Recent numbers have shown a rise in hotel occupancy as the amount of visitors to Cape Town increases but does it mean that now is a good time for more hotel developments?

Guy Stehlik, CEO of BON Hotels, says there are currently six new projects earmarked for Cape Town over the next two years. He believes they are “dangerously flirting with a repeat of the oversupply scenario of the past eight years. Whilst we are optimistic about the present opportunities, we remain cautious”.

Jeff Rosenberg, Fedhasa Cape Chairman: Hotels Segment, agrees that the threat of oversupply does exist. “The impact of the additional hotel rooms that came on line during the FIFA World Cup was significant. It is only now, four years later that the balance between demand and supply returned.” 
According to Danny Bryer, Director of Sales, Marketing and Revenue for Protea Hotels, Cape Town currently has a well-balanced hospitality market, with occupancy numbers having grown sufficiently to support the building boom that occurred around 2010.
Rosenberg believes Cape Town has sufficient hotel capacity at this time. He adds: “Cape Town is a seasonal destination with accentuated peaks and troughs. Although there are certain periods of the year where demand exceeds supply, the majority of the year has an oversupply of hotel rooms.” 

Clifford Ross, Chief Executive of the City Lodge Hotel Group, says if occupancies were around 80% all year round it would indicate a supply shortage and a need for new hotel developments but adds that many hotels run very poor occupancy levels in winter, which accounts for up to six months of the year. “If there are any new hotel developments, these will exacerbate the down period even more unless Cape Town can find some way of ‘smoothing’ the seasonality problem.”
Ross adds that the hotel industry needs consistently high occupancy to sustain acceptable returns for the cost of development. “The famine and feast scenario in the Cape makes the feasibility for a sustainable hotel development marginal, as there are many fixed costs that cannot be ‘removed’ in the slow winter period.”
BON Hotels, says Stehlik, is focusing on existing collateral, i.e. rejuvenating local hotels. “There are plenty of existing opportunities out there. We have uncovered amazing properties that simply require renewed expertise and some good thinking.”
However, Bryer explains that occupancy at Protea Hotels and African Pride Hotels has been running at an average of more than 75% since November last year. “STRs are also showing that RevPar has increased to be more in line with international norms, particularly at five-star level where a few years ago there was a rash of discounting that hurt the industry and slowed its overall recovery. Should this growth trend continue there will be opportunities for new hotels.”
Bryer believes the industry won’t see an oversupply situation like that in 2010. “That was linked to a specific event. Growth will be linked to demand as a result of tourist numbers and economic growth.” 
According to Rosenberg, another factor for consideration is the integrity and quality of the products that enter and for the existing products to remain relevant. “It is not always about the volume of hotel rooms on offer but also the quality of the facility that will reflect directly on the destination status.” 
Bryer says because Cape Town is a perennially popular destination for inbound and domestic leisure travellers, the MICE industry and business in general, and is home to Parliament, the hotels will never be empty and there will always be room to grow at a responsible pace. “Is Cape Town the next Las Vegas? Certainly not, but it is on the New York Times’ top-destinations list, it’s on the UK Telegraph’s must-see list, and we’re home to one of the seven natural wonders of the world and numerous World Heritage Sites. On that basis, I can certainly see some new builds starting in the next three to five years.”