Strong operating performance, global destination appeal and a constrained development pipeline continue to underpin hotel and accommodation investment in the Western Cape, despite broader economic and infrastructure challenges, says professional services firm BDO South Africa strategic development and advisory partner Lee-Anne Bac.

Cape Town remains a sought-after market for hospitality investors, with performance metrics in 2025 outpacing national averages across multiple segments.

Five-star hotels in the city achieved an average room rate of nearly R6 000 and average occupancy of 68% during 2025, and this represents an occupancy level five percentage points higher than the national five-star average, while room rates were about R2 000 higher than those achieved by comparable properties elsewhere in South Africa.

Bac highlights that the improved performance has not been limited to the luxury segment of hotels, as four-star hotels in Cape Town recorded an average occupancy of 71% – about seven percentage points above the national average – and an average room rate of R2 554 – about R770 higher than the national benchmark – in 2025.

Three-star hotels also outperformed the broader market, with an average occupancy of 68%, also seven percentage points above the national average, and an average room rate of R1 550, about R270 higher than the national figure.

Growth Impediments

Land scarcity – particularly in high-demand nodes, such as the City Bowl, the V&A Waterfront and the Atlantic Seaboard – is a key structural constraint shaping investment.

“This pushes up land and construction costs, which, in turn, place sustained upward pressure on room rates,” Bac adds.

Energy and water constraints are also increasingly influencing hotel development and operational decisions, and new developments are factoring in alternative energy sources, preferably lower-carbon options, as well as water backup systems.

While these measures enhance resilience, they also add to upfront capital expenditure and, in some cases, operating costs, which ultimately need to be recovered through higher tariffs. For existing hotels, retrofitting backup power and additional water storage are often more costly than incorporating such systems into new builds.

Water-scarce areas face carrying-capacity limitations, which can restrict the number of visitors a destination can accommodate, unless mitigating measures are implemented. Bac adds that showing visitors away, owing to water or energy constraints, can have severe implications for hospitality businesses, including reduced demand, pressure on operating margins and the risk of job losses.

Many establishments, particularly small and medium-sized enterprises, have responded to this by installing alternative supply solutions or importing potable water, further increasing the cost of servicing guests.

“While these constraints are increasing capital and operating costs for hospitality assets, strong demand and limited supply continue to support investment; however, this should not diminish the importance of coordinated public–private action to sustain tourism-led growth,” Bac says.

Crucially, the Western Cape continues to attract tourism investment, owing to its diverse range of visitor experiences and sustained global recognition as a “must-visit” destination.

New Breakthroughs

Strong and growing demand, particularly during the peak period from October to March, supports rising rates and revenue, thereby enhancing the attractiveness of investment in hotels, lodges and related tourism infrastructure, says Bac.

Mixed-use developments and urban precincts are also playing an increasingly important role in the province’s hospitality landscape.

“Hotels are increasingly viewed as travel enablers rather than standalone destinations, supporting business, conference, medical, sporting and leisure activities. Precinct-style developments that integrate accommodation with conference facilities, retail, dining and leisure amenities add value to individual assets and the broader urban environment.”

Bac says improved availability of tourism and hospitality data would support better- informed investment decisions, while continued public-sector investment in enabling infrastructure, such as additional convention space in new regions of the Western Cape, would further strengthen the province’s long-term tourism capacity.