Eye on West Africa

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International hotel chains signed a record 79 deals for new hotels in 2014, and there are likely to be more hotels built in Africa in the next five years than in any previous period. There are several markets which are in need of new hotels, either because of a shortage in the face of demand growth or, quite often, due to the dire condition of the existing supply. 

There’s no universal, reliable estimate for the number of hotels in Africa, nor is there any information on how many are under construction. According to our pipeline research, of the c50,000 hotel rooms in the chains’ pipelines at the beginning of this year, 63%, or around 31,300 rooms, are actually under construction, in 36 countries. That’s fewer than 900 per country. But this doesn’t capture the non-branded hotels, of which there are many.

These new hotels are not evenly spread. In some markets, such as Luanda, the number of non-chain hotel rooms under construction exceeds the branded ones by a considerable margin. A close examination of individual markets shows that, whilst the country average in the chains’ pipelines is below 900 rooms, in some cities the addition to the supply of unbranded hotels, some of a considerable size (the 280-room Emerald hotel in Lagos comes to mind) does appear to indicate that there might be oversupply on the horizon.

Demand for hotel accommodation generally grows organically, in single digits – annual growth of between 5% and 9% would be considered very healthy, higher than the annual growth of c4.5% in international tourist arrivals. On a one-off basis, the opening of a new convention centre, like the one planned for Calabar, can result in higher growth, this time supply-led. But hotels open all at once, not gradually to match demand growth, and a new hotel is slowly absorbed into the market. But on opening, a hotel with 300 rooms can increase the supply in a market with, say, 2,000 existing rooms by 15%, which is way above ‘normal’ demand growth.

The threat of oversupply is, however, very often only seen on paper. With the exception of South Africa, where the 2010 FIFA World Cup generated over-enthusiasm in terms of hotel building, this threat has never materialised. 

If all the hotel projects in the pipeline for Lagos, plus those currently being studied, were to go ahead, there will be oversupply. But an analysis of the c4,300 rooms in the Lagos pipeline reveals that whilst 52%, c2,200 rooms, are ‘under construction’, over 1,000 of those rooms have, at one time, had work undertaken on site. However, construction stalled, and the sites were closed. That leaves just 28% of the pipeline actively being built. Of the total, we consider that only 26% will be built and open to the public, 45% might happen, and the rest are unlikely to see the light of day. 

It is a peculiar feature of the African hotel market (much worse in some countries than in others) that signing a management agreement does not mean that the project will ever be realised, nor does starting construction of a hotel mean it will be completed.

Looking at the hotel chains’ pipelines, no fewer than 60 deals with 13,500 rooms, over 25% of the total, were signed between 2006 and 2011, and really should have opened by now. But for many reasons, a lack of financing being a major one, they are still just paperwork or, in some cases, unfinished monuments. And again, many independent hotels are also standing unfinished. Abuja has many half-built hotels, mostly for 100 rooms or fewer, which never got past the concrete-pouring stage, and which have been abandoned, in some cases for several years.  In Lagos, RDDL’s Le Meridien has remained as a shell for five years, with no work underway on site, and there appear to be problems with the Marriott on Victoria Island, where the site is also shut down.

But oversupply, if it ever happens, is a temporary phenomenon. Organic growth in demand tends to sort it out, especially as new investors are deterred from the market. Further, more supply can actually create demand, due to the increased spend on marketing the destination by the hotels themselves, and as the addition of new rooms can mean that larger events, such as conventions, can be accommodated.

Trevor Ward
CEO: W Hospitality