Hope for SA tourism and hospitality industries

BY BONNY FOURIE bronwyn.fourie@inl.co.za

Post the pandemic, the sectors - particularly in Durban and uMhlanga - are showing signs of recovery brought about by pent-up demand for leisure travel

THE hospitality industry, locally and abroad, was hit hard during the Covid-19 pandemic and lockdowns but it appears to be recovering. And Durban and uMhlanga seem to to be leading the revival.

This is is good news for the future of the industry and economy as the country heads towards the end-of-year holiday season.

The first half of 2022 saw a “strong recovery” of international tourist arrivals to the Western Cape and Cape Town, says Mieke Purnell, JLL’s research manager for sub-Saharan Africa.

This is a welcome change, given the reliance of the market on international visitors.

Although arrivals numbers and hotel performance metrics are not at the same level reached before the pandemic, JLL’s commercial property market overview for Q2 2022 notes that, when comparing the first half of 2022 with the first half of 2021, hotel occupancy rates “virtually doubled” across all property types in Cape Town.

Durban and uMhlanga leading recovery “The five-star market recovered particularly well, recording growth of over 120%. Occupancy averaged 51%, which is approximately 72% of the rate achieved between January and May 2019.”

Although recovery is under way, Purnell says, the upper end of the market in Cape Town “still has some way to go”. He also states that the Durban and uMhlanga regions registered higher growth in tourist numbers than anywhere else in South Africa.

“With international travel disallowed during the height of the Covid-19 pandemic, the region benefited from pent-up demand from domestic leisure tourists.”

He adds: “The accessibility of this region from Gauteng, the favourable climate, quality tourist amenities and reputation for fun and relaxation bolstered its appeal. The city boasts the bestperforming hospitality market despite the tremendous health, social, climate and economic crises over the past two years.” uMhlanga has proven “especially popular” during the first six months of the year, achieving an average occupancy of 63.9%. This is the highest nodal performance in the country for the period, and is closely followed by the Drakensberg and Midlands region (63.7%).

Testament to the strength of the uMhlanga market segment, he says, is the recent opening of the five-star Radisson Blu. The Hilton Garden Inn uMhlanga Arch is another upscale property that opened recently (December 2020) in spite of the pandemic.

But things are not as rosy in Johannesburg

“The hospitality sector continues to grapple with poor corporate and leisure travel demand, especially in relation to the international market. Sandton, which historically relied on international (corporate and airlines in particular) travel and domestic and international leisure demand, was one of the worstperforming micro-markets through most of the pandemic.”

The average daily rate (ADR) and occupancy metrics recovered in the first half of 2022 but are not to levels achieved before the pandemic, Purnell says.

Positive movement within the business and international travel from key African source markets are thought to be the primary sources of the gains.

“Occupancy in Sandton’s luxury (five-star) market recorded a 110% increase year-on-year in the first half of 2022, averaging 49.7%. This sub-sector also saw annual ADR growth of 22%, comparing the first six months of 2021 and 2022.

“The relative outperformance of this market sector is encouraging, suggesting that historical international and business travel trends may start resuming.”

New hotel openings He adds that, despite the challenging operating environment, there have been three hotel openings recorded in Johannesburg over the past year – the Radisson Red Rosebank, voco The Bank Hotel, and the Hyatt House Rosebank.

“The first two will compete with the Sandton hotel market, as the primary target market in Rosebank is also the corporate traveller. A Park Hyatt hotel is also planned to open in early 2023.”

While Purnell says the additional supply has increased competition among hotels, the investment by large brands such as Radisson and Hyatt “bodes well in terms of sentiment towards the market going forward”.

Hotel income under pressure Although the hospitality sector is recovering, John Loos, a property strategist at FNB Commercial

Property Finance, says Statistics SA’s June 2022 preliminary monthly tourism statistics show the hotel sector’s income levels battling to revert to pre-lock-down levels.

“On a year-on-year growth rate basis, total hotel sector income was a seemingly very strong (56.1%) in June, but this was a deceleration from the May growth rate of 127.9%. These very strong growth rates, however, have limited significance, given that this income was coming off a very low base when compared with 2020/early- 2021 lockdown levels.”

Given the abnormalities created in growth rates by the low lockdown base, he says it makes sense to also view total revenue value, and compare it to the comparable month back in 2019 – the pre-Covid period. We then see a more accurate picture of a hotel sector whose income is under severe pressure, albeit getting nearer to full recovery.”

Loos says the weak revenue figures have been expected to continue to improve gradually as the year progresses, with lockdown pressures having receded.

“However, recent surges in fuel prices as well as overall inflation, along with rising interest rates and a slowing economy, may have begun to exert additional financial pressure on both business and consumers. This, in turn, may be beginning to exert renewed pressure on the demand for tourism trips.”

Another aspect that the hospitality and tourism sectors need to consider is a flexible workforce, says Donné Nieman, the Western Cape sales director at Workforce Staffing. Although South Africa has done away with the requirement to wear masks and lifted all Covid-19 restrictions, and the industry can begin a return to pre-pandemic levels, she says uncertainty about the future remains. A flexible workforce is therefore a key component of the recovery.

Back in business “Since restrictions have been lifted, there has been a definite uptick in business in the hospitality sector. Notably, there are several major happenings on the cards for later in 2022 and early 2023, including international sporting events and concerts with famous global artists. This will, in turn, have a positive influence on other areas of hospitality, including hotels, local tourism and catering.

“The reality, however, is that international travel remains inconsistent due to uncertainty and disruptions. The pandemic is not the only element at play, and several macroeconomic factors, including economic turbulence and political action, continue to have an impact,” Nieman says.

Flexibility is key With major events planned and more to come, there is a rise in demand for workers within hospitality, but the lingering uncertainty makes it difficult for businesses in the sector to hire back the full, permanent, fulltime staff complement of the prepandemic world.

“The nature of the industry is project-based to start with, and with the future impossible to predict, ensuring that staffing is at the right level always becomes a challenge.

“A flexible workforce is essential to enable hospitality businesses to access the skills they need to support operational requirements, but without the overheads that permanent employment brings.”

THE RECENT opening of the Radisson Blu hotel is testament to the strength of the uMhlanga market segment. PICTURE: RADISSON HOTELS