Resilience vs revival: Unpacking the hospitality sector’s biggest long-term threat

By Anton Gillis, Co-Founder and CEO of HAMAC

The headlines keep telling us South Africa’s hotel sector is witnessing a strong recovery. This year, the market size was estimated at $11.49 billion, and is expected to reach over $15 billion by 2030 at a CAGR of 6.37% between 2025 and 2030. But anyone actually running a hotel in South Africa knows these numbers only tell part of the story.

Here’s what’s really happening: operators are generating revenue but can’t afford to reinvest it. They’re keeping properties open but watching them age into irrelevance. They’re surviving quarter to quarter while their competitive position deteriorates month by month. More than half are delaying critical upgrades not because they’re being cautious, but because they literally cannot afford to do otherwise.

This is the capital trap, and it’s the single biggest long-term threat facing South African hospitality. Not the next crisis, not changing guest expectations, not competition. The threat is that the sector is being forced to sacrifice its future to pay for today. When your margin is under attack from four directions simultaneously and capital expenditure is the only variable you can actually control, you’re not making strategic choices. You’re just picking which part of your future competitiveness to sacrifice next.

Recent findings from the HAMAC South African Hoteliers Report, which surveyed owners, general managers and CEOs, shows that more than half of hotel operators are postponing property upgrades due to funding constraints or economic uncertainty. This is an entire sector cannibalising itself, one postponed investment at a time, and it’s inevitable that the consequences will eventually show up in the very metrics that currently look reassuring.

The margin squeeze isn’t a cost problem you can optimise away

Let’s be clear about what’s actually happening to margins. This isn’t about operators who need to tighten their belts or manage costs better. The economics of running a hotel in South Africa have shifted fundamentally.

Labour costs hit 37.3% of operators hardest. But that figure conceals what you’re actually dealing with. You’re not just paying wages. You’re recruiting in a market where talent is scarce, training people because the skills pipeline isn’t producing what you need, offering retention incentives because turnover is relentless, managing increasingly complex compliance requirements, and watching wage inflation outpace your ability to raise room rates. That’s not a line item you can optimise. That’s a structural cost spiral.

Utilities slam 33.9% of operators, and this is where the lasting damage becomes clear. While load shedding may be behind us, operators are still bleeding from the financial wounds. Savings accounts drained for emergency diesel. Reserve funds cannibalised for expensive solar installations and backup systems that had to be implemented overnight. The debt from untimely infrastructure upgrades that couldn’t wait for better cash flow positions. Properties are still paying off crisis-era investments that were never part of the original business model, and these costs are continuing eating into margins long after the immediate power crisis has passed.

The Hoteliers Report found that for nearly three in ten hoteliers, food costs represent the single biggest pressure on margins, while almost 30% point to regulatory and administrative red tape as their primary burden. Crucially, these pressures do not operate in isolation. They land simultaneously. They compound each other. And the result is that 58% of hoteliers have reported flat or declining profitability over the last five years, despite supposedly robust recovery metrics.

Think about what that actually means. Occupancy is up. Revenue is growing. And nearly six in ten operators have the same or worse profits than they did five years ago. This shows us that the cost of staying operational is rising faster than the ability to generate corresponding revenue, regardless of how well you fill your rooms. The compounding problem is that supply of rooms has increased, while demand hasn’t. This means more rooms are chasing the same pool of guests, leaving operators working harder to fill more beds, just to maintain revenue levels that are being eroded by costs anyway.

So what do you cut? You can’t stop paying staff. You can’t turn off the generators. You can’t ignore food costs or regulatory compliance. The only thing you can actually defer without immediately shutting down is capital expenditure. The refurbishment. The technology upgrade. The efficiency improvements that would actually reduce your operating costs. You postpone the investments that determine whether you’re still competitive in five years, because the alternative is not being solvent in five weeks.

Every deferred investment doesn’t pause progress. It compounds problems.

When hoteliers say they’d prioritise workforce development and refurbishment if operational pressures eased, they’re not expressing preferences. They’re identifying the gaps in their operations that are widening every quarter these investments don’t happen.

Postponed workforce development doesn’t just mean you skip training this year. It means higher turnover, which increases recruitment costs, which reduces the budget for training, which increases turnover further. Your staff are less experienced, so they’re less efficient, so labour costs rise as a percentage of revenue. Service standards slip. Guest satisfaction drops. Reviews deteriorate. And that healthy occupancy rate becomes harder to maintain at premium pricing.

Deferred refurbishment isn’t just about tired décor. It’s about HVAC systems that consume more energy every year they age. Equipment that breaks down more frequently. Maintenance costs that climb while the guest experience falls further behind competitors who can afford to stay current. Every month you defer makes the eventual capital requirement larger and the likelihood you’ll ever close the gap smaller.

Technology deferral might be the most damaging because the consequences compound slowly. You’re running legacy systems that require manual processes competitors have automated. You’re paying elevated OTA commissions because you lack the digital infrastructure to drive direct bookings effectively. You’re missing revenue optimisation that modern systems capture automatically. The 50% of operators reporting revenue leakage through OTAs and no-shows aren’t failing at distribution. They’re operating with inadequate tools because the capital that should have funded upgrades went to keeping generators fuelled instead.

Here’s how the trap works: properties that couldn’t afford energy-efficient upgrades before the electricity crisis are now spending multiples on backup power, which further constrains capital for other upgrades. Hotels that delayed digital infrastructure are locked into higher distribution costs, reducing margin for refurbishment. Operators who cut training face higher recruitment costs, leaving less for technology or property improvements.

Each deferred investment makes the next one harder to afford. The gap between properties that can invest and those that can’t isn’t narrowing. It’s widening rapidly.

The rush to partnerships reveals more than operators might admit

Survey respondents also expressed a strong preference for partnering with established branded management companies when opening a new city hotel. However, the appeal of branded partnerships isn’t about better operations, it’s about shared burden.

For many operators entering new markets, sharing that risk has become the more conservative financial choice. Even if it means sacrificing some of the agility and margin efficiency that makes independent operations so attractive.

Partnerships offer risk sharing and access to capital that recognises hospitality’s long investment cycles. But this trend toward consolidation isn’t happening from a position of strength. It’s happening because the structural barriers have become too significant for individual operators to overcome alone.

When electricity infrastructure forces every property to invest in backup systems that provide zero competitive advantage, when regulatory complexity creates administrative burden that small portfolios can’t efficiently absorb, when skills shortages force everyone to compete for the same limited talent, working harder within these constraints achieves nothing. The constraints themselves need to change.

South Africa’s hotel sector needs structural solutions

Here’s what needs acknowledging: working more efficiently within broken constraints doesn’t fix the constraints. Hoteliers are already making optimal decisions within impossible trade-offs. The problem isn’t execution. It’s that operators shouldn’t have to choose between staying solvent today and staying competitive tomorrow.

What’s needed is coordinated action that addresses root causes. For example, energy infrastructure that doesn’t force every property to self-insure against grid failure, regulatory frameworks that don’t impose disproportionate burden on operators least able to absorb it or skills development that expands the talent pool instead of intensifying competition for existing supply. Essentially, they need capital structures that recognise hospitality’s reality: long investment cycles, high capital intensity, and returns that compound over years, not quarters.

This demands government action on infrastructure and regulatory reform, industry bodies need to coordinate on substantive issues like collective skills development, financial institutions need to develop products suited to hospitality economics, and operators need to collaborate rather than compete on foundational challenges that affect everyone equally.

Without coordinated action across people development, the capital trap will keep tightening. Properties will continue ageing. Competitiveness will keep eroding. The sector will consolidate under distress conditions. Real hotel revenues adjusted for inflation remain 17.74% below 2019 levels, which indicates the foundations are already more compromised than headline figures suggest.

The recovery narrative will keep sounding positive in aggregate statistics even as individual properties struggle with deteriorating infrastructure and mounting operational pressures. The question isn’t whether this needs addressing. It’s whether the industry will push for structural change while options remain, or wait until conditions force solutions nobody controls. Every quarter of delay makes the required intervention more expensive and the path to sustainable profitability more difficult.