The hotel industry in Africa has a lot more potential for growth than in almost any other part of the world, according to Tim Smith, Managing Partner of global hospitality consultancy, HVS.
He says Africa is being discovered by new markets almost on a daily basis and offers a great future for hoteliers and investors. With an increasing transparency in transactions, more companies and individuals are overcoming doubts about risk and are investing in hotels in Africa, while many major brands have signed new developments. HVS’s research shows that the SADC region offers as much potential as any other part of the continent and that African hotel brands are bigger and stronger in Africa than multi-national brands.
Smith says HVS’s annual African Hotel Valuation Index 2016, to be released in September, will show that Durban and Johannesburg experienced a 15% fall in property values in US dollar terms last year, purely because of the South African rand having devalued by more than 20% during the period, while at the same time hotels in those cities were nevertheless performing well with operational performance up 16% in rand terms. In comparison though, Cape Town was performing exceptionally well, with hotel property and business values in that city up by 20% in US dollar terms in 2015, mainly due to better marketing of the city abroad and its resultant strong tourism appeal overseas.
He says the South African market has become lucrative for foreign hotel investors because of the devaluation of the South African rand. International hotel brands are able to earn foreign currency-based rates that are deemed good value next to the equivalent South African rates, while costs are paid in local currency.
However, he believes the current strengthening of the rand will become problematic if it falls as low as R15 to the British pound, a situation that would require increased marketing efforts to keep the tourists coming. “Mitigating the strengthening currency situation, however, is the concern about security in Europe, which means Europeans are running out of safe places in the sun, an opportunity for Southern Africa to gather some ground,” he says.