Many South African hotels expanded to make room for football fans during last year's World Cup, but now face declining occupancy rates that are taking a toll on the industry.

In a sign of the tough times, the landmark Grace Hotel in Johannesburg's trendy Rosebank district has announced it will shut its doors at the end of August.

“The hotel has suffered from both a reduction in overseas visitors and domestic travel, particularly a shrinkage in corporate business which has migrated away from five star accommodation,” said Hyprop, the firm that operates the Grace.

The company blamed “the continued pressures of the global recession which have negatively affected the South African travel and tourism industry.”

The poor sentiment is shared throughout the industry. The Tourism Business Index, an industry barometer prepared by the Tourism Business Council of South Africa, registered at 74.5 in the second quarter.

A normal reading is 100, and the industry had expected a 94.

“The latest TBI results are certainly a confirmation of what we are witnessing on the ground,” said the council's chief executive Mmatsatsi Marobe.

“We had expected that after the World Cup, we would have an increased number of visitors. But because of the ongoing economic difficulties, we do not have as many. This applies to domestic and international travel,” she told AFP.

About 10,000 hotel rooms were added in South Africa between 2007 and 2010, a 21 percent increase, according to a survey released last week by consultancy PriceWaterhouseCoopers.

“Even if the economy continued to expand at a healthy rate, the increase in the supply of hotel rooms would have exceeded any reasonable expectations of growth in demand,” it said.

“Unfortunately, by the time the new hotels began to open, economic conditions had worsened, tourism slowed and supply began growing faster than demand,” it added.

Occupancy rates fell from 70 percent in 2006 to 53 percent in 2010, while the prices went up, which discouraged some tourists used to thinking of South Africa as an affordable holiday.

High-end hotels, which expanded the most, are also suffering from a shift toward more modestly priced rooms.

The consulting firm predicts a nine percent dip in the number of visitors this year Ä after a 15 percent bump last year. Occupancy rate were also seen sliding to 48.3 percent this year, with average room rates down by 7.7 percent.

Growth should resume in the following years, but at a relatively slow pace.

Hotels are also grappling with higher costs, from hefty increases in electricity prices, to rising labour costs and increased tariffs for municipal services, said Marobe.

“It is getting more and more difficult to sustain a profitable business in travel and tourism,” she said.

The news isn't all bad. Long-term prospects for tourism, which accounts for eight percent of the economy, remain strong, according to tourism minister Marthinus van Schalkwyk.

“We aim to increase the number of foreign tourist arrivals to South Africa from 7 million in 2009 to 15 million by 2020,” he told a recent conference in Cape Town.

On top of that, he sees 18 million domestic tourists in 2020 as South Africans explore their own country, against 14.6 million in 2009.

He predicts that tourism's contribution to the economy will grow from 189 billion rands to 499 billion ($74 billion, 51 billion euros) during that time, creating 225,000 jobs.

Van Schalkwyk also wants to tap into business tourism like conferences and events, which he said are “ideally placed to address some of the seasonality challenges that are difficult to meet through leisure tourism alone”.