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Weak economy stifles property industry while boosting tourism

New Cape Town AC Marriott hotel aimed at mid-level travellers.

South Africa’s sluggish economy has been a double-edged sword, slaying the property industry with low growth but creating a cheap destination that’s boosting tourism.

At the confluence of the two industries is a new Cape Town hotel by  Maryland-based Marriott International, the world’s largest hotel group. The 188-room AC Marriott hotel, belonging to one of 30 brands in the group that includes Protea, Westin and Ritz-Carlton, formally opened on April 16.

The AC Marriott hotel in Cape Town. Image: Supplied

According to the World Travel & Tourism Council, the travel and tourism industry in South Africa is the largest on the continent, making a $10.2 billion (R136.1 billion) contribution to GDP in 2017. Kenya is second with just $2.8 billion. South Africa’s value is expected to hit $14.9 billion (R197.9 billion) by 2028.

Marriott is betting on that expansion with 62 hotels in South Africa, including its acquisition of Protea, and eight more planned with a total of 1 500 more rooms, according to Jerome Briet, chief development officer for Middle East and Africa at the hotel chain.

“The reason we want to continue pushing Cape Town is we feel there is more to do on our mid-scale brands,” Briet said in an interview, referring to three- and four-star accommodation that might be edgier in style than other types of hotels. “There is a lot of growth potential for us here on that front.’’

The push for mid-level accommodation may be part of a wider trend, where providers in the Cape pursue lower-cost travellers who flock to establishments in the city and on the Atlantic Seaboard such as backpackers, rather than just the rich.

With the country’s weak currency, valued at around R14 to the dollar, coupled with South Africa’s sunshine and the handy fact that United Airlines this week announced that it would start direct flights from the US to Cape Town, Cape Town’s tourism appeal is strengthening.

Seen at the opening of the new hotel – (from left): President and MD of Marriott International Middle East and Africa Alex Kyriakidis, Amdec Group CEO James Wilson, Marriott International president and CEO Arne Sorenson, and AC Hotel by Marriott GM Michael Liffmann. Image: Supplied

“One of my kids said ‘I think I’m going to move to Cape Town’,” Arne Sorenson, president and CEO of Marriott International, said to laughter at the opening of the hotel.

“As more and more people discover the sites, the history, the food, the architecture, the natural beauty, the weather of this place, with the right kind of tourism policy you should see arrivals to Cape Town and South Africa continue to grow.”

Tourism rebound

The hotel began accepting guests in December, the start of the country’s tourist high season that lasts through March. It was then, after the Western Cape’s worst drought in a century and a recession last year, that tourism numbers began to show a rebound.

Visitors to Growthpoint Property’s V&A Waterfront, Africa’s most-visited attraction with about a dozen hotels, a large mall and scores of offices, fell by as much as 25% during the drought and were still down by about 10% more recently, according to V&A Waterfront CEO David Green.

The city-funded Cape Town Tourism agency is more optimistic, saying that the Waterfront reported a 2% decline in visitors for December compared to the same month in 2017, as did the Two Oceans Aquarium and Cape Point.

“Tourism, in general, is in a period of slow recovery following the drought and recession, and the figures reported bear this out,” Cape Town Tourism CEO Enver Duminy said in an emailed reply to questions. “The recovery of water supplies in the latter part of 2018 following healthy rainfall and the implementation of additional water supplies came a little too late to counteract bookings to the city.”

Robben Island, where former President Nelson Mandela was imprisoned, showed the highest increase year-on-year for December at 28% more visitors, most likely attributable to favourable operating conditions, according to the tourism agency. It says the attraction suffered a year of challenges that left its numbers 10% down for the whole of 2018.

Yacht Club

The Marriott was built by the privately-held Amdec Group, which developed the luxurious Melrose Arch area in Johannesburg, and which developed the entire R1.5 billion Yacht Club precinct in Cape Town. Aside from the hotel, which Marriott operates for Amdec, the development combines office space with 170 one- and two-bedroom apartments. 

The R1.5 billion Yacht Club in Cape Town is about a 15-minute walk from the V&A Waterfront. Image: Supplied

While the tourism climate is rebounding, the property development environment remains under duress, with some listed companies trading at a discount to their asset value, investment opportunities limited by the sluggish economy, and higher yields making capital raising more expensive.

Against this backdrop, Amdec CEO James Wilson says optimism is behind it pursuing Harbour Arch, a six-tower development in the Cape Town CBD, which obtained site development plan approval from the city on April 16.

“If anyone doesn’t think we’re optimistic then we’re as stupid as our money because we’re investing R15 billion in the CBD [for Harbour Arch],” Wilson said at the opening of the Yacht Club. The development is already earning returns for investors, with some buyers of the apartments priced from R2.4 million to R7.5 million reselling the units for R1 million in profit, he said. Amdec, which has assets of about R20 billion, has sold some R3 billion in apartments over the past two years, the CEO said in an interview.

Apartments popular

The interest in Cape Town apartments is also evident at Harbour Arch, where the first 400 units have sold out even though it may take until the end of 2021 before the first tower is finished, Wilson added. The entire development could take as long as eight years to build. 

“If we have an uptick in the economy, then we will probably have an uptick in the take-up of our residential and office units, and we would expect construction to be closer to the six-year period,” he said.

Moneyweb recently reported on Growthpoint’s plan to install a five-million-litre-a-day desalination plant at the V&A Waterfront, and Amdec is also protecting its Harbour Arch and Yacht Club investments against Cape Town’s water woes by installing desalination plants. 

The Yacht Club system currently produces 35 000 litres of water a day to serve the 30 000 m² space out of a capacity of 250 000 litres a day that could supply 80 000 m² in the area around the Roggebaai Canal, Wilson said

“We put that reverse osmosis system in place as soon as we realised that the drought was going to be ongoing for quite some time,” he said. “It ended up being a positive thing for us because it forced us to really get more focused on the sustainability of the building.”

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SA is truly a beautiful country but can we please get to understand our shortcomings like security. We need to get proper security understanding, planning, execution of the plans and continues monitoring, adjusting and improvements.

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