Buyer advice: How to invest in tourism
Category Commercial News & Advice
The demand for guesthouses, lodges and bed & breakfast (B&B) operations in SA continues to grow as tourism expands and the preference among travellers for boutique and bespoke accommodation options becomes increasingly apparent.
However, there are certain caveats for potential investors in such operations, because as lovely as the location may be, and as much as you look forward to interacting with your guests, an accommodation establishment is essentially a business venture that must generate a return on your investment of time and money.
According to the latest available statistics from the World Travel and Tourism Council (WTTC), SA is the top tourism destination in Africa, with the travel and tourism sector contributing at least R426-billion a year to the economy - or more than 8% of GDP - and accounting for more than 9% of all employment directly and indirectly.
Meanwhile the November 2019 figures from StatsSA show that SA currently attracts around 10,2m international tourists a year, with more than 7m of those coming from other African countries.
However, the WTTC notes, only about 44% of the total tourism spend is generated by those international visitors, with the remainder coming from domestic tourism. What is more, most tourism in SA (64%) is for leisure purposes rather than business or other reasons.
In other words, the majority of SA's tourism spend is still coming from local holidaymakers, and they are increasingly seeking out accommodation that is not only affordable but a holistic part of an overall travel "experience", in keeping with the international trend sparked by the launch of Airbnb a few years ago.
Consequently, while there is still enormous scope for the tourism industry to attract more international, medical and business or MICE visitors to SA venues, there are arguably even more opportunities for private investors and owners to provide immersive travel options in specialist establishments such as private game lodges and safari camps, beachfront backpackers' hostels, guesthouses and farm-stays that provide exclusive access to historically or environmentally-important locations and B&Bs and Airbnbs that are the backdrop for art weekends, cookery classes, wine tours, yoga retreats and sailing courses, for example, rather than just a place to sleep.
But it is important not to romanticise the idea of owning a hospitality business and to enlist expert help to provide you with good insight into the local tourism demand as well as the available property options, because this is what will ultimately determine the success of your venture.
At the sea or in the mountains, for example, the visual aesthetic of the location could be spectacular, but the demand for accommodation very seasonal. Properties in far-flung country locations could require more marketing and transport logistics to attract enough guests, while those in more urban locations would need to be well-secured and well-located in relation to main access routes, shops, restaurants and tourist attractions, without being noisy.
Depending on how many guests you would like to accommodate at any one time, you will most likely need a property with multiple bedrooms and bathrooms and sufficient space to prepare and serve meals as well as large living areas and ample parking space. And even if you are an Airbnb host with just one room to let, your paying guests will still expect the property to be well-maintained and all the fixtures and furnishings to be of good quality, so you need to budget for upkeep as well as continuous cleaning.
Generally speaking, it is usually easier and less expensive to purchase a going concern which already has the necessary trading licences, infrastructure and staff in place and, hopefully, quite a few regular guests, rather than trying to build up a new business from scratch. And an experienced and well-connected local estate agent will be your best source of information - especially in small towns and rural areas - about any successful accommodation establishments that are for sale.
Author: Chas Everitt