South African hotel group Southern Sun is pressing ahead with a R1,5-billion, three-year expansion and refurbishment plan, despite the current slowdown in demand from both the tourist and corporate markets.

However, the planned spend is down on the R2,5-billion invested in the previous three-year cycle, when the focus had been on upgrading its hotel portfolio and replacing the Holiday Inn Garden Court brand with the group’s own identity.

New MD Graham Wood, who has occupied the position for less than 100 days, says the bulk of the new capital will be spent on four projects in Rustenburg, Witbank, Hyde Park and at One Monte, in the Montecasino precinct, north of Johannesburg.

Together the projects – the first of which opened this week in Rustenburg and will host the Bafana Bafana team ahead of its game against Cameroon at the weekend, and the last of which is scheduled to open in May 2010 – would add nearly 600 new rooms to its existing domestic portfolio of 73 hotels, which together have more than 12 000 rooms.

Wood reveals that the company is also interrogating new prospects in Umhlanga, Durban and Johannesburg, but indicates that it has not yet committed to any of these ventures.

Southern Sun will be seeking to integrate green-building and operational techniques at it new facilities, partly as a response to the power crisis, but also to align itself to the growing international appetite for green hotels.

The group, which is focusing primarily on expanding its budget, economy and four-star brands, will hold back from any new five-star hotel investments until it is satisfied that it can secure the sites and the construction prices that will make such ventures viable.

The cost of building a new five-star room has surged from about R1,9-million-a-unit three years ago to as much as R3-million. This has also placed upward pricing pressure on lower-end hotel building costs.

Wood is of the view that the building supply sector remains overheated, but feels that prices will soften as the more generalised economic slowdown takes effect.

That slowdown is already evident in some industry statistics, with inbound travel having shown its first year-on-year decline in August, a trend that is expected to continued into September and October.

In addition, national hotel-occupancy levels have moderated as the corporate-travel market, in particular, has responded to the slowdown by cutting back on air travel and limiting the duration of trips.

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Wood anticipates that the slowdown might endure for the next six to eight months, but is optimistic that the British Lions Tour and the Confederations Cup, both of which will take place next year, will boost demand in 2009.

“The last British Lions tour saw 30 000 people visiting South Africa and we are expecting 50 000 this time around.

“We then hope that the economic fundamentals will recover to take us through to the 2010 FIFA World Cup,” Wood says.

Analysts estimate that the tournament could attract more than 350 000 visitors to the country, which could strain South Africa’s accommodation resources.

Southern Sun has already allocated 80% of its rooms to Match, the company tasked with arranging ticketing and accommodation for the event, and Wood is sanguine about prospects for an amicable resolution to the current spat between SA Tourism and Match.

SA Tourism CEO Moeketsi Mosola indicated recent that his organisation would quit the Match advisory board because Match had attempted to “bully” smaller establishments and independent hotels into dropping prices.

“I am concern about it, but I believe a resolution is imminent,” Wood says.

He argued that the Match system, which is based on selling accommodation in five-day-minimum tranches, will benefit companies such as Southern Sun, and reveals that about 20% of the 80% allocated by Southern Sun is already let.

“Therefore, we are still optimistic about the long-term outlook for the industry in South Africa.

“Yes, occupancy levels and rates will be under pressure for the next six to eight months, but we see a correction in mid-2009,” Wood avers, adding that he still believes there is sufficient space to add new accommodation capacity for 2010 and beyond.