The Grace in Rosebank will close its doors at the end of August and the Southern Sun Grayston may stop operating next year. Already shut down are the Alphen Hotel in Constantia and the opulent Hotel Le Vendome in Sea Point. All signs point to trying times for the hotel industry.
African Sun Limited announced this week it would end its management of The Grace, blaming fewer travellers, escalating running costs and the recession, which had made the business unsustainable.
Industry experts said the pain was mainly at the top end of the market and Cape Town and Johannesburg were the hardest hit, with Durban hotels largely shrugging off recessionary conditions.
African Sun said the hotel business remained depressed and the strengthening of the rand against major currencies, with projections for it to remain stable in the next two years, meant South Africa was no longer a value-for-money destination. The company has also exited its lease agreement with The Lakes Hotel and Conference Centre in Benoni, but told the Mail & Guardian it would not comment on whether that, too, would shut down.
“This is only the start of something which is going to go on for a long time. The Fifa World Cup protected us from the recession, but after July 11, we joined the rest of the world,” said Brett Dungan, chief executive of the Federated Hospitality Association of South Africa.
Johannesburg and Cape Town are not alone, large hotels in all centres are under pressure, Dungan said. “I think we can expect to continue to see hotels closing down, auctions and new property lease deals.
Southern Sun Hotels said on Tuesday it was likely that the Southern Sun Grayston hotel would stop trading on December 31. The group’s lease on the property is due to expire and in spite of negotiations with the landlord it has been unable to agree upon terms and conditions.
The South African Hospitality Outlook, released by PricewaterhouseCoopers this month, found that between 2008 and 2010, 9 700 hotel rooms were added to accommodate 3.5-million visitors a year. “Even if the economy continued to expand at a healthy rate, the increase in the supply of hotel rooms would have exceeded any reasonable expectations of growth in demand.”
The PwC report found the average occupancy rate fell from 70.3% in 2006 to 53.1% in 2010. The average hotel occupancy rate is currently 48% and not expected to rise to more than 53% by 2015. PwC said a number of new hotels had opened since the economy began to weaken. In recent years Johannesburg’s capacity rose nearly 30%, Durban 35% and Cape Town 20%.
Meanwhile, Stats SA data show that the total number of tourists arriving in March was 175 876, down by more than 5% on the previous year. In March 2009 the total was 181 437, down 33% from March 2008.
No Durban hotels have closed this year. In fact, two new ones opened. “We didn’t build as many hotels as fast as Cape Town did,” said Durban Tourism head Philip Sithole.
“We don’t depend so much on international markets. Each year we have 11.4-million local visitors and 1.2-million international guests, so the global economic meltdown doesn’t affect us as much or as quickly.”
Mariette du Toit-Helmbold, chief executive of Cape Town Tourism, said there was little doubt that South Africa’s visitor industry was facing enormous challenges with declining demand and the added pressure of the low season. “The global financial crisis and the subsequent consumer behavioural change has had a significant adverse effect. Demand has diminished, visitor spends have steadied and costs have increased,” she said.
Lindiwe Kwele, chief executive of the Johannesburg Tourism Company, said that globally there was more demand for middle-of-the range and budget accommodation.