‘Hotel investors are in for a 10-year wait for returns’

ALTHOUGH hotel investment was currently less risky, investors had to be prepared to wait eight to 10 years before seeing a return, Stephen Rushmore, the global president and chief executive of hospitality consultancy HVS, told the Thinc (Tourism, Hotel Investment and Networking Conference) Africa conference in Cape Town.

“What happens in the US is indicative of what is happening elsewhere. It is at the peak of its hotel cycle, which has seen eight years of consecutive growth. Many markets are close to, or at, their peak. So if you’re a hotel investor, you need to think about where you get value appreciation,” he said yesterday.

He said investors, lenders and management companies had become increasingly sophisticated over the past 10 years. As more data had become available, tighter controls had been put in place.

“For the next several years, return on investment will be driven by property-related strategies, not market appreciation,” he said.

Rushmore said supply was not a significant risk, because it was being absorbed, but construction financing had become a challenge.

He said he was often asked whether Airbnb posed a threat to the hotel industry.

“At this point in time, not a major risk to your hotel investment… They cater mainly to the leisure traveller and are inducing their own demand.”

Tim Smith, the managing partner at HVS South Africa, said the African Hotel Valuation Index showed that 17 of the 23 markets covered had increased in value last year, whereas in 2015, 10 markets out of 21 cities had been growing.

According to the index, most African countries now had steady but realistic growth that investors could rely on when making investment decisions.

Regarding South Africa, Smith said hotel values were booming in Cape Town in rand terms, but returns looked far less exciting when converted to dollars. According to the index, the future of South Africa’s tourism sector was looking promising, because the rand had strengthened.