South Africa has an untapped goldmine

South Africa’s luxury tourism market remains significantly underserved despite strong local and international demand, presenting major growth opportunities for global hotel groups.

Recently, the InterContinental Hotels Group (IHG) told BusinessDay that South Africa remains one of the most underserved luxury hotel markets in Africa.

“There is a lot of headroom for international brands to make their way into South Africa,” IHG Hotels & Resorts IMEA MD Haitham Mattar said.

He noted that the group sees great potential in South Africa, supported by rising domestic demand and the country’s strong tourism fundamentals.

Mattar explained that Sub-Saharan Africa, North Africa and South Africa are very interesting for IHG because of the “huge unlocked potential” they see across the continent.

South Africa has an abundance of great natural assets, outdoor adventure, beaches, sand, nature, food, and wines, which are a great offering and a great value for money.

The group operates eight hotels locally and 38 across the continent, with 35 more in the pipeline. The new developments are estimated to add more than 6,500 hotel rooms in the next two to three years.

Daily Investor spoke to Tshifhiwa Tshivhengwa, CEO of the Tourism Business Council of South Africa (TBCSA), who explained the current state of luxury tourism in South Africa.

“Luxury tourism has a long-standing presence in South Africa,” Tshivhengwa said. “Cape Town is already home to many luxury properties, and even regions like the Eastern Cape have high-end lodges and boutique hotels along the coast.”

“If you consider safari destinations like the Kruger National Park and private game reserves, many of these properties are five-star or ultra-luxury. So the market is well-established and generally healthy.”

However, while there may be luxury resorts and hotels in South Africa, Tshivhengwa said the market remains underserved.

“There’s strong demand, and it’s clear that even if we build more luxury properties, they would be absorbed by the market,” he said.

“We have the foundation, but there’s still space for growth, especially if we continue to improve the overall tourism offering.”

Untapped demand

Tshivhengwa argued that, when a global player like IHG Hotels & Resorts makes public statements about the opportunity for more luxury properties in South Africa, it signals that there is still untapped demand.

South Africa’s favourable exchange rate makes it very appealing to international travellers, who can afford five-star hotels.

“But importantly, we also have a growing domestic market. South Africa’s middle class is expanding and seeking luxury travel experiences,” he explained.

”There’s clearly room for more luxury developments, especially along our coastlines. For example, the Eastern Cape remains relatively underdeveloped in terms of high-end accommodation.”

Even KwaZulu-Natal, a very popular tourist destination, still has capacity. Other international tourist companies have also noted the province’s potential.

Notably, construction is currently underway for a new R2 billion luxury resort, Club Med South Africa Beach and Safari, located near Ballito.

The French travel operator Club Med has over 70 all-inclusive resorts worldwide, including Italy, the Maldives, France, and Thailand. Globally, a week’s stay for a family of four at Club Med averages between R75,000 and R380,000.

“More investment is needed in this space, and the fact that a brand like IHG is speaking positively about South Africa is essentially a stamp of approval. It shows confidence in our destination’s appeal,” Tshivhengwa said.

He explained that there are a few key reasons why South Africa’s luxury tourism industry is currently underserved.

“Primarily, we haven’t been building new luxury hotels, particularly outside of Cape Town. Even in Cape Town, most of the newer properties were built either just before or right after Covid, and now there’s limited land available,” he said.

In Gauteng and KwaZulu-Natal, there has been very little large-scale luxury hotel development. While areas like Umhlanga saw some activity during the Covid-19 pandemic, it was small-scale.

“Meanwhile, demand continues to grow. International visitors find South Africa affordable, and domestically, the rising middle class is also seeking luxury options,” he said.

“There’s a clear financial gap between current supply and the actual demand, which presents a strong opportunity for development.”

Opportunities remain

According to Tshivhengwa, several regions show strong potential for luxury developments beyond the known luxury hubs like Cape Town and the Kruger area.

For example, KwaZulu-Natal, particularly around Durban, still has space to accommodate more luxury properties. In Limpopo, ultra-high-end lodges are already charging as much as R70,000 per night, so there is a solid luxury footprint as well.

“However, further expansion would depend on demand, access, and supporting infrastructure. When we look at secondary cities like Polokwane or Mbombela (Nelspruit), they are primarily business travel markets,” Tshivhengwa explained.

These areas are not yet strong in leisure tourism. This means that luxury development there would likely target domestic rather than international travellers.

Tshivhengwa said that four- or five-star hotels perform well in these places, but ultra-luxury offerings may not yet be sustainable.

Despite being a major city, Johannesburg still has potential for high-end development, though it must offer more than just rooms. Comfort, experience, and exclusivity are key.

Even in premium buildings like the Michelangelo, the tallest tower in Sandton, parts remain unopened, possibly due to a lack of interest or oversupply. “So developers need to create something truly differentiated to succeed in that space,” he said.