Tourism and Real Estate: A Symbiotic Relationship
Category Commercial Property News
As we approach the end of the decade and embark on another holiday season, we turn our attention South Africa's tourism industry. With the majority of hotels and accommodation country-wide booked out months in advance, what impact does this have on other economic sectors?
It is no secret that tourism is extremely important to the real estate industry. Not only does it impact residential real estate by providing jobs - thus enabling more people to become homeowners, tenants and investors, but it also increases the demand for commercial real estate in the form of hotels, guest lodges and improved infrastructure.
Tourism in South Africa
Despite a global economic downturn, tourism in South Africa continues to be on the up, with the number of arrivals having increased by around 4% per annum since 2013.
In the 2019 SONA, President Ramaphosa announced that South Africa intends to double its international tourism to 21 million by 2030. Along with introducing a world-class visa regime, the country would be focusing on spatial interventions like special economic zones, reviving local industrial parks, business centres, digital hubs and township and village enterprises to bring economic development to local areas.
Presently, South Africa boasts around 530 formal hotels of more than 50 rooms, approximately 70 000 between them - and this number is only going to grow.
According to the JLL Research Report on Hotel investment, there has been an increased investment in the sector. They forecast that R6,9 billion will be invested into new hotels in South Africa over the next three years (2019-2021) - which translates into nearly 3900 new hotel rooms across the country. This is important data for the commercial property sector, especially during the festive season as well as a clear indication for investors.
The Industry Disruptors
As with any sector, economic uncertainty forces innovation and disruption - and these are well placed to be the most likely to succeed:
Privately owned
In recent years we have witnessed an increase of private accommodation offerings, with the rise of Airbnb, Booking.com and SafariNow. These cheaper and more agile options also have a greater appeal to millennials & "lifestyle" travellers.
According to Bizcommunity, those providing accommodation in Airbnbs, lodges, self-catering units, and B&Bs, have seen an increase of nearly 14% in the past year. This also encourages the purchase of residential 'investment' properties with the ability to provide future income.
Budget segments
There has also been a notable shift in investment into the budget and midscale segments of the tourism industry. Business budget and a tightening of travel allowances have meant that offerings like guest houses and serviced apartments have become more popular. The increased search for value has also seen luxury hotel names like Hilton, Marriott and Radisson focus on building up their 1-3 star hotel brands. This diversity will surely enable them to penetrate the market on a broader scale, enabling them to survive any economic shifts.
Investment opportunities
According to JLL, "there is a definite maturation of hotel investment structures in South Africa, as evidenced through the emergence of new investors and investment strategies in recent years, enabling investors to enter hotel real estate in ways beyond the direct acquisition of assets. These can take the form of debt investments, syndicated ownership, strategic joint ventures, recapitalisations, direct real estate and brand M&A activity". In 2018, approximately 70% of global hotel investments were being made by private or generalist investors in an attempt to broaden their yield.
Three year forecast
The leisure tourism sector has always been an important driver for hotel demand in South Africa, and has traditionally been focussed on Cape Town, the Winelands and the Kruger National Park. However, domestic tourism is also on the rise, accounting for 44 million overnight stays a year - many of these for business purposes. JLL estimate that of the new hotels being developed in the next few years, 40% will be in Cape Town, 30% will enter Rosebank, Sandton and Melrose, 13% will enter Durban and Umhlanga, and the remaining 17% will be developed in secondary cities around the country.
Some developments in the pipeline include Capital Melrose, Hilton Garden Inn Umhlanga Arch, Marriott Melrose Arch and Radisson Blu Umhlanga.
Although tourism is still growing on a national and international level, the future of the industry will depend largely on the provincial and local government initiatives to drive strong and consistent growth in this asset class.
Author: OfficePlace
