Hotel industry well on road to recovery

Posted On Thursday, 25 July 2013 09:11 Published by Commercial Property News
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JSE-listed Hospitality Property Fund (HPA,HPB), which invests in hotel and leisure properties, is optimistic about the outlook for the hotel industry after a challenging period in the sector, according to CEO Andrew Rogers.

Andrew Rogers Hospitality Property FundMr Rogers said at the IPD Property Investment Conference last week that while the sector had been through "a tough time", he believed that the sector had "turned the corner and already the early indicators are that the market has recovered".

The local hotels and resorts market is emerging from a difficult period following a ramp up in supply ahead of the 2010 Soccer World Cup. Post-2010, the industry has been battling through oversupply and low occupancies, although analysts generally agree that the sector is stabilising.

According to professional services firm PwC, occupancies in the industry reached a low of 53% in 2011, compared with 72% in 2007.

PwC projects that by 2017, average hotel occupancies in South AfriSA will have increased to 68.7% from 56.5% in 2012, while average room rates will have grown 5.4% compounded annually to R936 in 2017 from R718 in 2012.

Mr Rogers said while the 2010 oversupply hangover had "stuck around for a long time", the supply pipeline "has slowed down almost to a trickle", with few developments under way.

Hospitality’s portfolio consists of 27 hotel and leisure properties. The fund’s portfolio is valued at about R4.5bn while its market capitalisation is R3bn.

Mr Rogers said the fund was focusing on exiting its investments outside the major metropolitan areas, which were vulnerable to volatility and a slowdown in the market.

Hospitality was targeting large hotels in the major metropolitan areas which carried strong international brands.

Strong global brands had the benefit of carrying large-scale loyalty programmes.

Although occupancies were improving, room rates were "still lagging" and were only at levels seen in 2008. Mr Rogers said rates were probably 15%-20% behind where they should be.

However, rates were showing improvements, especially in major metropolitan nodes. Five-star hotels were showing the best improvements, although this was likely due to the fact that five-star hotels had not been trading at the correct rates for some time.

A healthy recovery in tourism, boosted by "the opening of air corridors into Brics (Brazil, Russia, India, China and South Africa) nations", was an important driver of the sector’s recovery.

In the domestic market, "the meetings and incentives market has recovered very nicely", and much of the corporate demand in the industry was being driven by local companies.

Source: BD 

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