Full steam ahead

The world’s big hotel groups still see Africa as relatively untapped and under-supplied, and they continue to put together development pipelines that look impressive on paper. But are those pipelines realistic and sustainable?

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It’s been a difficult few years for some of Africa’s biggest economies, but that hasn’t stopped the world’s big hotel groups from continuing to bet big – albeit in most cases with someone else’s capital – on the continent, as they continue to see value in what it has to offer.

It’s obvious that these groups are taking a long-term view on Africa, and they are happy to ride the tough times and see their – and their partners’ – investments through, provided they find the right deals and commercial models to ensure a decent return.

“Investing in the hotel industry in Africa is a long-term play and like the rest of the world, Africa also works in economic cycles,” says Andrew McLachlan, The Radisson Hotel Group’s Senior Vice-President, Development, Sub- Saharan Africa.

If the industry’s leading report on African hotel development is to be believed, the rest of the world’s big hotel groups would seemingly agree.

Nigeria-based W Hospitality Group specialises in the provision of advisory services to the hotel, tourism and leisure industries, and among the range of services it offers is its annual ‘Hotel Chain Development Pipelines in Africa’ report, which looks at the development activity of the branded groups.

The 2019 version makes for interesting reading.

According to the report, hotel pipeline activity in Africa showed a 1.5% decrease on the 2018 pipeline, but that was still more than 12% ahead of 2017.

Further, based on the hotel deals signed by the chains at the time of the survey, 96 new hotels were expected to open their doors this year and 101 next year, “although expectations can often be over-optimistic,” said the W Hospitality report, which is authored by Managing Director – and Business Traveller Africa contributor – Trevor Ward.

That’s over 15,000 rooms due to open in 2019, and another 16,900 in 2020.

WHERE’S THE ACTIVITY?

According to W Hospitality, Egypt has by far the largest number of rooms in the pipeline this year, almost double the number in Nigeria, which occupies second place. Over 2,000 new rooms were signed in Egypt in 2017 and a further 4,500 in 2018, with 51 hotels in this country’s pipeline.

The pipeline in Nigeria has fallen by 17% compared with 2018, due to a few openings – including Hilton’s first Curio Hotel in Africa – which resulted in the “cleaning out” of 11 deals with 2,100 rooms from the pipeline.

Morocco occupies third place with 36 hotels and 3,695 rooms, emphasizing the dominance of North Africa at the top of the country statistics, and further bolstered by the pipelines reported by Algeria (sixth with 19 hotels) and Tunisia (ninth with 16 hotels).

Ethiopia, in fourth place, has seen another increase in pipeline deals, up from 31 hotels in 2018. The majority of these deals (84% of total rooms) are in Addis Ababa, whilst Kenya rounds out the top five with 27 hotels and 4,232 rooms.

The remainder of the top 10 is made up of Cape Verde (seventh – 11 hotels), Senegal (eighth – 17 hotels), and South Africa (10th – 18 hotels).

W Hospitality ranks this list in order of the number of rooms in the pipeline.

BIG PLAYERS

According to W Hospitality, Marriott International once again tops this year’s list for the most planned new hotel rooms in Africa. The group currently has a development pipeline of 81 new hotels comprising 16,905 rooms, and even though that represents a drop of 4.5% compared with 2018, Marriott is still out in front.

“Africa makes for a very compelling story,” says Alex Kyriakidis, Marriott’s President & Managing Director Middle East & Africa. “We have always believed in the potential of Africa and were the first global chain to make a significant investment in Africa with the acquisition of Protea Hotels in 2014. This was further consolidated with the acquisition of Starwood Hotels. With economic growth, a rising middle class and rapid urbanisation, the demand for travel and high-quality lodging is growing.”

AccorHotels is ranked second – up from fourth in 2018 – with 57 hotels and 13,543 rooms, but significantly, the French hospitality company tops the list in terms of “pipeline status”, with approximately 50% of its rooms under construction.

Hilton Hotels & Resorts drops down from second in 2018 to third this year, with 55 hotels and 11,209 rooms. It also has around 50% of those rooms under construction.

“Just under half of those properties are flagship Hilton Hotels & Resorts-branded, but we have a growing number of midscale Hilton Garden Inn properties entering the pipeline,” says Mike Collini, Hilton’s Vice-President Development, Sub-Saharan Africa. “Conversion-friendly brands such as DoubleTree by Hilton and our Curio Collection are ideally suited to local owners.”

Collini has an interesting take on where he thinks the opportunity lies.

“Over the long-term, I expect to see a greater proportion of our portfolio comprise of Hilton Garden Inn,” he says. “This is a space within the market which is less exploited and the fundamental economics of rising numbers of middle-class travellers across Africa support a product at this price point. The lower costs involved in developing a midscale hotel make return on investment attractive to owners.”

The Radisson Hotel Group is also down a spot in this year’s rankings, with 47 hotels and 8,974 rooms. However, Radisson is the most advanced of the big-name groups, in terms of the progress of these deals, with an impressive 66% of its rooms under construction.

“It continues to be one of the fastest-growing and most vibrant sectors of the continent’s economy,” says McLachlan. “Even with challenges like drops in oil prices, visa regulations and slowdown in global economies, the hotel sector has significant potential to create jobs and uplift inclusive economic growth across the continent.”

“We have identified 12 hotspots (tier one cities) which we strongly believe we can ‘great scale’ (five-plus hotels per city) across at least four of our five brands in Africa. Our hotspots in are Cape Town, Johannesburg, Durban, Mauritius, Dar es Salaam, Nairobi, Addis Ababa, Lagos, Abuja, Accra, Abidjan and Dakar.”

Spanish group Meliá Hotels & Resorts rounds out the top five. It only has eight hotels and 2,317 rooms in its pipeline, but 100% of those rooms are under construction.

The remainder of the top 10 is made up of Rotana (sixth – 9 hotels), InterContinental Hotels Group (seventh – 10 hotels), Mangalis Hotel Group (eighth – 15 hotels), Best Western Hotels & Resorts (ninth – 18 hotels), and Hyatt International (10th – eight hotels).

AFRICAN GROUPS

If one looks at the W Hospitality report, Africa’s big hotel groups are lagging behind their international counterparts, with Morocco-based Onomo Hotels the only group to feature in the top 10 of any of the W Hospitality report rankings.

Onomo pops up at eighth on the “pipeline status” list, with eight hotels and 1,103 rooms in its pipeline, but with an impressive 92% of those rooms under construction.

There is activity elsewhere, in terms of the African groups, but obviously not on the scale of the international groups.

An interesting story is that of South Africa’s City Lodge, which for many years was extremely cautious with regards venturing beyond the borders of its home country. However, recent years have seen the group quietly venturing out of its shell and starting to spread its wings, leveraging its diverse offering of four distinct brands: Road Lodge (one-star), Town Lodge (two-star), City Lodge (three-star), and Courtyard (four-star).

Just last year it opened a Town Lodge in Windhoek and City Lodge hotels in Nairobi and Dar es Salaam, whilst there’s another City Lodge in the pipeline to open this year in Maputo. Once that property opens, City Lodge will have 929 rooms outside of South Africa, and with further new properties due to open in Umhlanga, near Durban (Town Lodge) and Waterfall City in Johannesburg (Courtyard), the group will ultimately have a total of 8,070 rooms across 63 hotels.

Just don’t expect City Lodge to be announcing a host of new signings outside of South Africa any time soon.

“Due diligence is of the utmost importance,” says Andrew Widegger, CEO of City Lodge Hotel Group. “Challenges include: high construction costs, long turnaround times, questionable quality of contractors and workmanship, longer approvals processes, and more red tape, whilst procurement is an issue and logistics and customs are tough.”

Widegger goes on to cite the availability and cost of capital, politics, policy uncertainty, language, legal systems and land ownership regimes as additional factors to consider, when investing in the African hotel sector.

No surprise, then, to hear from Widegger that City Lodge is happy to just consolidate its position.

“Perhaps the market is not as big as the ‘Africa Rising’ optimism of the late-2000s suggested, so opportunities are not quite as big and take longer to materialise,” he says.

It stands to reason, then, that Widegger doesn’t share the optimism of his international counterparts, although the City Lodge model is different and not the “asset-light” model favoured by the big groups.

“There is continued interest by international groups, but the opportunities are not as big as they expected,” he says. “The markets are very small, oversupply happens very quickly with the addition of just one or two hotels, and the markets need to grow before the opportunity that they thought was there materialises. The rate of urbanisation and GDP growth has not lived up to what the predictions were and availability of capital is a further constraint. On the face of it, there is continued and sustained interest, however, as the international groups don’t bring their own capital, the extent and quality of investment is dependent on local capital.”

Another South African group to have been quite active in recent years has been BON Hotels, which has quickly become the biggest hotel operator in West Africa. BON Hotels is a South African hospitality company that owns, manages and markets hotels throughout Africa, and it has grown its Nigerian portfolio to 17 hotels in just a couple of years.

An intriguing South African story is that of Premier Hotels & Resorts, which, subject to approval, is about to acquire another South African group, Faircity Hotels & Apartments. Premier operates primarily in the mid-market space with a host of three and four-star properties across the country and the Faircity acquisition would add a further seven properties to the portfolio.

Further to that, Premier is due to open a new Splendid Inn in Bloemfontein next month and has started construction on two new hotels in Umhlanga – a four-star Premier Hotel and three-star Splendid Inn by Premier. In addition, Premier will shortly start construction on a four-star Premier Hotel offthe William Nicol in Fourways in Johannesburg.

“Realistically, the mid-market category represents realistic growth prospects in a tough South African economy,” says Mark Jakins, Group Sales, Revenue and Marketing Director for Premier Hotels and Resorts. “Research published by Stats SA shows that people are travelling more, but spending less, while corporate and government sectors have settled on prudent travel allowances that appeal to mid-market hotels and budgets.”

Jakins is also optmistic about the road ahead for South Africa and this probably explains why Premier doesn’t appear to be looking beyond the country’s borders.

“Looking at the ‘PWC Hotels outlook: 2018–2022’ report, it is predicted that South Africa will see an additional 2,900 rooms being added over the next five years and that occupancy rates will continue to grow over the forecast period and reach 62.5% in 2022,” he says. “With successful South African elections in 2019 and some much-needed new business confidence realised, coupled with bullish tourism numbers projected, South Africa has the potential to attract considerable hospitality investment.”

That being said, Jakins is not surprised to see the world’s big international groups continuing their development plans across the continent.

“It is understandable that international brands are looking for growth in new markets, but not all are willing to invest, with many preferring to use their brand’s badge value and global distribution and sales systems to secure management agreements,” he says. “However, with economists predicting high single digit GDP growth in many African countries, as well as considerable investment from Chinese and Western countries, further investment is very likely.”

“We believe that there is potential in selected African countries. There are countries attracting considerable foreign investment and forecasted to achieve GDP growth figures in excess of 6%, such as Ivory Coast, Ghana, Tanzania and Uganda. Hotels look for a healthy combination of international tourists, business and conferencing to justify investment.”

Less active than the likes of Premier Hotels, BON Hotels and City Lodge is South Africa’s Legacy Hotels & Resorts, which now has a portfolio of properties across South Africa, Namibia, Zimbabwe, Nigeria, Gabon and Ghana. In terms of development, Legacy’s big project is its Leonardo development in the heart of Sandton, Johannesburg’s business district – due to open later this year.

CONCLUSION

The international groups remain optimistic about the road ahead, in terms of hotel development, but the key is going to be concerning how many of those proposed deals and projects reach fruition. Sure, those pipelines look good on paper, but African hotel development needs a quicker conversion rate, although it is encouraging to see higher levels of onsite construction in the W Hospitality report.

The groups won’t be fazed, though, as they continue to look for opportunity and strategic locations across the continent.

Where does it end, and how far off saturation point are we?

Seemingly, quite far, if these ambitious pipelines are to be believed.