The African continent is a hotbed for hotel investment, with operators looking to make their mark in a number of high-growth markets, says Gemma Greenwood
Africa is hot property right now, with many of the world’s leading hotel operators already forging ahead with ambitious expansion strategies across this vast continent.
The attraction is clear; Africa’s hotel market is underdeveloped.The accommodation offering is limited and substandard, with supply far outweighed by demand that is being driven by a surge in trade and investment.
The hotspots range from Sub Saharan Africa and other gateway cities in the east, to oil-rich Nigeria in the west, while North and South Africa are still deemed ripe for the picking by investment and management firms alike.
“Most operators are keen on expanding in Africa because there are limited options to develop more in the Middle East and Europe, and arguably, China,” argues HalaMatarChoufany, regional director, HVS Global Hospitality Services, Dubai.
“So Africa is a point of difference for operators and most of the big players still have very limited representation on the continent.”
She says hotel firms are typically “following the same rules they did in the Middle East around 10 years ago”.
“In these developing markets we see the industry going through the same cycle. Initially the priority is to develop five-star properties and get iconic projects in all of the major cities,” she says.
This is driven by investor desire to engage in “high-profile developments in prime locations”.
Choufany says HVS has historically worked with clients involved in markets like Lagos, Nigeria and Nairobi, Kenya, and to a lesser extent, Ethiopia.
“Nigeria has a more advanced hospitality market, but that doesn’t mean it’s developed; it’s far from mature, but there is some international [hotel] brand representation,” she explains.
In Nigeria, hotel demand is corporate and MICE driven, she adds, while Kenya has the obvious leisure factor thrown into the mix given the country’s tourism appeal.
“The projects we have been involved with [in these locations] are predominantly five-star because of the location of those assets and the investors behind them,” says Choufany.
She says it’s too soon for most private investors to make a commitment to this market, particularly as financing is not readily available in Africa.
“In fact many projects we dealt with were looking to this region (the Middle East) to raise finance,” she reveals.
“A number of Middle East investors, including big players such as Qatari Diar, have shown interest in Africa, but many are deterred because many projects have not necessarily broken ground.
“So I would describe Middle East investment in Africa as shy – they are still exploring what they can do. At this stage I haven’t seen serious commitments from Middle East investors [in hotel projects in Africa], unless they are at the stage of commissioning studies, but we haven’t seen anything executed.”
Africa’s ongoing security issues andregular bouts of political instability are another investor deterrent. Add to that the difficulty in securing loans and moving money around a continent deemed “primitive”and the risks are “extremely high”.
“Middle East investors have been quite exposed in the past and are now much more cautious; the market is not transparent,” argues Choufany.
These stumbling blocks, combined with a lack of commitment by African governments to fund infrastructure enhancements and economic development, will dampen the hotel industry’s pace of growth continent-wideshe continues.
“There are good opportunities in the most established cities, but the evolution and growth will be much slower compared to that of the Middle East where governments have led industry development,” she says.
Investor insights
XanderNijnens, head of JLL Hotels & Hospitality for Sub Saharan Africa, says corporate hotels, rather than leisure resorts, are the main focus of investment attention in Africa.
“The need for business hotels stems from the fact that Africa’s GDP is expected to continue to grow at rates that are significantly higher than in other markets such as Europe or the Americas,” he explains.
“More international companies are setting up operations in Africa, which creates the need for offices and hotels.
“This trend is taking place at a time whenmost existing business hotels in Africa are largely antiquated and substandard, with many built between the 1970s and 1990s.”
Another factor driving hotel demand is the fast emergence of an urban middle class in many African countries,Nijnenscontinues.
“However, Africa is atypical in the sense that conducting business remains challenging to some extent,” he adds.
Most of the hotel sector’s growth is in the upscale and midscale category with international operators looking to identify the right partners/owners in order to enhance their presence.
Nijnens says Nigeria, Ghana, Kenya and Tanzania have all attracted“significant and constant interest” over the past few years.
“That said, significant hotel development activity is taking place in many other areas such as Rwanda and Uganda,” he reveals.
“There are some other countries such as Angola that remain relatively untapped with virtually no international hotel company presence.”
One major barrier to African market entry is red tape, Nijnens argues.
“Hotel development is more complex than other real estate assets, and in Africa, so far it’s been an arduous process, which usually spans several years; this tends to impact the cost, quality and profitability,” he explains.
“Some structures are more efficient than others in managing the hotel development process and therefore are in a better position to extract more value from the investment.”
The owner/management business model is also skewed in Africa, with hotel management firms sometimes stumping up cash of their own to finance projects.
“In order to gain access to the market, several hotel operators such as Marriott or Anantara resorted to their balance sheet and put more ‘skin in the game’ by investing in hotel companies, as opposed to the preferred ‘modus operandi’ of management agreements only,” Nijnens explains.
Covering all bases: Wyndham
Many hotel groups that have taken the plunge into Africa have initially done so as an extension of their expansion strategy in the Middle East and North Africa (MENA).
Wyndham Hotel Group is no exception, with five properties in its Africa portfolio to date, all of which are independently owned and operated under franchise agreements. They include Ramada Plaza Tunis, in Tunisia, Ramada Accra in Ghana, Hawthorn Suites by Wyndham Abuja in Nigeria and Ramada Fes and Ramada Encore Tangiers in Morocco.
Bani Haddad, regional vicepresident MEA, Wyndham Hotel Group, says until two years ago, the firm’s development strategy was limited to MENA, determined by the popularity of the Ramada brand.
“Expansion in Africa was at first driven by opportunities brought to us by our existing partners – primarily from the Middle East – who were growing their real estate portfolio in the region,” he explains.
“[But] following strong expansion in this territory, we implemented a development strategy for Africa in 2012 and have since announced a number of new properties, primarily under management contracts.”
Upcoming managed openings on the continent include Ramada Resort Dar es Salaam in Tanzania, Ramada Addis in Ethiopia and Wyndham Amboseli in Kenya.
Haddad saysthegroup’sprimaryfocusistoexpand in eastAfrica, encompassing countries such asEthiopia, Kenya, Tanzania, Uganda and Rwanda, although Ghana and Nigeria in the west are target markets too.
“Our approach is to bring our brands to regions where our hotels can benefit from our strong presence in international markets that generate a lot of demand, such as the US, Europe and China, but where we can also build a stable local network and capitalise on the regional and domestic demand at the same time,” he says.
Interestingly, Wyndham’s hotel pipeline covers a wide range of accommodation categories, from three- to five-star.
“Our aim is to quickly fill the gap in each of these segments both in terms of supply and quality,” explains Haddad.
“Generally speaking we are concentrating on countries where we see growth of the middle class, as well as significant infrastructure and transportation developments. Addis Ababa and Nairobi are good examples of this.”
South Africa – the second most important economy on the continent – is also on the hit list, while “several opportunities” for midscale brands such as Ramada and economy brands like Ramada Encore, Days Inn and Howard Johnson exist in smaller economies spanning Benin, Senegal and Rwanda because they “address the needs of business travellers and hence perform very well”.
Wyndham’s diverse portfolio of 16 brands, catering to a broad spectrum of market requirements, is a draw card for investors looking to open properties in Africa, claims Haddad.
“Plus our business model is so flexible that we can also offer both franchise and management services, which means that we can adapt to most investors and their expectations,” he adds.
The luxury hotel pioneer: Kempinski
At the top-end of the market, Kempinski Hotels stakes its claim as the “pioneer of luxury hospitality” on the African continent, boasting a portfolio of nine properties across the country, with a focus on North and Sub Saharan Africa, covering Djibouti, Tchad, Egypt, Kenya, the Seychelles, Democratic Republic of Congo(DRC) and Rwanda.
“By being a first-mover in luxury hospitality in destinations including Djibouti, Tchad and DRC, and later this year, Ghana, we capture the growing demand for luxury accommodation in key cities in Africa where economies have been growing steadily in recent years,” explains Chris Nader, vice president development, MEA, Kempinski Hotels.
“In 2015 we will open Royal Maxim Palace Kempinski in Cairo, Egypt and Kempinski Hotel Gold Coast City in Accra, Ghana. We also signed a hotel that is part of a large mixed-use project in Abuja, Nigeria, scheduled to open in 2019.”
The group’s existing properties in Africa are performing well, Nader claims.
“In 2014 in Egypt we saw a recovery from the lows of 2013 at our two hotels – in Cairo and at the Red Sea – plus Djibouti Palace Kempinski, Kempinski Hotel N’Djamena, and Villa Rosa Kempinski in Nairobi remain the market leaders in their destinations. We expect the new hotels in our African portfolio to emerge as leaders in their destinations within two years of opening,” he adds.
Kempinski is quick to spot high-growth markets where hotel demand outweighs supply, Nader continues. Abuja and Accra are two cities where a luxury offering is lacking, he notes, while there are opportunities to capture the lucrative corporate travel sector in Cairo.
“We have an important expansion target for Africa,” stresses Nader.
“We are one of the most experienced luxury operators on the continent, having managed hotels in Africa since 2004, with 12 hotels currently in operation or under development.
“We are now looking at approximately 15 more cities in Africa where rates are high and supply is limited, or where a presence in the market complements our existing operations (like a safari tour), or to increase our brand presence in key destinations where it makes financial sense for both Kempinski and the owner. These markets include a few key cities in Morocco, Tunis, Addis Ababa, Dar Es Salam, Brazzaville, Maputo, Lagos, Abidjan, Lome, Dakar, Cape Town, Durban, and Johannesburg.”
Kempinski has been “fortunate to find the right partners in Africa” and is looking for more, reveals Nader.
“We are seeing a rise in GCC and Chinese investors looking at hotel investments in Africa, and since Kempinski has a strong presence and reputation in both of those markets, we’ve found several investors who have expressed interest in bringing the Kempinski brand to our targeted destinations [on the continent],” he says.
“In certain markets in Africa we look for owners with a PPP model because having the government’s political support is crucial to the successful opening and operation of hotels. “Our reputation as one of the pioneers in luxury hospitality on the continent, and not just in North Africa,has brought many owners our way.”
Hilton: the market expert
Hilton has managedproperties in the MEA region for more than 50 years, with its longest serving hotels in Nairobi and Addis Ababa. The company’s portfolio now spans 37 properties (more than 11,000 rooms) across Africa and the Indian Ocean.
“With hotels now welcoming guests in 12 different African countries, we focus our operations and development in locations where there is clear demand for business and leisure tourism,” says Hilton Worldwide’s vice president of operations Africa and Indian Ocean, Jan Vanderputten.
“Be it the diverse, cosmopolitan surrounds of Cape Town or the major economic drivers in Abuja – our hotels deliver to many different markets, dependent on their location and the style of property. By and large, we believe a lack of internationally branded hotels in many African destinations provides a significant opportunity to develop and grow our presence.”
Hilton’s African presence is biggest in Egypt with 18 properties. In South Africa there are five properties covering the Hilton, Conrad and DoubleTree brands. Other properties are located in Cameroon (1), Equatorial Guinea (1), Ethiopia (1), Kenya (1), Namibia (1), Nigeria (1), the Seychelles (3), Tanzania (three DoubleTree properties) and Algeria (1).
The company has 29 hotels (more than 7,000 rooms) under development in the region, which Vanderputtenclaims is the fastest growing pipeline of the three top operators.
“Our growth prospects in Africa see us focus on existing and new markets,” he explains. “Our pipeline includes confirmed agreements, signed for locations including Uganda, Nigeria, Kenya, Burundi, Zambia and Namibia, with expansion in northern parts of Africa set for Morocco, Tunisia, Egypt and Chad.”
Plans to open a DoubleTree by Hilton in Kinshasa, the capital of DRC, were recently announced – the first Hilton Worldwide property in an increasingly important market given it’s one of the largest urban areas in Africa.
“In addition to our luxury and full-service portfolio, we see significant growth potential for our mid-market Hilton Garden Inn brand in locations across the continent, servicing demand for quality, accommodation in the value segment,” Vanderputtensays.
Hilton Worldwide recently launched a modular Hilton Garden Inn build solution for upcoming Africa projects, in a bid to lure potential partners and investors.
“With this approach, modular guest rooms are built entirely in manufacturing plant conditions, allowing for fast development, efficiencies of cost and quality control assurances,” explains Vanderputten.
“Guests continue to experience the quality of the Hilton Garden Inn brand and investors see ever more efficient and cost effective hotel development.”
Investors are increasingly interested in Africa, where travel for business and leisure is gaining momentum, buoyed by “improving infrastructure, business investment and a lack of internationally branded accommodation in many parts of the continent”, Vanderputten says.
New Africa heavyweight: Marriott
In January 2014 Marriott International became one of the largest hotel companies in Africaafter acquiring the 116-hotel Protea Hospitality Group (PHG) based in South Africa.
This added 10,148 rooms in seven African countries, including South Africa, to its portfolio, with 103 properties under the Protea Hotels brand, two lifestyle boutique Protea Hotel Fire & Ice properties, and 11 properties in the superior deluxe African Pride Hotels collection.
Marriott’s Protea portfolio comprises 79 hotels in South Africa and 37 hotels across Malawi, Namibia, Nigeria, Tanzania, Uganda and Zambia. The company manages around 45% of the rooms, franchises 39% and leases 16%.
Plans are now on the table to roll out another 30 properties in Africa by 2020, nine of which will open by the end of 2015.
“The potential of the African market is awe inspiring and only really matched by the extraordinary people and places we encounter every day as our brands puts down roots across the continent,” says Alex Kyriakidis, president and managing director, Marriott International MEA.
“Over the next few years we plan to expand our presence even further from 10 countries to 17 with a capital investment by Marriott’s real estate partners of $1.5 billion across the continent. With it, we will create jobs and support local communities because our success is only possible through strong bonds of friendship, trust and cooperation in the markets we inhabit.”
With a keen eye on the extended stay segment, a new Residence Inn by Marriott Kampala Kololo has just been signed, bringing the total property count under the Protea Hotels and Residence Inn brands in Uganda alone to three. A raft of further openings will follow in 2015 across the continent with new properties in South Africa, Nigeria and Uganda, as well as Marriott International’s first properties in Ethiopia, Ghana and Rwanda.
Marriott Executive Apartments Addis Ababa, owned by Sunshine Business plc, will be the first property under the extended stay brand to open in Africa.
“The fundamental demand generators that drive our industry are alive and well on this continent,” says Kyriakidis. “Marriott International’s investment into this region represents the economic realisation for the need for hotels – countries need to invest in infrastructure, accommodation and airports to create jobs to grow the economy. In tangible terms, these planned hotels will create sustainable local jobs, increasing our workforce by around 10,000 employees.”
