Domestic leisure demand in Durban and Cape Town has driven increases in average daily rates (ADR) and strong occupancy recoveries compared with 2019, while corporate travel-reliant destinations, such as those in Gauteng, battle to recover.

According to STR data, in 2022 year-to-date, hotel occupancy rates in South Africa’s economic hub of Sandton are down by 29% compared with YTD 2019. ADRs are down by nearly 11%. This compares with ADR increases of 13% in Durban (where occupancy levels are just 4% behind the 2019 figure of 70%) and 4% in Cape Town.

Kamil Abdul-Karrim, Pam Golding MD of Tourism and Hospitality Consulting, presented the data at Providence Hospitality’s Independent Hospitality Optimisation Forum in Johannesburg last week.

“Over 60% of hotel business in Sandton comes from the corporate and conferencing segments, which are down by 14% from 2019. While conferencing is down by 40% in Cape Town and 12% in Durban, the coastal destinations have been buoyed by strong demand from domestic leisure travel, from which Sandton does not benefit,” Abdul-Karrim pointed out.

In addition to a more augmented and diverse tourism offering, coastal cities are also benefiting from a wave of ‘semigration’, which has brought an influx of new residents with disposable income.

Established hotels under pressure

Wayne Godwin, Senior VP of JLL Hotels & Hospitality, pointed out that there had been a ‘flight to quality’ within Sandton and its surrounds, mainly to newer, modern hotels.

“A lot of pressure has been placed on the periphery of nodes, particularly on hotels which haven’t had much capex. Newer, better-located hotels are doing much better and the gap between them and the older stock that hasn’t been reinvented, has grown considerably,” Godwin said, adding that the expected easing of flight prices early in 2023 would benefit the corporate travel sector.

“There is still a latent appetite for corporate travel. Factors such as the cost of air travel have been a real headwind to that, but the good news is that we should start to see the pressure coming off around February as airlines add more seats and ticket prices stabilise.”

Opportunities in the neighbourhood market

Godwin stressed that, post-COVID, hotels had had to diversify their revenue streams, finding ways to attract not only overnight guests but also day visitors.

“There has to be a confluence between everything a guest really needs and the desirable experience. It’s about packing more into every square metre of the hotel, but at the same time it has to make sense from a business perspective. For a lot of hotels, food and beverage has been a saviour, because they have been able to attract the domestic market to visit restaurants,” said Godwin.

Abdul-Karrim said hotels that focused on attracting clientele from their own neighbourhoods could generate significant additional revenue.

“These customers could be only a block away but want to visit facilities such as the spa or restaurant. In Chicago, where it has been successfully implemented, the neighbourhood approach drives 45% of hotel revenue. There is also a hotel in Cape Town which, since converting its restaurant to fully halal to cater for the mainly Muslim residents, now sees over 40% of revenue coming from food and beverage.”