Aparthotels are dividing Cape Town’s hospitality industry with traditional hoteliers warning of unfair competition while others argue the model is meeting evolving traveller demand. The debate comes amid a boom in hospitality development in the city, which could see competition deepen even further.
In a recent post on LinkedIn, Anton Gillis, CEO of Hamac Asset Management, drew attention to the issue, saying “Cape Town’s hospitality sector is bleeding”.
“At Hamac, we spend a lot of time analysing daily hotel data. It’s glaringly obvious that it’s not all peaches with cream in Cape Town. The majority of the hotels are trading at incredibly low rates and occupancy.”
STR CoStar data released earlier this year put Cape Town’s occupancy rates at 72.5% for April, which is well above the national average. For the six months to June, the city recorded occupancy rates of 68.2% (well above the national average of 58.8%).
However, according to Gillis, many in the industry have stopped contributing to the data set.
He attributes the issue to exploding short-term rentals or aparthotels.
“Developers continue to flood the market with units that aren’t subject to the same taxes, levies or daily operating standards as hotels. They do not have nearly the same expense base and they do not pour their profits into the ecosystem.”
Data on the number of aparthotels in the city is scarce but data released by property management firm Nox on the short-term rental market in Sea Point for August provides a snapshot: the number of short-term rentals grew by 313 units or 33% year-on-year. Bookings increased by over 50% year-on-year and occupancy sits at 75%.
But Joep Schoof, COO for Valor Hospitality Partners Africa, said: “Aparthotels are meeting a genuine market need in Cape Town and elsewhere.” There is enough business to go around, he added.
“This trend is not an ‘either or’ situation but rather diversification within the hospitality sector that speaks to a broader range of needs and preferences. In Cape Town, in particular, there is plenty of room for aparthotels and more traditional establishments.”
Schoof said aparthotels cater to growing demand for more flexible options. “Many guests today seek flexibility and a ‘home-away-from-home’ experience that aparthotels specialise in. This is especially true for travellers on extended stays, business travellers, digital nomads, medical recovery and families.
“Our view at Valor Hospitality Partners is that the long-term sustainability of aparthotels is strong, provided they are managed correctly with adaptability built into the model.”
Unfair playing field
However, said Gillis, hotels and aparthotels cater to the “same guest, same price range, same promises but, when it comes to compliance, it’s a different story”. He added: “Traditional hotels are carrying the load, investing in jobs, training, safety, sustainability and guest experience. They don’t get to cut corners and, more importantly, they don’t want to.”
In response to Gillis’ post, Rael Phillips, CEO of Totalstay, which operates several aparthotels in the city, said he is investing “in jobs, training, safety and sustainability without cutting corners. Short-term rental regulation will come and it is my hope it’s fair, reasonable and levels the playing field. After all, when done right, we all underpin the tourism economy, hotels and aparthotels alike”.
Tourism Minister Patricia de Lille has promised regulations for the industry for several years. While these have yet to be delivered, she stated in her July budget speech: “The department will finalise and table the Tourism Amendment Bill, aligning it with the White Paper, with focus on short-term rentals, grading enforcement and governance.” She also committed to finalising the short-term rental framework in consultation with the industry but gave no timelines.
Development pipeline
BON Hotels Founder and CEO Guy Stehlik questions whether the city’s hospitality industry, as a whole, is operating in a bubble amid big refurbishments, the rise of aparthotels and new builds.
Several projects are currently underway in the city, including the development of the new Quay 7 Hotel at the V&A Waterfront, Mama Shelter and Acsiopolis Hotels in the CBD, the refurbishment of the Table Bay Hotel and the recently announced development of a 36-room Totalstay aparthotel on Sea Point’s Beach Road. The 41-room Charles Hope aparthotel has also recently opened in the city.
“According to data shared at the recent Future Hospitality Summit Africa, more than 40 hotels are currently in the pipeline for Cape Town alone – a figure that would spark concern almost anywhere else on the continent,” Stehlik said.
While local tourism bodies have worked hard to build confidence in the city’s tourism infrastructure, this could quickly turn, he added.
“I remember what happened back in the late nineties when Olympic fever swept through Cape Town. Hotels started springing up everywhere on nothing more than hope for global attention but Athens was chosen instead – and reality came crashing down as oversupply dragged on occupancy rates for years afterwards.”
Stehlik said the long-term sustainability of the sector depends on the fundamentals: “business travel demand and commercial node stability”. Corporate, government and domestic travel trends are a reliable income generator over leisure travel, which is impacted by seasonality, exchange rates and social media trends, he added.
