Hospitality sector challenges and opportunities

South Africa’s hospitality sector entered the Covid-19 pandemic with many challenges, including weak growth, low levels of business and consumer confidence, and travel restrictions.

MINT Hotel 84 on Katherine

Covid-19 is expected to impact the hospitality sector in Sub-Saharan Africa for years to come, according to JLL Spotlight on Africa Hotel Report Q1 2021.

“Globally, progress around vaccines has buoyed prospects for the travel and tourism sector, which is widely expected to begin a recovery during 2021 and into 2022. The issue of recovery in travel is important, as it is the lifeblood to the hotel sector,” says Wayne Godwin, Senior Vice President, JLL Hotels and Hospitality Sub-Saharan Africa.

The Covid-19 vaccine rollout is critical for the hospitality sector recovery, particularly from the international market, and JLL expects a strong recovery in travel globally.

“South Africa’s key source markets have accrued hundreds of billions of Euros in excess household savings through their various lockdowns. We expect this to fuel a sharp rebound in travel due to this latent demand.”

However, Godwin says a year into the global pandemic, the hospitality sector is facing serious challenges, with many owners having exhausted the financial relief mechanisms available to them. This is not unique to South Africa, and markets around the world are facing the same challenges as a result of the pandemic.

“Generally speaking, the impact is significant. We could still be seeing hotels close as a direct result from Covid-19 in five years’ time. Many owners are securing financing now to remain solvent, and this needs to be repaid. Those with broader business interests or property holdings are more insulated than dedicated owners.”

According to Godwin, while casualties are inevitable, they would caution drawing conclusions from hotels that have already announced some form of closure. Many are closing temporarily to allow for business restructuring, and they have well-capitalised owners who intend reopening.

“The hospitality sector is navigating the supply and demand side of the situation during this recovery period. Trade will be challenging in 2021 and 2022, particularly in markets with exposure to corporate demand,” points out Godwin.

JSE-listed City Lodge Hotel Group’s six months’ results ended 31 December 2020, were reflective of the impact of Covid-19. The group reported revenue loss of −73% to R215.6m from R809.3m during the same period in 2019. Occupancies for all hotels were 17%.

The Protea Restaurant at City Lodge

Andrew Widegger, City Lodge Hotel Group CEO says the first three months of 2020 were relatively unaffected by the pandemic as hard lockdown came into effect on 26 March 2020.

However, January and February 2021 were at the height of the second wave, therefore, occupancies and revenues were under pressure. Since March 2021, occupancies have been recovering as the rate of infections declined and there was more confidence to travel.

“With the third wave, we expect this trend of slowly increasing occupancies to continue through to the end of the financial year in June, which should then compare favourably to the prior comparative year’s hard lockdown numbers,” says Widegger,

He says the vaccine rollout will result in growth in confidence, and they expect to see improved occupancies until the end of the calendar year, albeit not to pre-Covid levels yet.

JLL notes that a relatively healthy domestic leisure recovery is expected to continue through 2021. Leisure-centric hotels that can pivot to an affordable domestic offering are expected to recover quicker.

“By contrast, the market is facing significant headwinds in the recovery of the corporate market, which remains depressed. Hotel groups with exposure in corporate-focused markets are likely to experience a longer recovery without a stronger recovery in economic activity,” according to Godwin.

Furthermore, he says the pandemic has also accelerated trends around virtual conferences and meetings. This will have corporate travellers questioning the need for work-related trips, while other trips cannot be replaced by technology.

Adriaan Liebetrau, Group GM for MINT Hotels says now more than ever, hotels are much more reliant on local domestic travel.

“Guests have flexibility in both their professional and personal lives, and this has brought on new catch-phrase markets known as staycation, workcation and baecation. We are 100% focused on offering the best value for money. By being an affordable brand of hotels, we have enjoyed great support from guests since opening,” he says.

Investment opportunities

“Despite the pandemic, we saw a stronger appetite for investment into new hotels in the years leading up to 2020, while other real estate classes facing oversupply and hotels performing a bit better on a relative basis,” says Godwin.

Standard room at MINT Hotel

These tougher trading conditions have brought about an increase in acquisition opportunities for buyers willing to look beyond the short-term recovery.

“Liquidity is relatively healthy, with significant levels of global capital available to be deployed. There are also a number of international investors looking to tell a Sub-Saharan Africa story, which invariably needs a South African chapter,” says Godwin.

Similarly, notes Godwin, there are strong, well-capitalised South African groups such as The Capital Hotels and Apartments with opportunities to acquire quality assets well below their replacement cost and take a longer-term view.

CEO Marc Wachsberger said The Capital Hotels and Apartments has built its portfolio of hotels by investing in the market at times when others would not. The group identifies distressed properties to add depth and value to its business and leisure offerings.

In global real estate investment trends and assets to buy in 2021, a survey reveals that investors can buy distressed hospitality assets at discounted prices in excess of 20%, according to the Colliers International 2021 Global Investor Outlook.

According to Wachsberger, the group acquired from business rescue, the Fairmont Zimbali Resort on KwaZulu Natal’s North Coast, and hope to open in November 2021. A new hotel in Mpumalanga is currently under construction and will open on 1 December 2021.

Additionally, he says they’ve signed a lease with an option to acquire 15 on Orange in Cape Town, opening in August 2021.

New hotels on the market

Meanwhile, other hospitality groups continue to open hotels amid the pandemic. Following construction delays during the hard lockdown in 2020, the City Lodge Hotel Group opened a 4-star Courtyard Hotel Waterfall City in Midrand in March 2021.


Courtyard Hotel Waterfall City

Although the opening was delayed by three to four months, no budget adjustment was required, “it was merely a delay in the actual spend”, says Widegger.

On 1 July 2020, MINT Hotels opened its first MINT Hotel 84 on Katherine, a 3-star establishment with the PABLO restaurant (formally PABLO-Eggs-Go-Bar) in Melville.

Liebetrau says the hotel was opened in phases – with the conference and events centre, along with the final block of rooms, opening in November 2020.

In March this year, the group opened the 5-star MINT Collection the Blyde Villa in Pretoria and the MINT Express Sandton View, a limited service 2-star hotel. The Sandton hotel offers guests the option of staying in a one-, two- or three-bedroom apartment. It also has a PABLO PEOPLE restaurant, which opened early this month.

The property openings were not without challenges. Liebetrau says there was a lot of uncertainty during the first few weeks, which centred around regulations and not having a traditional set market to rely on.

“Our hotels are all designed to have a kitchen in the rooms, and our suites, two- and three-bedroom apartments have an added dining area and lounge. This opened up a very strong local and international market looking for a home away from home experience.”

He says from the start, they had many international guests waiting to go back home and locals having to work in Sandton but not wanting to travel between their businesses and homes on a daily basis. The hotel soon had permanent residents calling 84 on Katherine home.

“Once leisure travel opened up, many local and international guests took advantage of our spacious rooms, great service and escaping from a new reality and norm.”

Liebetrau adds that hotels have always had great cleaning protocols in place. At MINT Hotels, ensuring that rooms are kept in MINT condition is a top priority. “For this reason, we recently developed our own cleaning chemical range, SteriCo, which not only ensures that our rooms are perfectly clean, but that they are also completely sanitised during cleaning times.”

Edited by Gudrun Kaiser

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