Trouble for hotels and restaurants in South Africa

Despite an apparent recovery, South Africa’s hotel and restaurant sector remains in trouble, with real revenues still 17.74% below pre-pandemic levels and lagging occupancy rates.

This is feedback from FNB Property Strategist John Loos, who explained that although South Africa’s tourism sector appears to be bouncing back, the real numbers paint a slightly different story.

“At first glance, the latest hotel sector revenue statistics suggest that revenues have returned to pre-COVID-19 levels,” Loos said. “However, when adjusted for general price inflation, this is not entirely the case.”

According to Statistics South Africa’s (Stats SA) preliminary monthly tourism data for November 2024, hotel sector revenues have surpassed pre-pandemic levels in nominal terms.

However, real (inflation-adjusted) figures tell a different story. The sector has not yet fully recovered from the dramatic decline caused by the 2020 lockdowns and subsequent economic slowdown.

November 2024 saw a 9.5% year-on-year growth in hotel sector revenues, up from 6.8% in October, marking a significant improvement.

This positive trend follows a challenging mid-year period, during which revenues declined by 3% in July.

“The recent acceleration suggests a turnaround, supported by declining interest rates and improving financial conditions for households and businesses.”

For many households and businesses, tourism remains a discretionary expense, often reduced during economic downturns, Loos explained.

While economic conditions have improved since 2020, GDP growth slowed to just 0.6% in 2023, and early indicators suggest a similar trend in 2024.

Additionally, from late 2021 to mid-2023, interest rates remained high, only seeing a 50-basis point decrease since September 2023.

“At face value, Stats SA’s November 2024 total hotel income data suggests that the sector has recovered, with revenues estimated to be 3.65% higher than in November 2019, just before the COVID-19 shock.”

“However, when adjusted for inflation using the Consumer Price Index (CPI) for Hotels and Restaurants, real (inflation-adjusted) hotel income in November 2024 was still 17.74% below November 2019 levels.”

According to Loos, an analysis of occupancy rates also supports this picture of an incomplete recovery.

“The national hotel occupancy rate in November 2024 was 46.9%, significantly below the 54.7% recorded in November 2019. This decline stems from a 14.25% drop in stay nights sold compared to five years ago.”

While revenue per stay night sold has recovered in real terms, lower occupancy rates mean total revenues remain well below pre-pandemic levels when adjusted for inflation.

Spending patterns have also evolved, he explained. “The average income per stay night sold in November 2024 was 26.9% higher than in November 2019.”

“Adjusted for inflation, this figure is only 0.7% higher than five years ago, suggesting that while fewer people are staying in hotels, those who do are spending roughly the same in real terms as before the pandemic.”

The November 2024 hotel sector data confirms that the industry has not yet fully recovered to pre-COVID-19 strength.

The post-lockdown period presented additional challenges, including inflationary pressures, interest rate hikes – 475 basis points between late 2021 and May 2023 – and a slowdown in economic growth.

Fortunately, 2025 is expected to be a stronger year for the sector, Loos explained.

A World Travel and Tourism Council report released last year revealed that South Africa’s tourism sector is expected to grow by around 8% a year over the next decade as it continues to recover to pre-pandemic levels.

“Declining interest rates and improving economic conditions should support higher tourism and accommodation demand,” Loos added.

“Notably, the 9.5% year-on-year revenue growth in November 2024, significantly outpacing the 3% CPI inflation rate, reinforces expectations of a stronger revenue performance in the coming year.”