Hotel groups counter growth hurdles in Africa with new expansion plans

Hilton Nairobi Upper Hill, Kenya, Africa

For the past few years, West Africa has spearheaded the continent’s growth and economic transformation. Despite the sharp plunge in 2016 and 2017, Africa's economy is forecast to rebound in 2017 onwards. Countries such as Côte d’Ivoire, Mali and Senegal have sustained economic resilience and growth while commodity-based economies, such as Nigeria, have been slowly recovering from dropping oil prices and oil production. As many of the countries continue to stabilize—politically and economically—the region will be better integrated from a local and international context. This increased integration raises the need for quality travel and accommodation infrastructure.

West Africa's hotel performance and growth has been a mixed bag. The W Hospitality Group’s 2017 Hotel Chains Pipeline report stated West Africa's pipeline totals 114 hotels and 20,790 guestrooms, making up 42 percent of the Sub-Saharan African hotel pipeline. However, only about 9,875 guestrooms (48 percent) in these hotel projects have moved to construction. West African hotel projects also take longer than the average time to develop, which is two to three years, at about six years. The high capital investment required, lack of access to adequate financing options, limited access to raw materials, high construction and material costs, a heavy reliance on importation, inadequate technical capacity to manage the development program and other barriers to entry contribute to these development delays. 

Nigeria claims the title of top market in Africa for planned rooms as it contributes more than 10,000 hotel rooms in 61 hotels (48.9 percent) to the West African pipeline. Meanwhile, Cape Verde has 11 hotels and 3,478 guestrooms in its pipeline, and Senegal has 14 hotels and 2,164 guestrooms planned. With a combined 15,955 guestrooms, these three market pipelines make up 77 percent of the West African hotel pipeline. Although about 57 percent of their pipelines have moved to site, some of these projects remain stalled. In a country like Nigeria, the number of delays can be high. Although 40 percent of Nigeria's hotel projects were signed between 2009 and 2014, a good number of them haven't passed the planning phase. Meanwhile, only about 44 percent of Senegal's signed hotel deals have began development. 

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Although the pipeline of hotels to the sub-region is encouraging thanks to strong investor interest, the low project completion rate could limit hotel market growth. Hotel chains whose expansion plans in these markets rely on partnerships with local and foreign investors to develop these hotels run up against even more obstacles. All the major global hotel chains have active expansion plans across the continent, especially in West Africa.

In Africa, these hotel chains have had to forgo traditional growth strategies for more creative ones, such as converting and rebranding existing hotels, acquiring existing local hotel operators, franchising and developing owned hotels. For example, Hilton has taken on the Hilton Growth Initiative in which the group has invested $50 million into converting and rebranding 100 existing hotels. Mike Collini, VP of development, Sub-Saharan Africa for Hilton, discussed Hilton's plan to take advantage of the opportunities derived from low hotel stock in the continent.

"To overcome this we are looking at rolling our focused service brands in key markets with a focus on our Hilton Garden Inn product," Collini said in a statement. "We are also pioneering the use of modular construction with a new Hilton Garden Inn in Accra, which is a fast and cost-effective build model for owners and developers.”

“Today we have 17 hotels open or under development in the region, and in our new five-year development strategy we have identified five Tier 1 Cities in West Africa (Lagos, Abuja, Accra, Abidjan and Dakar) where we see scaled growth opportunities…across the luxury to midscale hotel segment,” Andrew McLachlan, SVP of development, Africa & Indian Ocean, Carlson Rezidor, told Estate Intel.

McLachlan also revealed Rezidor has been eyeing hotel conversion opportunities in the continent with the plan to reposition the hotels under its management, particularly those that may be showing sub-par performance.

New regional hotel chain Mangalis Hospitality Group set a target to increase its footprint in West Africa within the next five years. Wessam Oshaka revealed to Estate Intel the group’s plan to operate at least 13 hotels in West Africa by 2020. Mangalis' first development phase focused development on owned hotels in core markets, such as Cote d’Ivoire and Senegal. Now in its second phase, the group will focus on management agreements, developing a portfolio with 75 percent owned hotels and 25 percent managed hotels.

“Africa, as we know, suffers from a lack of properties responding to the needs of modern travelers," Oshaka said in a statement. "The region comes with its challenges especially in terms of financing, logistics and skilled workforce. Taking all these factors into account, we adopted the most suitable approach for a healthy growth plan.”

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