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Furnishings & DecorPam Golding Tourism & Hospitality Consulting on Thursday pointed to a common misconception that an increase in hotel capacity has been motivated by the FIFA 2010 event.
Kamil Abdul-Karrim, MD of Pam Golding Tourism & Hospitality Consulting, a member of the Pam Golding Hospitality group, said: "This growth in capacity is based extensively on the unprecedented economic growth experienced over the decade leading up to the global contagion which was ignited in September 2008, and which resulted in the pent-up demand for hotel accommodation all but dissipating in the wake of the economic meltdown.
"While the prevailing capacity growth in hotel rooms is widely reported on, with conflicting viewpoints being expressed, a major challenge is addressing the unsubstantiated and unspecified basis of commentaries and reports on the South African hotel industry inventory capacity," said Abdul-Karrim.
Pam Golding Tourism & Hospitality Consulting (PGTHC) said it maintains an empirical database of hotels operating in the country.
"The numbers from our database reflects that inclusive of all hotel projects currently under construction, South Africa has approximately 66 000 rooms in the formal hotel sector.
"Data analysed over a period of nine years reflects that growth in capacity was fairly static over the period 2002 to 2007 but accelerated over the period 2008 to 2010, with a substantial surge in 2010," the MD said.
Abdul-Karrim said that measuring the current inventory to 2007 levels reflected an overall increase of 17.4% with a substantial increase in the 5 Star segment (28.5%) and 19.7% and 12.6% respectively in the 4 and 3 Star segments.
The MD said it was naive to believe that the Soccer World Cup had motivated the capacity increases, and that an industry which enjoys the typical life-cycle of 20 years would be as irresponsible to create capacity for a 31-day event.
He said the Achilles heel of the South African hotel industry was the demand-reactive nature of the industry, resulting in the prevailing growth spurt in capacity over the past three years.
The hotel industry naturally enjoys a generally direct relationship to economic stability and growth, Pam Golding said.
"Until the second half of 2008 South Africa's economy had been in an upward phase of the business cycle since September 1999, the longest period of economic expansion in the country's recorded history.
During this upswing (based on data for the period up to the fourth quarter of 2007), the country's annual economic growth rate had averaged over 4%. In the decade prior to 1994, economic growth averaged less than 1% per annum.
Economic growth in 2008 declined to 3.1% as South Africa entered a recession, however, from the first quarter of 1993 to the second quarter of 2008 the country enjoyed an unprecedented 62 quarters of uninterrupted economic growth, the group pointed out.
"As the crisis made itself felt, GDP contracted in the third and fourth quarters of 2008, officially plunging the economy into recession.
This contraction continued into the first and second quarters of 2009, with GDP growth at -6.4% and -3% respectively," Pam Golding said.
This translated into a compounded GDP growth of 29.7% over the period 2002 to 2008, with growth in hotel capacity over this period of 21.8%, as measured in 2010.
"While there is a prudent time-lag between hotel inventory capacity reaction and the prevailing economic bullishness, it must be understood that the time frame from inception to planning and construction of a hotel project is typically between 30 to 36 months," Abdul-Karrim said.
"As a result projects initiated in 2005 after fair comfort that the economic bullishness was sustainable and that the prevailing pent-up demand was reaching saturation levels, only started coming on-line in 2008, resulting in the current accelerated increase in inventory.
The additional inventory being introduced would have by most measures been absorbed by the
pent-up demand, but for the economic downturn from late 2008," Pam Golding said.
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