South Africa’s hospitality industry was extremely hard-hit during the Covid-19 pandemic and lockdowns – both local and international, but it seems to be recovering.
And Durban and Umhlanga seem to be leading this recovery.
This is good news not only for the future of the industry and economy, but also because the country is heading towards its end-of-year holiday season.
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The first half of 2022 saw a “strong recovery” of international tourist arrivals to the Western Cape and Cape Town, states Mieke Purnell, JLL's research manager for Sub-Saharan Africa.
This is a welcome change given the reliance of this market on international visitors.
Although arrivals numbers and hotel performance metrics are not yet 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 over this period averaged 51%, which is approximately 72% of the rate achieved between January and May 2019.”
Despite the recovery underway, 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 benefitted 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 still boasts the best- performing hospitality market despite the tremendous health, social, climate and economic crises it has faced over the past two years.”
Umhlanga has proven “especially popular” during the first six months of this 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 in this region 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 worst-performing micro-markets through most of the pandemic.”
Both average daily rate (ADR) and occupancy metrics recovered in the first half 2022, but not yet to levels achieved prior to 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 these 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 as before.”
New hotel openings
He adds that, despite the challenging operating environment, there have been three hotel openings recorded in Johannesburg over the past year. This includes the Radisson Red Rosebank, voco The Bank Hotel, and the Hyatt House Rosebank.
“The first two hotels mentioned will compete directly 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 this additional supply has increased competition among existing hotels, the investment by large brands such as Radisson and Hyatt “bodes well in terms of sentiment toward the market going forward”.
Hotel income still under pressure
Although the hospitality sector is recovering, John Loos, property strategist at FNB Commercial Property Finance, says the StatsSA release of June 2022 preliminary monthly tourism statistics show the Hotel Sector’s income levels still battling to fully recover back to pre-lockdown 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 still under severe pressure, albeit getting nearer to full recovery.”
Loos says these “still-very weak” revenue figures have been expected to continue to improve gradually as the year progresses, with Covid-19 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, Western Cape sales director at Workforce Staffing. Although South Africa has done away with the requirement for mask wearing 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 this 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 ongoing 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.”
In addition, and on a more micro-level, Nieman says recovery is not linear or a simple matter. Every area, from restaurants and coffee shops to local travel, accommodation, events, and catering, were negatively impacted and continue to be as people have less disposable income than before.
Flexibility is the 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, full-time staff complement of the pre-pandemic 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. This allows for staffing to scale up or down as necessary to cater to fluctuating demand with reduced risk. Temporary Employment Services (TES) providers can deliver this flexibility, allowing hospitality businesses to operate at optimal capacity regardless of the uncertainty of current times.”
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