The hotel industry had experienced a difficult trading environment in the year from July-August 2008 to date, Pam Golding Tourism and Hospitality Consulting said on Friday.

Hotel occupancies and conferencing revenue were down in a global recessionary environment which had put pressure on local corporate and government spending, managing director Kamil Abdul-Karrim said in a statement.

"While the current occupancy level of 60.4 percent is the lowest level experienced for well over the past eight years, rates have held and in fact increased by five percent over the period January to August 2009," he said.

As a result, the industry decline of 9.6 percent had been cushioned.

Abdul-Karrim said the FIFA 2010 World Cup would provide "some level of reprieve" during its 40 days.

However, he expected that hotel performance would be diluted with the introduction of substantial new hotel room inventory for the event and other projects, planned prior to the recession, which would be implemented in the next six to 18 months.

Added pressure, from an inventory perspective, would come from numerous residential apartment developments.

These had been introduced on the short-term rental market to operate in the same space as conventional hotels after becoming distressed as a result of the credit crunch.

"These are either self-operated or operated by opportunistic hotel management companies that often raise a curiously high management fee structure to the distressed developer and make overtly optimistic revenue promises that are invariably never met."

He said this "unlikely marriage" of developer and manager diluted the reputation of the South African hotel industry, which operated to some of the highest standards in the world.

"The challenge is that these apartments, which are often perceived to be better living environments than traditional hotels as a result of their contemporary lifestyle offering, are rented out on a daily basis at considerably lower rates, driven by the fact that they do not have the necessary hotel infrastructure behind the property or operation."

He said the jury was out as to the sustainability of this business model.

"Of course the developer has the option, when the residential apartment market turns, of reselling these units as individual apartments.

"However this is not what the hotel industry is all about, which is commitment, passion and service."

He said hotel development in South Africa had always been demand-driven as opposed to capacity-creating.

"In a demand-driven environment such as ours, we typically encounter development spikes as experienced in the past and present, which create oversupply situations.

"And as there is a substantial lag before demand absorbs the supply, the result is that developers seem to catch up on the market dynamics only when demand is reaching saturation levels."

He said that with the typical life-cycle of hotel development being 20 years or more, the gains over the longer term were there for the developer who fully appreciated the market dynamics.

Abdul-Karrim said that despite the impending oversupply of hotel room inventory, the longer term outlook for the hotel industry remained healthy and afforded ongoing benefits and viable returns for the hotelier who was in the market for the typical lifecycle of the product.

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