Africa’s hotel development soars as intercontinental travellers check in

Local and regional hoteliers are now vying with multinational chains and institutional investors on expanding their footprint on the continent.

Trade in Africa may be as old as civilisation itself, but investment on this vibrant continent requires the fortitude to face up to its capriciousness. Somewhere, some time on the continent, you can be assured of fluctuating economies, political upheaval and life-threatening diseases. But the same can be said of Africa’s relentless appeal. That appeal is ever increasing, if figures from the World Tourism Organisation (UNWTO)’s tourism barometer are anything to go by. While international arrivals worldwide grew by 6% in the first quarter of the year, Africa shows an 8% rise, with North Africa boasting a strong recovery at 18%.

These figures are crucial to continuing optimism in the continent’s booming hospitality industry, and have largely contributed to massive pan-African investment in the hotel sector, particularly over the past few years.

Sunrise Hills Luxury Hotel in Abuja, Nigeria.

“Investment has definitely increased, but this assessment comes with a note of caution,” reckons Tim Smith, Managing Partner of HVS (Hotel Valuation Services, a global hospitality consultancy) in Cape Town. “There are about 500 new hotels in various stages of development across the continent – at an average investment of $20 million per hotel{ – but while investment has increased, it’s not done so at the rates we expected.” 

A number of factors have contributed to the slowed interest, adds Smith, citing “the drop in oil prices a few years, ago, various diseases, South Africa’s economic challenges, Ethiopian uprisings, uncertainty over the recent Kenyan elections…” He’s quick to point out that this does not at all signify a gloomy outlook – or that anyone has been deterred from investing on the continent.

The 2017 Africa Investment Report reflects this cautionary optimism, showing that while the number of foreign direct investment projects into Africa fell by 16% to 602 in 2016, capital investment increased by 40% to $92.3 billion – 40% of this ($36.5 billion) earmarked for real estate, which was the top sector by capital investment in 2016. Of this, it’s estimated that about $1.7 billion will be invested in hotels in Sub-Saharan Africa this year, with a further $1.9 billion in 2018.

“There’s still a huge amount of interest and excitement about tourism in Africa – and the important thing is to see how many flights are coming in. There are some really big airlines coming in to Cape Town, for instance (largely thanks to Cape Town Air Access, which has facilitated ten route expansions for the Cape since its launch two years ago) – and access to the continent is improving with Lufthansa, Air France, Turkish, Etihad and Emirates all having increased their routes into Africa.”

All this generates a strong interest and excitement about Africa, says Smith, who points out that it’s not just the number of investments that have grown: investors are now as diverse as their portfolios. “The game lodge market, for instance, is attracting a huge amount of interest from Middle Eastern and Europeans looking to invest, purely as entirely a commercial decision.”

The large hotel chains and global investors are not the only ones staking their claim on the continent. “African brands are also expanding; for example, Guy Stehlik’s Bon Hotels, the largest in Nigeria, extending its footprint into Central and East Africa. And Onomo, based in West Africa has just taken over Cape Town’s Inn on the Square, and are building new hotels in Durban – so there are a few really good news stories of local brands making an impact in different areas.” These include Azala? Hotels, headquartered in Mali, who in January announced a capital injection of EUR 17.3 million from AfricInvest to boost regional expansion and capacity extension.

Not to be outdone, the West African hotel chain, Mangalis Hotel Group, is investing USD340 million to build 15 hotels in west and central Africa through three brands (the upscale Noom Hotels, mid-scale Seen and new economy brand Yaas) with a total of 2 200 rooms and suites.

Local and regional hoteliers are also now vying with multinational chains and institutionalised investors – and even African sovereign wealth funds – to expand their footprint across the continent. According to figures by Madrid-based IE Business School, sovereign wealth funds increased their spending in the hotel sector from $500 million in 2012 to $7 billion in 2015. The Libyan sovereign wealth fund, Libyan Investment Authority (LIA), actively invests in hotels on the continent, notably the Laico Hotels & Resorts chain – which also owns the Ensemble Hotel Holdings group, proprietor of the prestigious Michelangelo Hotel in Johannesburg. In late 2014 Angola’s Fundo Soberano de Angola (FSDEA), invested USD500 million in equity capital in 50 sub-Saharan African hotels, including in Angola.

The sector that’s really booming, says Smith, is one aimed at locals, who make up the bulk of intracontinental travellers. “While the big brands, the Hiltons and Marriotts, are still looking across whole continent, historically they only dealt in luxury offerings, but now they’re pushing mid-market and that is really exciting,” notes Smith. “The Hilton Garden Inn are looking at primary and secondary cities in the top ten, 15 African countries – these would typically be 150 rooms, which very efficient to build and operate – and go for about $150 per night.”

This sector’s growth, reckons Smith, is thanks not only the relative cost and speed of development but largely to meet growing demand from local tourists on limited budgets, and business travellers keen to offset the high cost of travel with good quality rooms available on a nightly basis.

These are just some the findings of HVS’s 2017 Hotel Valuation Index – launching at the Tourism, Hotel Investment & Networking Conference (THINC) Africa 2017 conference next week– which, says Smith, shows that signs of recovery and improvement on 2016’s relatively tough numbers are already up.

His advice to hoteliers and investors keen on making an impact in Africa? Invest in people as well as property: “As a service industry, it’s important to also focus on training and development the next generation of industry professionals, which is why HSV will be launching the inaugural THINC Africa Awards 2017, which highlights and acknowledges the variety of properties throughout Africa, as well as exceptional industry professionals and students.”

* The Tourism Hotel Investment and Networking Conference (THINC Africa) 2017 is hosted by HVS and runs from August 30 and 31 at the FNB Portside Building in Cape Town.

Original Article by: Moneyweb