demes, CEO of Pam Golding Hospitality, Cape Town, particularly when viewed against the backdrop of global uncertainty.

“As far as many of us can remember, Europe’s financial future has never seemed quite so fragile,” Demes said. “To comment with any certainty on the 2012 outlook for Europe and on the exchange rate of the Euro versus the Rand will depend on Europe’s politicians showing sound leadership by saving the Euro through fiscal and monetary reform.”

Demes said while Africa has been fairly insulated from the Euro crisis due to its lack of meaningful integration into the global financial system, the fluctuations in the Rand’s exchange rate do play a major factor in terms of foreign investment and in terms of the value-for-money proposition for foreign tourists to South Africa.

“The Rand exchange rates to the Euro, Pound and Dollar that prevailed during December 2011 and January 2012, did translate on average to a 15% discount compared to prices last season,” Demes said. “There is no doubt that this has contributed to a sharp improvement in ‘high end’ leisure business in Cape Town and to a lesser extent in Johannesburg.

“Lead times for visitor bookings are indeed becoming shorter and the 2010 Soccer World Cup gave many new visitors a very favorable impression which is clearly paying off as foreign tourists are attracted by word-of-mouth recommendations from friends and family who were here June/July 2010. This is coupled with prices that are lower compared to the prices during the World Cup event,” he added.

Demes believes it is very positive to see the resilience of the big brands in Cape Town, with hotels such as the Cape Grace and the Mount Nelson showing high double digit increase in RevPAR with an increase in room rate and occupancy for the first couple of months of the season.

Quoting statistics extracted from the December 2011 STR Global South African Hotel review, Demes said that in the Cape Town 5-Star market – written off by many market commentators over the past six months – hoteliers experienced a very pleasing final quarter of 2011. During the period October to December 2011 the occupancy figures averaged 66.4%, reflecting an increase of 18.1% compared to the same period last year.

“Cape Town 5-Star hotels increased their 2011 annual average occupancy by 8.5% compared to the 2010 World Cup year. In what remains a competitive market, the encouraging news is that Cape Town’s 5-Star hotels managed on average to increase their room rate by 2.3% during December 2011 compared to December 2010,” Demes said.

“While the January 2012 STR review has not yet become available (at the time this comment was issued), it appears to have been another rewarding month for the big brands in the 5-Star hotel industry in Cape Town. The Cape Grace, One&Only, The Table Bay and Radisson Blu all experienced very healthy increases in RevPAR compared to last year, with the Mount Nelson notable for phenomenal 49.5 percent growth in RevPAR in January 2012 compared to January 2011,” Demes added. “We anticipate that the January 2012 RevPAR growth for the Cape Town 5-Star market in will be in excess of 20% compared to January 2011.”

The outlook for February, March and April (2012) is also positive among most of the 5-Star hoteliers; the Cape Grace is on target to record its best month ever in February 2012 and the Mount Nelson already has 17% more business on its books for the rest of 2012 compared to last year.

“The introduction of new direct flights, the positive image of Cape Town and South Africa, unrest in the Middle East and an improved exchange rate have no doubt played a role for improved trading at both of our hotels,” said Sandro Fabris, regional managing director in Africa for the Orient Express Group – owners of the Mount Nelson in Cape Town and the Westcliff Hotel in Johannesburg.

Demes said December 2011 hotel occupancy throughout South Africa grew by 11.5% compared to December 2010 and the consensus among industry leaders is that business and event travel will also fare better during 2012. “It seems that increased demand throughout the country is starting to absorb the room inventory that escalated sharply during the period 2008 to 2010,” he said.

Demes added, “There are a number of international funds and private individuals seeking operators and hotels that provide a compelling offer to a target market that can demonstrate growth and stability. In conjunction with this there are a number of sellers needing to raise liquidity and this could well result into a one or two larger deals with critical mass that will pave the way for one of the bigger global brands.”

Demes said Accor, Starwood and Hilton have all announced aggressive expansion plans in Sub-Saharan Africa while Marriott, which for many years has been looking for an opportunity in Southern Africa, has announced the senior vice president appointment of industry specialist Alex Kyriakidis, former global chief of hospitality for Deloitte.

“There are also a number of luxury hotels for sale which offer exceptional value as long term strategic investments and there are good deals to be done with global operators that are seeking presence in the gateway cities of Southern Africa, for example Johannesburg and Cape Town,” Demes said. “It is going to be an interesting year and acquiring properties to re-brand seems at present a better option compared to building something new. When speaking to a number of regional hotel operators most agree the timing is right to acquire existing hotel properties in Southern Africa.”