Getting Real With The Numbers, Has Africa’s Hotel Boom Been Overstated?

Avatar
Written by Dana Sanchez

From BusinessDayLive. Story by Fifi Peters.

About 50,000 rooms at 270 hotels in Africa are on the books for development in 2015 but some of them may not materialize due to a shortage of expert skills, insufficient funding and red tape.

W Hospitality Group, a company that advises the hotel and tourism industry, released a report this month saying about 60 deals had been in the pipeline between 2006 and 2011 with the potential to produce 13,500 new rooms in Africa.

About a quarter of these deals are still just in the paperwork stage, or in some cases, “unfinished monuments to unfilled promises.”

Hospitality and Tourism International Consulting CEO Wayne Troughton warns against focusing too much on the headlines when it comes to hotel development. “A lot of these deals are not necessarily new,” he said, referring to the 270 new hotels that are expected to be built this year. “Some of these hotels had been in the development pipeline for about five to seven years.”

Of the record 79 deals signed in 2014, a significant number are still on the books, according to the 2015 Hotel Chain Development Pipelines in Africa Report. Deals signed for this year are not yet available.

Nigeria has by far the largest development pipeline in 2015, exceeding Central and East Africa combined. An estimated 8,500 rooms are expected to be built in Nigeria at 51 planned new hotels. However, less than 40 percent of pipeline rooms are on site (under construction) and a portion of those that are under construction have stalled.

“Financing can be very difficult,” said Trevor Ward, group managing director for W Hospitality  and an author of the hotel report. “It’s easier to raise capital for oil projects in Nigeria than it is to develop hotels.”

Although Nigeria has the biggest economy on the continent, it is still relatively inexperienced when it comes to hotel-development know how. Hotels “are quite complex buildings,” Ward said.

Sub-Saharan Africa, which is historically underserved with branded hotels compared to North Africa, will lead the continent’s building activity this year.

Of the 50,000 rooms on track for development this year, about 70 percent of construction is expected to be in sub-Saharan Africa.

Just two years ago, an equal  number of rooms was in the pipeline for North and sub-Saharan Africa, at just more than 18,000, but political unrest in countries such as Morocco, Egypt and Tunisia made investors cautious to invest in a high-risk region.

Buhler and Associates hospitality consultant Roland Buhler said he believes demand from the mid-tier market will contribute to development in sub-Saharan Africa as “inter-regional and local travelers look for three-and four-star accommodations.

“Budget hotels account for less than 1 percent of the total number of sellable rooms in Africa,” he said, highlighting the opportunity that exists for hoteliers in this market segment.

Five-star hotels will also be sought after as the number of business executives conducting deals on the continent grows. African economies are set to grow 4.5 percent this year.

Although sub-Saharan Africa had more signed deals than North Africa in 2014, North Africa  has 76 percent of the pipeline rooms under construction compared to 55 percent in sub-Saharan Africa.

“Most North African countries are more mature in terms of their tourism industry. It’s easier to get a hotel built as the infrastructure is already in place,” said Ward. “In contrast, most sub-Saharan African countries are building hotels for the first time,” he said, citing Mauritania, which now has three branded hotels in the development pipeline, up from zero in 2014.

The number of rooms planned for development in South Africa has been steady at about 1,600 for the past three years, according to the report. South Africa occupies the No. 6 spot among the top 10 countries by number of rooms in the development pipeline, behind Tunisia but ahead of Kenya. Uganda sits at No. 10.

Building activity in South Africa has slowed markedly since the run up to the 2010 World Cup but the industry is showing signs of recovery, Troughton said.

Tourists flocking to the country to take advantage of the weakening rand have created demand for accommodation and building opportunity.

However, should the introduction of South Africa’s new visa regulations stem tourism, as industry experts warn, this will be likely to see hotel development deals in the continent’s most advanced economy dwindle, he says.

Read more at BusinessDayLive.


About Dana Sanchez

Dana Sanchez was born in South Africa and is a U.S. citizen. After working in advertising, she went back to school and earned a master's degree in journalism from the University of South Florida. As a business writer, she won regional and national writing awards. As editor of a daily newspaper, she coordinated staff writers, freelancers and photographers in the fast-paced environment of daily news. Dana was an editor at Moguldom Media Group for four years, helping to build and manage a team of staff and freelance writers. She works now on Moguldom.com for Nubai Ventures. A long-distance hiker and cyclist, she writes about the business of technology.