This article was downloaded by: [University of Stellenbosch] On: 01 April 2014, At: 04:44 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK Current Issues in Tourism Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/rcit20 Post-2010 FIFA Soccer World Cup: oversupply and location of luxury hotel rooms in Cape Town Sanette Lacea Ferreira a & Adriaan Boshoff b a Geography and Environmental Studies, Stellenbosch University, Private bag X1, Matieland, Stellenbosch 7602, South Africa b Centre for Geographical Analysis (CGA), Department of Geography and Environmental Studies, Stellenbosch University, Private bag X1, Matieland, Stellenbosch 7602, South Africa Published online: 19 Mar 2013. To cite this article: Sanette Lacea Ferreira & Adriaan Boshoff (2014) Post-2010 FIFA Soccer World Cup: oversupply and location of luxury hotel rooms in Cape Town, Current Issues in Tourism, 17:2, 180-198, DOI: 10.1080/13683500.2013.776524 To link to this article: http://dx.doi.org/10.1080/13683500.2013.776524 PLEASE SCROLL DOWN FOR ARTICLE Taylor & Francis makes every effort to ensure the accuracy of all the information (the “Content”) contained in the publications on our platform. However, Taylor & Francis, our agents, and our licensors make no representations or warranties whatsoever as to the accuracy, completeness, or suitability for any purpose of the Content. Any opinions and views expressed in this publication are the opinions and views of the authors, and are not the views of or endorsed by Taylor & Francis. The accuracy of the Content should not be relied upon and should be independently verified with primary sources of information. Taylor and Francis shall not be liable for any losses, actions, claims, proceedings, demands, costs, expenses, damages, and other liabilities whatsoever or howsoever caused arising directly or indirectly in connection with, in relation to or arising out of the use of the Content. This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. Terms &
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This article was downloaded by: [University of Stellenbosch]On: 01 April 2014, At: 04:44Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registeredoffice: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK
Current Issues in TourismPublication details, including instructions for authors andsubscription information:http://www.tandfonline.com/loi/rcit20
Post-2010 FIFA Soccer World Cup:oversupply and location of luxury hotelrooms in Cape TownSanette Lacea Ferreiraa & Adriaan Boshoffb
a Geography and Environmental Studies, Stellenbosch University,Private bag X1, Matieland, Stellenbosch 7602, South Africab Centre for Geographical Analysis (CGA), Department ofGeography and Environmental Studies, Stellenbosch University,Private bag X1, Matieland, Stellenbosch 7602, South AfricaPublished online: 19 Mar 2013.
To cite this article: Sanette Lacea Ferreira & Adriaan Boshoff (2014) Post-2010 FIFA Soccer WorldCup: oversupply and location of luxury hotel rooms in Cape Town, Current Issues in Tourism, 17:2,180-198, DOI: 10.1080/13683500.2013.776524
To link to this article: http://dx.doi.org/10.1080/13683500.2013.776524
PLEASE SCROLL DOWN FOR ARTICLE
Taylor & Francis makes every effort to ensure the accuracy of all the information (the“Content”) contained in the publications on our platform. However, Taylor & Francis,our agents, and our licensors make no representations or warranties whatsoever as tothe accuracy, completeness, or suitability for any purpose of the Content. Any opinionsand views expressed in this publication are the opinions and views of the authors,and are not the views of or endorsed by Taylor & Francis. The accuracy of the Contentshould not be relied upon and should be independently verified with primary sourcesof information. Taylor and Francis shall not be liable for any losses, actions, claims,proceedings, demands, costs, expenses, damages, and other liabilities whatsoever orhowsoever caused arising directly or indirectly in connection with, in relation to or arisingout of the use of the Content.
This article may be used for research, teaching, and private study purposes. Anysubstantial or systematic reproduction, redistribution, reselling, loan, sub-licensing,systematic supply, or distribution in any form to anyone is expressly forbidden. Terms &
Post-2010 FIFA Soccer World Cup: oversupply and location ofluxury hotel rooms in Cape Town
Sanette Lacea Ferreiraa∗ and Adriaan Boshoffb
aGeography and Environmental Studies, Stellenbosch University, Private bag X1, Matieland,Stellenbosch 7602, South Africa; bCentre for Geographical Analysis (CGA), Department ofGeography and Environmental Studies, Stellenbosch University, Private bag X1, Matieland,Stellenbosch 7602, South Africa
(Received 12 October 2012; final version received 2 February 2013)
An excess of hotel rooms in cities preparing to host a mega-event such as the FIFASoccer World Cup is not a new occurrence. Between 2007 and 2010 the number offive-star hotel rooms in Cape Town increased by 50% and four-star hotel rooms by20%. A spatial database of three-, four- and five-star hotels was compiled for thehotel sector of Cape Town. This paper reveals the global–local nexus of luxury hoteldevelopment in Cape Town (South Africa) and three different contexts in which theoversupply of hotel rooms must be understood. First is South Africa as a developingcountry engaged in hosting a hallmark event and engrossed in concomitant inflatedtourism-related expectations. Second is the vulnerability of Cape Town’s hotel sectorwith its overdependence on long-haul holiday tourists from a narrow northern-hemisphere market experiencing the worst economic recession since the 1930s. Thirdis the favourable economic trends in South Africa from 1999 to 2007 that havetrapped hotel developers in a ‘fallacy of composition’.
Keywords: hotel sector; mega-event; long-haul destination; location of hotels; bundleof goods/services; developing countries 1
Background and introduction
In recognising the growing importance of the service sector and the creation of new leisureand consumption spaces in the post-Fordist urban economy, cities choose to host hallmarkor mega-events1 as a strategy for facilitating urban restructuring and transformation pro-cesses (Burbank, Andranovich, & Heying, 2002; Hannigan, 1998; Hiller, 2000; Surborg,Van Wynsberhe, & Wyly, 2008). Mega-events are short-term events with long-term conse-quences for the cities staging them. Tourism is the sector of a host country’s economy thatexperiences some of the direct impacts of a mega-event. One of the positive effects of amega-event – such as the Olympic Games or FIFA Soccer World Cup (WC) – a host coun-try’s tourism product is increased demand for hotel accommodation, especially during theperiod in which the event takes place (Ignatis, 2004). Mega sporting events have often pro-vided opportunities to mobilise substantial public and private investments and have inducedimmediate or longer term economic effects in many sectors, such as property, employmentor tourism (Furrer, 2002). Benefits from being a host city include boosting the urbaneconomy, permanently repositioning the city in the global tourist market, promoting
regeneration, allowing the revamping of transport and service infrastructures, creatingvibrant cultural quarters, and establishing a network of high-grade facilities that canserve as the basis for future bids (Gold & Gold, 2007; Hannigan, 1998). Mega-eventsare a means to bringing forward long-term projects that would otherwise have taken along time to initiate (Malfas & Theodorak, 2004).
Despite all these benefits, Hall (2010) has noted that there is surprisingly little discus-sion about the ways tourism contributes to financial and economic crises resulting from theunsustainable borrowing for investment in unproductive tourism infrastructure and super-structure. During preparations for a mega-event, ‘the line between short-term events andon-going urban development is blurred: hotels, stadiums, entertainment complexes,urban parks and civic monuments are constructed to accommodate the event while theyare often connected with a broader urban revitalisation agenda’ (Greene, 2003, p. 165).Hallmark events are associated with the carrying of long-term debts, and the need forlong-term use programming (Preuss, 2004).
A host city’s lodging community is a vital component in the extensive preparations for amega-event with the hotel community spending large amounts of money to increase roomsupply and make refurbishments in anticipation of an influx of visitors (MacLaurin, 2005).For the private sector, investment in too many new hotel rooms can have a devastatingeffect on the hotel sector over the longer term (Furrer, 2002). Most of the destinationsthat have hosted large mega-events are left with new hotels and more rooms thanneeded. This produces ‘increased competition and associated costs of keeping product com-petitive amid the reality of competing in a market with the same pre-Olympic room demandand a considerably larger room supply and cost structure’ (MacLaurin, 2005, p. 1).
Although post-event oversupply of hotel rooms is a recurring phenomenon, event citiescontinue to be trapped in their expectations of an influx of tourists in the future. In a previewof the FIFA Soccer WC 2014 in Brazil, the Hotelier News has reported that the ‘Placar daHotelaria 2015’ – which measures the risk of an oversupply of hotel rooms for the 12 WC-hosting cities – indicates that five cities (Belo Horizonte, Brasilia, Cuiaba, Manaus and Sal-vador) already face a high risk of an oversupply of hotel rooms after hosting of the event(SBD Global, 2012).
Du Plessis and Maennig (2011) point out that the total number of attendees at the 2010FIFA Soccer WC was only one third of the most conservative ex ante estimates. This paperreflects on the latter inflated expectation of 750,000 international tourist arrivals for the2010 FIFA WC that has resulted in an oversupply of luxury hotel rooms (Ferreira,2012). The paper comprises four parts. First, the relevant international literature on hoteldevelopment and location in large event cities is reviewed. Second, the global–localnexus of luxury hotel development in South Africa is explained in the context of a long-haul destination and the global economic downturn (mid-2008–2012). Third, a casestudy of Cape Town’s supply of hotel rooms and the siting of hotels is presented. Last, rec-ommendations are made to assist prospective host cities in their long-term destinationplanning.
Hotel development, hallmark events and the oversupply of rooms
The provision of accommodation is a central facet in the international tourism value chain(Christian, 2010), to such extent that among the economic impacts of tourism at destinationlevel, accommodation represents ‘by far the greatest share of overall tourism expenditure’(Clancy, 2011, p. 81). Hotel distribution in cities is an important topic of study in geographyas hotels ‘are perhaps the only facets of the urban tourism product of which tourists are
virtually the sole consumers . . . , and hotels are, in many ways, tourism’s most representa-tive component in cities’ (Shoval, 2006, p. 59). Candela and Figini (2010) emphasise theimportance of a good understanding of the economic rationale behind the developmentof luxury hotels, as well as their supply and demand for their services. Hotel constructionis fuelled by several factors other than demand. Institutional economic theory that concen-trates on the wider institutional arrangements of the markets and real-life actors can assist inunderstanding the complexities of the property and land markets responsible for coordinat-ing economic activity (Ball, Lizieri, & MacGregor, 1998; Omar, Yusof, & Samad, 2001).Institutions of the real-life actors are initiating and/or constraining land-market processes.Oversupply often results from periods of increased construction activity that can cause stag-nation in the industry, even when the economy as a whole performs well (Rushmore, 2002).
Oversupply of hotel rooms in event-hosting cities
Episodes of cities investing heavily in more hotel room space – often to accommodate one-off, very large sports events – have been witnessed worldwide (Lee, Taylor, Lee, & Lee,2005). The supply side of the hotel industry has its own cycle, since hotels are expensiveto build with long time lags between planning a project, completing construction and gen-erating revenue. Ex post views of the infrastructure and superstructure (hotels, airports,stadia) developments in cities hosting hallmark events, create an impression of the enor-mous private and public investments that are made (Ferreira, 2012). MacLaurin and Mat-thews (2006) have noted three potentially adverse effects of hosting a mega-event – adecrease in occupancy figures due to increased supply of available hotel rooms, the costsof maintaining existing superstructure, and inaccurate forecasting of tourist numbers.
Even though conditions in some of the hosting countries’ hotel markets are not encoura-ging – they are saturated and/or have limited capacity to absorb more hotels – specific legalcriteria have been implemented to allow the construction of hotels so that their programmefor the completion of the hotel superstructures can be accelerated in view of the upcomingmega-event (Ignatis, 2004). Evidence exists of great expectations of demand after the mega-event, which has resulted in overcapacity of the local hotel sector. In Barcelona the hotelcapacity increased by 38% from 1990 to 1992. Over the four years surrounding theOlympic Games, the room supply almost doubled (Jones Lange LaSalle & LaSalle Consult-ants, 2001) leaving more rooms than could be filled by the real demand by tourists. TheWinter Olympics at Lillehammer in 1992 is an example of actual long-term economicbenefits being far below the expectations. The optimistic forecasts caused a substantialgrowth in supply with some 6200 new permanent beds. This led to an overcapacity andlower occupation rates afterwards (Teigland, 1996). Confident preparations for the 2000Sydney Olympic Games caused an oversupply of new hotel rooms leading to decreasedoccupancy rates and concomitant decreases in revenue per available room (RevPAR) formany years following the event (MacLaurin & Matthews, 2006). In Athens, 5300 newbeds were added between 2003 and 2004 in time for the 2004 Olympic Games (Ignatis,2004). In 2006 and 2007 prior to the 2008 Olympic Games in Beijing, a total of 5727new hotel rooms were added (Stribling, 2007) leaving Beijing with an oversupply ofhotel rooms after the event.
To prevent over supply of infrastructure and superstructures a host community must aimfor the ‘perfect fit’ by only hosting events that fit their capabilities and their future use of it(Hinch & Higham, 2003). On the same note Erten (2008) referred to ‘absorption capacity’of a city. He also states that is better to squeeze in an event in to the existing physicalcapacity of a city to create an overcapacity. In general, the share of indirect investments
which cover transportation, communication, infrastructure networks, as well as accommo-dation and airport capacities is important in the degree of overcapacity problem. Becausethe investments made to these fields will revert to the city in the post-event period asphysical legacies.
According to Shoval (2006), the bids of London, New York and Paris have made thebeginning of a new phase in the history of mega-events. These cities have alreadyhosted many mega-events in the past, which left an important physical capacity whatShoval calls ‘construction legacy’. The IOC favoured these cities due to these existingbuilt infrastructures. In the case of London’s hotel sector a long-term approach wasfollowed:
Around 2800 gross new rooms will be required each year over the 2007–2016 periods . . . Toarrive at this benchmark . . . , the city entrepreneurs had reviewed long-term trends in the touristmarket in London; considered current trends in the provision of serviced accommodation andlikely to rends for the future; considered the impact of the London 2012 Olympic and Paralym-pic Games and demand for Conference and Business travel; reviewed the supply and demandof accessible accommodation; and examined the pipeline of new hotel bedrooms and estimatedthe expected loss. (Mayor of London, 2006, p. 7)
Concerning the sustainability of a destination, cognisance must be taken not only of thelong-term planning of the supply of hotel rooms, but vitally important is the ‘territory’or location of these hotels as it plays a major role in successfully attracting tourists,especially when there are more hotel rooms available than the number of tourists to pur-chase bed-nights. The familiar adage in the estate business applies: ‘the three most impor-tant factors in the success of a hotel are: location, location, location’ (Arbel & Pizam, 1977,p. 18). The next section reviews key aspects of the location of hotels in (event) cities.
Hotel locations in cities
The hotel sector is a primary component of urban tourism (Arbel & Pizam, 1977). Hoteliersclearly believe that location is important for the success of a hotel and ‘they have the marketresearch to prove it’ (Bull, 1998, p. 3). The situation of a hotel implies more than justlocation as it involves complex subdimensions such as access and distance to particularplaces (Moutinho & Paton, 1991; Phipps, 1987), site characteristics (Kalnins & Chung,2004) and neighbourhood characteristics (Chou, Hsu, & Chen, 2007). Hotel accommo-dation is a place-sensitive product so that a special location provides differential advantagesto accommodation suppliers.
Candela and Figini (2010) describe the tourism product of cities as ‘a bundle of goods’comprising accommodation, transport, shopping, natural attractions, cultural attractions,events and more. As a ‘complex product, hotel accommodation includes a bundle of ser-vices and some tangible goods’ (Bull, 1998, p. 28). Other scholars have observed thattourism systems are composed of inter-related and interdependent set of individualbusinesses, organisations and servicescapes (Solnet, Paulsen, & Cooper, 2010). Thehotel sector specifically comprises many businesses that contribute significantly to thetourism system. The bundle of goods and services a city offers and their qualities are depen-dent on the geographic location and accessibility of accommodation, transport, attractionand events. Ruta and Pedroso (2005) subdivide the pricing factors of hotels into four dis-tinct groups, namely (1) services which include variables that directly affect a visitor’s well-being; (2) location variables which describe an establishment’s location regarding majorattractions, shopping malls and entertainment; (3) environmental variables which affect
the quality of the surroundings of the accommodation facility and (4) infrastructural servicevariables. Urtasun and Gutierrez (2006) ascribe the tendency of hotels to cluster to price,size and services. In areas of high property prices it is only highly rated luxury hotels,which can afford to establish themselves, as they are able to differentiate their servicesso as not to be affected by competition from nearby competitors in central areas. Thesize of hotels also affects their positioning and according to Urtasun and Gutierrez(2006), small hotels benefit from a location near large hotels, whereas large hotels do notbenefit from proximity to one another, except if they are greatly differentiated by the pro-ducts they offer.
Rogerson’s (2012) work on the location of the hotel industry in three coastal citiesunderlines the sparse scholarship on the spatial patterns of hotel development in SouthAfrica. This paper will partially fill this lacuna.
The global–local nexus of luxury hotel development in South Africa
Overdependence on a long-haul market
Regarding the development of South Africa’s luxury hotel product, the most significantsegment of the country’s international tourism market is long-haul visitors. The long-haul international tourism market – dominated by visitors from the United Kingdom(UK), Germany, the United states of America (USA), the Netherlands and France – totalledfewer than a half a million tourists in 1990 (Kohler, 2007). Rapid expansion of this crucialsegment of mainly leisure tourists’ occurred after South Africa’s re-engagement and inte-gration into the international tourism economy after 1994 (Rogerson & Visser, 2004). By2008 the long-haul international market had grown fourfold to over two million arrivals(Kohler, 2007).
Fallacy of composition and new hotel development
The South African economy recently experienced a long-term expansion phase, startingin late 1999 and extending through the first half of 2008 – the longest upward cycle inits history. Because developers and lenders look at the same market factors, favourabletrends lead many hotel developers to simultaneously invest in new projects. While indi-vidual decisions made economic sense in the early 2000s, too many developers makingsimilar decisions at the same time results in a surge of supply that exceeds theexpected growth in demand. Economists call this the ‘fallacy of composition’.2 Realestate (for example hotel development) is especially vulnerable to this fallacy giventhe time lag between planning a project and completing it (Price WaterhouseCoopers, 2011).
The lure of the 2010 FIFA WC, and the expectation of many visitors to the eventappealed to investors to venture into hotel space, and the upcoming event made it easierfor them to obtain financing. Given the lag between planning and opening a hotel, notuntil 2008 did new hotels begin to enter the market. Between 2005 and 2008 thenumber of hotel rooms in South Africa rose by 1600, and between 2008 and 2010approximately 9700 rooms were added (Price Waterhouse Coopers, 2011). The additionof 9700 rooms can accommodate 3.5 million more visitors annually (Price WaterhouseCoopers, 2011, p. 6). There is no doubt that the South African tourism industry wasalso challenged by the economic downturn and some potential tourists were deterredby the strong Rand (ZAR) against source market currencies. In November 2009,
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Kamil Karrim, Managing Director of Pam Golding Tourism and Hospitality Consulting,told delegates to the annual Hospitality Investment Conference Africa in Sandton, ‘thatthe global recession could not have come at a worse time for the South African hotelindustry’ (Muller, 2009, p. 1).
Even if the South African economy had continued to expand at a healthy rate, theincreased supply of hotel rooms still exceeds any reasonable expectations of growth indemand. By the time the new hotels began to open, economic conditions in the core inter-national tourist markets of South Africa, Germany, the Netherlands, the UK and the USAhad worsened, tourism had slowed and supply of hotel rooms was growing faster thandemand for bed-nights. The global financial crisis impacted most severely on these long-haul international leisure tourists with a recorded 4% decrease in the period 2008–2009.The largest reductions were in the vital source markets3 of Germany, the USA and the Neth-erlands (Dlamini, 2010). While the economic climate in South Africa (2008–2009) was notas severe as abroad, new hotel constructions in South Africa created a glut in hotel space,putting room rates under undue pressure.
The hosting of the 2010 FIFA WC in June and July 2010 contributed to the opening ofnew hotels countrywide to cope with the demand for accommodation by the players, spec-tators, country delegations and the media, but a year later this overbuilding was seriouslyimpacting on hotel performance (STR Global, 2011). Nationally, an oversupply predica-ment is now facing hoteliers following decreased hotel performance in 2011. In anticipationof the 2010 event, guest-room supply rose by 5.7% every year from the end of 2008 to year-end 2010 according to STR Global (HNN Newswire, 2011). By June 2010, there were over68,000 daily rooms available, a level of supply that far outstripped demand, even during thetournament. The problem was compounded by the almost 1000 new rooms under develop-ment and still to enter the market in 2011. ‘South Africa’s hoteliers are trying to regain theirfooting after the tournament’ reported STR Global (HNN Newswire, 2011, p. 1). Againstthis background the next section presents a case study on the supply and location of hotelaccommodation in Cape Town.
Case study: hotel development in Cape Town
Oversupply of luxury hotel rooms in Cape Town
Cape Town experienced a dramatic growth in upmarket four- and five-star hotels from atotal of 21 establishments in 1990 to 145 establishments by 2010 (Rogerson, 2012). Thesteady increase in international tourist arrivals in Cape Town (Figure 1) leading up to the2010 FIFA WC validated the increased hotel development for the developers and entrepre-neurs. The Cape Times (Ndenze, 2011a) reported that the 13 hotels built in Cape Town inanticipation of the WC 2010 contributed to a vast oversupply of rooms. By August 2010 theaccommodation sector had already expressed concern that many of the hotels would ceaseoperating after the event. The harsh reality of the city’s hotel sector was voiced by ArthurGillis – Protea Hotels’ group executive – as Cape Town having an oversupply of hotelrooms and that some hotels would be converted to flats or retirement homes (D’Angelo,2010). According to Pam Golding Properties, there were three four-star hotels and fourfive-star hotels for sale in Cape Town in 2010 (Hendricks, 2010).). The downturn in thecity’s tourism performance can have dire consequences as some 298,000 people are directlyemployed in the tourism industry and their welfare is dependent on a thriving industry(Ndenze, 2011b). The effects of the oversupply of hotels are being exacerbated by theworld economic recession.
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Research methods
The methods applied in this case study aimed to examine the geographical elements of thesupply and location of the hotels in Cape Town with emphasis on the luxury sector –three-, four- and five-star graded hotels and the arrivals of tourists from 2007 to 2011.A variety of primary and secondary data was used. First, a spatially enabled databasewas compiled for the tourist accommodation sector of Cape Town using appropriatedata and information from primary and secondary sources. Most of the data originatedfrom the planning department of the City of Cape Town and to a lesser extent fromlocal tourism agencies. The database includes a complete list of tourist accommodation,services and attractions. Each entry in the database holds information about an establish-ment’s address and contact details, star rating, number of bedrooms, number of parkingbays, conference and other event or function facilities, restaurants and accreditation.Two existing databases, one from the Cape Town International Convention Centre(CTICC) and one from the City of Cape Town tourism department, and a tourism mapcreated by Jewel Africa (Jahedi Mapping, 2011) were also consulted. The database infor-mation was geo-referenced by using global positioning system coordinates captured in ageographical information system, thus enabling the mapping and analysis of the hotel dis-tributions in central Cape Town. The database contains 104 entries.
The Western Cape Tourism Barometer,4 another secondary data set provided statisticaldata on hotel occupancy rates, tourist arrivals, purpose of visit and hotel revenue (WesternCape, 2007a, 2007b, 2007c, 2007d, 2008a, 2008b, 2008c, 2008d, 2009a, 2009b, 2009c,2009d, 2010a, 2010b, 2010c, 2010d, 2011a, 2011b, 2011c, 2011d). The spatial dataabout hotel development in Cape Town was complemented by semi-structured interviewswith the managers of 16 five-star hotels. The interviews aimed to distil out what makes a
Figure 1. International Tourist arrivals to Cape Town, 2007–2011.Source: Western Cape (2007a, 2007b, 2007c, 2007d, 2008a, 2008b, 2008c, 2008d, 2009a, 2009b,2009c, 2009d, 2010a, 2010b, 2010c, 2010d, 2011a, 2011b, 2011c, 2011d).
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hotel successful in an oversupplied market and to gauge managerial confidence regardingthe future performance of the hotel sector.
Analysis and discussion
Matching supply of hotel rooms with tourists arrivals in Cape Town
During the three to four years prior to the 2010 FIFA WC, six new five-star hotels wereestablished in the city centre and the Waterfront area, namely One and Only, Taj, Hilton,Cape Royal, Pepperclub and 15 On Orange, adding 863 five-star rooms to an already strug-gling Cape Town hotel sector. At the beginning of 2008 occupancy of hotel rooms was at ahigh of more than 80%, a level not reached since then (Figure 2).
The second quarter of 2011 was a grim period for the local tourism industry whenoccupancy rates fell to their lowest in five years at an alarming average occupancy rateof only 45.7%. The quarterly occupancy of hotels depicted in Figure 2, clearly indicatesthe downward trend in occupancies since 2007. There was an expected spike in occu-pancy during the 2010 FIFA WC when football tourists attended the tournament. Themonths after the event experienced even lower rates than before its staging and occu-pancy at the beginning of 2011 demonstrates the effects of the oversupply of hotelrooms in the city. The low second quarter occupancy in 2011 substantiates the likelihoodof some hotels going out of business due to the surfeit of available rooms (D’Angelo,2010).
The trend of decreased occupancy in 2011 corresponds with the decreased rates experi-enced in Sydney in 2001 and 2002 following the 2000 Olympic Games (MacLaurin & Mat-thews, 2006). While occupancy and room rates give an indication of the demand for hotelrooms, tourist arrivals testify as to whether the 2010 FIFA WC succeeded in drawing moretourists to Cape Town (Figures 1 and 3). Domestic arrivals at Cape Town InternationalAirport (Figure 3) stayed relatively stable over the past five years with high levels of arrivalsduring March and from October to December each year. The high domestic arrival figuresfor August 2010 until the end of February 2011 were good signs for the accommodationindustry, but all other indicators confirmed a decrease in hotel demand. Occupancylevels, average room rates and RevPAR during 2007–2011 were at their lowest during
Figure 2. Hotel occupancy in Cape Town (2007–2011).
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the second quarter of 2011, a clear signal of the Cape Town hotel industry’s predicament(Figure 4). These figures, in combination with the increase in five-star hotel rooms overthe past three to four years, underline the oversupply of hotels as a vexed question forCape Town’s tourism industry. This situation has, among other reasons, contributed tohotel closures like that of Hotel Le Vendome (Lenhart, 2011) and liquidations such as 15On Orange (Hasenfuss, 2012). Generous discounts on luxury hotel room tariffs have
Figure 3. Domestic arrivals at Cape Town International Airport (2007–2011).
Figure 4. Average room rate and revenue per available room for Cape Town region (2007–2011).
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created an imbalance in the market that particularly affects less expensive hotels particu-larly. Some five-star hotels’ average daily rates for rooms are currently Fedhasa (2012) atlower levels, with the result that ‘they [are] cannibalising the market of the four-starhotels and even the three-star establishments’ (p. 1).
There are differing opinions about on how this hotel plight should be handled. AndreBossard, manager of the Hilton, declared that it is ‘the worst case of oversupply that Ihave ever seen’ (Property24, 2011), yet he contends that the issue will resolve itself assome hotels which cannot compete will have to downgrade or close their doors (Property24,2011).
International arrivals at Cape Town International Airport (Figure 1) are key indicators ofdemand for hotel rooms in Cape Town. Note that the greatest numbers of international arri-vals coincide with the period of highest levels of hotel occupancy that is in the first quarterof 2008. The first quarter of 2011 experienced the least number of international arrivals forthe five years since 2007. Although the second quarter of 2011 started well with April boast-ing the greatest number of April arrivals over the 2007–2011 period, June had the leastinternational arrivals of all the months during the five-year period. This feature had aknock-on effect on the rest of the bundle of goods and services such as restaurants, high-class boutiques and theatres which all hosted fewer tourists. Unfortunately, the tourismindustry is feeling the pinch of the global economic crisis and Cape Town’s position as along-haul destination is disadvantageous to drawing tourists (Ndenze, 2011b), especiallyin economically tough times. Cape Town is a major leisure tourism destination for inter-national and domestic tourists. According to the Tourism Barometer of Cape Town in2010 and 2011(Western Cape, 2010a, 2010b, 2010c, 2010d, 2011a, 2011b, 2011c,2011d), 82% of the international visitors travelled to Cape Town to holiday, while only6% visited for business reasons. Concerning travel behaviour during times of economiccrisis, Coles (2011) reminds us that people travel less or closer to home under such circum-stances, a phenomenon he calls ‘stay-cation’. The next part of the analysis concentrates onthe location of hotels in Cape Town.
Location of the hotels
The pattern of urban development in Cape Town resembles that of the classic New Worldmetropolis as described by Ashworth and Tunbridge (1990). They advance that the NewWorld metropolis is a coastal city in which the waterfront plays an important role as itused to be the point of contact with a foreign mother city. Although the Ashworth and Tun-bridge (1990) model of the location of hotels in a city is more than 20 years old, it remainsappropriate for explaining the locational pattern of hotels in certain city zones. Applicationof the model to Cape Town distinguishes some unique features. The development of newfive-star hotels in central Cape Town was only possible in landmark buildings of the historiccity or in the transitional zone surrounding the central business district (CBD) of which theVictoria & Alfred Waterfront (V&AW) area is part.
Cape Town’s hotels manifest spatially in two clusters and a coastal ribbon (Figure 5).One cluster is in the V&AW and the other in the historic city (CBD) including the areanear the CTICC. The ribbon development is along the Atlantic Seaboard.5 According toRogerson and Kotze (2011), the most distinctive feature of the distribution of hotels inCape Town is the CBD as the premier location for hotels of all quality standards. Thecity centre includes the historic city and the Cape Town Railway Station, and it has con-venient road access to highways, features that make it a highly attractive location forhotel development and help explain the large concentration of hotels there. The Atlantic
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Seaboard is a ‘nice location’ as its beaches and mountain views attract tourists. The V&AWarea is also a ‘nice location’ which is very accessible; it preserves historic elements of theold harbour; features a new marina; and provides an abundance of leisure area and shoppingspace (Figure 5). An area with a minor concentration of hotels is along the False Bay shoreof the Cape Peninsula. Other Cape Town hotels are situated with relative ease of access to
Figure 5. Hotel distribution, star ratings and other important attractions and leisure spaces in centralCape Town.
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main roads that feed to the city centre. Hotels in the Southern suburbs are situated awayfrom main roads and nested in special natural contexts or ‘nice places’ near vineyards ormountains, in or on the doorstep of the Constantia Wine Route.
The semi-structured interviews with hotel managers confirmed the importance of therelative location of each hotel in the context of an oversupplied market. Managers offive-star accommodation establishments were asked what the best features are in the vicin-ity of their hotel. Fifty per cent responded that the V&AW is the most desirable attraction tobe near to, followed closely (45%) by a location in or alongside the CBD. Being close to thebeach was mentioned by 31% of the managers and 25% cited being within sight of TableMountain as important. Hotel managers noted that a location within easy walking distanceof certain places, for example Long Street’s shops or restaurants, is beneficial to their hotels.The CTICC is an important complex to have nearby as the events held there generate manydelegate guests for the hotels. A location in close proximity to the Parliament is advan-tageous. The interviews and the inspection of the hotels’ marketing brochures produced evi-dence that each hotel values the advantages of its particular locality. The managers of hotelsin the city centre near to the CBD (The Hilton, Taj, Westin Grand, and 15 on Orange) allindicated that most of their domestic and international guests visit Cape Town for businesspurposes. Westin Grand is marketed almost solely for business and events purposes and itprovides free Internet and many business-orientated facilities to its guests. This hotel’sproximity to the CTICC ensures a substantial inflow of conference delegates. Hotelswith strategic leisure positions are located near beaches and The Twelve Apostles is situatednext to a nature reserve.
Shoval (2006) has noted that hotel clustering in city centres is often the result of munici-pal encouragement in support of urban regeneration projects as clearly seen in develop-ments in Cape Town’s city centre. The CBD and V&AW boast hotel clusters (Figure 5),these developments having contributed greatly to the rejuvenation of Cape Town’s innercity and the brownfields’ clearance of the old harbour respectively (Ferreira & Visser,2007). Part of the phased development of the V&AW has been the establishment ofthree esteemed five-star hotels in Cape Town, namely Table Bay, Cape Grace andKerzner International’s One and Only (Figure 6).
Although Cape Town’s city centre remains the area with the most new developments,the establishment of Century City, Canal Walk shopping centre and several new hotels,including the five-star Crystal Towers, next to the N1 highway, has created opportunitiesfor entertainment, business and shopping in an area removed from the busy city centre.This area, though an alternative for new developments, cannot compete with the iconicattractions and ‘nice locations’ offered by the city centre, the V&AW and their surround-ings. The distribution of five-star hotels by size (Figure 7) in the Cape Town city centre,V&AW and Atlantic Seaboard appears to be relatively random. However, no smallerhotels appear in the city centre or V&AW area because the exorbitant property pricesthere are affordable only to well-established hotel groups that can construct large luxuryhotels. Although guesthouses and boutique hotels are not included in this study, their dis-tribution is primarily confined to just outside the edge of the core areas.
Hotel managers were asked to comment on what they consider to be the most importanthotel attributes valued by their clients. Although price and value for money are deemed thetwo most important elements, several managers noted that this is a recent development dueto the world economic crisis, because previously entertainment and facilities carried greaterweight in the decision-making processes of tourists. Some managers referred to brand fam-iliarity as the reason for their success and they maintain that being an established brand isresponsible for return guests and tourists who stay in their hotels around the world comprise
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a large share of their clientele. The UK is the largest source market6 for Cape Town’s hotels,followed closely by the rest of Europe and North America. The economic recession has,however, led to a large decline in the travel mobility of tourists from these markets andthis is directly affecting the hospitality industry in Cape Town. The One and Only hasexperienced a 50% decrease in guest numbers from the UK since 2010 so that they arenow vigorously marketing their hotel in South America, China and the USA. MansoorMohamed, Former Executive Director of economic, social development and tourism forCape Town, has stated that ‘growth markets are in the BRICS nations of Brazil, Indiaand China and not the traditional European markets that the city previously relied on’(Ndenze, 2011b, p. 1).
Message on hotel development in future event cities
Local governments are willing to invest several million dollars of public money in mega-events in order to demonstrate their cities ability to compete in an increasingly global mar-ketplace. Despite its commended contribution to the economic health of destinations,
Figure 6. Hotel development in Cape Town (1899–2011).
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tourism may also be instrumental in financial and economic misfortunes by encouraginginvestment in unproductive tourism infrastructure and superstructure as recounted above.The determining factor is whether the bid city – and ultimately host city – manages touse the mega-event with its one-off format and one-time boost to make changes andimprovements, which become the cornerstones of a self-sustaining process. Fortunately,there are examples of mega-events being catalysts for urban restructuring. In CapeTown, the 2010 FIFA WC has played a role in a long phase of continuous redevelopmentover the past 20 years. The Cape Town Stadium is part of a broader urban redevelopmentstrategy that has resulted in stadia precinct upgrades, beautification through extra illumina-tion, addition of hard and soft landscaping, and seamless integration with transport inter-change stations and leisure spaces. Regrettably, inflated expectations of future touristarrivals and the economic downturn have thrust the local hotel sector into a precarious pos-ition. The hotel sector is highly reliant on private sector investment for all its developmentsand it is dependent on continued consumption of bed-nights to maintain economic viabilityover the long term. If the supply of hotel rooms (in all categories) remains greater than thedemand, the hotel sector will battle to stay viable even in the short term.
Figure 7. Five-star hotel establishments by size.
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Tourism supply meets tourism demand at the destination level. Alas, the demand forhotel rooms is uncertain, and demand and competition are segmented by geography andproduct type (Baum & Haveman, 1997). Moreover, the uncertainty is intensified by thedemand being situated in the vicissitudes of the current global–local economic nexus.Cape Town is a large city – but a long-haul destination in a developing world context –over-dependent on European and North American tourist-generating markets. Any formof superstructure (hotel or sports stadium) developed to host a one-off hallmark eventmakes little sense for the long-term sustainability of a destination. Regarding existinghotels or stadia, the new stadium and the new hotels also put ‘the lost leaders’ at risk.
The mega-event should not dictate physical planning but rather respond to the clearlyarticulated needs of the host city and comply with a broader strategic plan (Greene,2003). A host community must aim for the ‘perfect fit’ by only hosting events that fittheir capabilities and their future use of superstructures (Hinch & Higham, 2003). If thehost community cannot absorb the extra capacity an event dictates, it must abstain fromdeveloping more capacity (Erten, 2008). The London example, where the hotel develop-ment planning process for the 2012 Olympics had a longer term aim, is strongly rec-ommended (Mayor of London, 2006).
Given the prospect of carbon taxation (particularly in light of Cape Town as long-hauldestination) and the apprehensions of environmentally conscious and economically savvyconsumers, event cities must be cautious of developing too many hotel rooms in any cat-egory of their accommodation sector. Domestic leisure tourists form the backbone of along-haul destination, so that the demand for hotel rooms by this group of consumers –who are usually repeat visitors – is a more realistic indicator for future superstructure devel-opment than the demand by international tourists who must spend a lot of money on airfaresbefore even arriving at the entry point to a distant destination and are in most cases one-offvisitors.
Conclusion
The global–local nexus of luxury hotel development in Cape Town (and South Africa) overthe last few years has to be understood in different contexts. First, in South Africa as adeveloping country that hosted a hallmark event which engendered inflated tourism-related expectations, not only for the tourist arrivals during the tournament but also thelong-term view to increase tourist arrivals in the years following the event. Second, isthe vulnerability of the Cape Town’s hotel sector with an overdependence on long-haulholiday tourists from a narrow northern-hemisphere market experiencing the worst econ-omic recession since the 1930s. Third, is the favourable economic trends in South Africafrom 1999 to 2007 that trapped hotel developers in a fallacy of composition, which ledmany to simultaneously invest in new hotel developments.
Although Cape Town’s hotel sector is currently suffering the effects of an oversupply ofhotel rooms, Cape Town has used the 2010 FIFA WC to extend its world-class sports infra-structure (multipurpose Cape Town Stadium) and integrate it seamlessly with existingleisure spaces, luxury accommodation and an efficient public transport system. Establishedand renowned hotels, such as Mount Nelson, Cape Grace and Table Bay Hotel – perfectlypositioned geographically– and belonging to ‘The Leading Hotels of the World’, are con-fident that over the long term they will not be adversely affected by the current economicconditions.
The hotel industry in Cape Town will continue to face the challenge of lower occupancyrates and increased pressure on room tariffs in the short term because of the oversupply of
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hotel rooms. Let’s hope that the ‘spare capacity’ is an investment in the future where CapeTown’s bidding position is strengthened for the hosting of future mega sport and MICE7
events. Although visitor numbers from Europe have dropped, the escalation of visitorsfrom African countries and the Asia–Pacific region is boosting the industry and itsreturns. South Africa’s national and regional tourism marketing organisations areworking hard to develop these emerging tourist markets.
AcknowledgementsThe authors want to express their appreciation to Dr Jane Rogerson from the University of Johannes-burg for reading the first draft of the paper and for the constructive comments that she has made toimprove the manuscript.
Notes1. Hallmark (mega-) tourist events are major fairs, expositions, cultural and sporting events of inter-
national status which are held on either a regular or a one-off basis. A primary function of thehallmark event is to provide the host community with an opportunity to secure high prominencein the tourism market place (www.ask.com/question/what-is-a-hallmark-event).
2. The fallacy of composition refers to a decision taken for an individual case or unit withoutknowing or considering the bigger picture (www.thefreemanonline.org/columns/7-fallacies-of-economics).
3. The typical tourist from the core markets to South Africa is 60+ years old, part of a pre-bookedpackage tour, moving in groups of small to medium size and travelling by luxury coach orminibus.
4. This Western Cape Tourism Barometer is a measurement of the travel patterns of tourists(national and international) in Cape Town and the Western Cape.
5. The Atlantic Seaboard is often referred to as Cape Town’s Riviera, the coastal region extendingfrom the V&AW along the west coast of the Peninsula to Hout Bay. It includes some of theworld’s trendiest and most stunning seafront or mountainside locations like Green Point, SeaPoint, Fresnaye, Bantry Bay, Clifton, Camps Bay, Bakoven, Oudekraal and Llandudno (JahediMapping, 2011).
6. The UK market is still Cape Town’s most significant tourism market with an average of 200,000visitors to the Mother City per year; Britons spend an average of 13 nights in South Africa and areCape Town’s biggest spending market; 70% of visitors come for leisure travel and just under 25%to visit friends and relatives (www.capetowntouristguide.com/uk-and-usa-two-of-cape-towns-top-five-tourism-key-source-markets/).
7. MICE stands for meetings, incentives, conventions and exibitions.
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