Travel demand shifts toward mid-market hotel sector across Africa

Kenya will add 13 new hotel properties with 2,400 guestrooms to its stock by 2021.
Hilton Nairobi, Kenya, Africa

A rising tide of both domestic and international travelers to Africa is driving the current demand away from luxury properties and toward mid-scale lodging options and niche segments, including serviced apartments. 

The growing trend is spreading across the continent's city centers, including Lagos, Nairobi and Johannesburg. “The hotel market in Sub-Saharan Africa has evolved in the last decade with many global operators opening quality hotels in key markets like South Africa, Mauritius and Kenya,” Xander Nijnens, EVP, hotels & hospitality group Sub-Saharan Africa, JLL, said in a statement. 

With a more than 70-percent occupancy across the region recorded in 2007, Africa's current hotel stock has been growing thanks to increased investment. West Africa, in particular, has seen an 8-percent rise per year in room supply for the last 10 years. 

However, luxury demand is falling behind as the sector's supply continues to grow. “The current challenge is that too many upscale hotels opened relative to demand, resulting in a saturated market for four- and five-star hotels in many cities,” Nijnens said. Therefore, investors have turned their focus on mid-scale market development opportunities. 

Changing leisure and corporate travel needs

Africa's developing cities are seeing a spark not only in leisure travel demand from a growing middle class, but also in the private sector's need for business travel across the region. “We are already seeing much more regional corporate travel, which was previously met by informal accommodation–guesthouses, lodges, for example,” Nijnens said. “Now, these travelers are looking for the quality and reliability that the branded mid-market and budget sectors can offer.”

In response, hotel operators are expanding their mid-market footprint. Regional operator Onomo has an inventory of three-star hotels across West Africa and South Africa. However, the company has set plans to step into the East African market with its mid-scale brand. City Lodge, another Africa-based regional operator, started its expansion throughout the region years ago. Smaller regional brands Urban and City Blue have been setting up their own expansion plans, as well. 

Meanwhile, global hotel operator Carlson Rezidor Hotel Group has four upper mid-market hotels in the pipeline for Kenya set to open over the next three years. Marriott International signed seven new hotels in East Africa and West Africa. Hilton also has its hotels planned for the region opening within the next five years after a renovation and rebranding.

“Much of the future branded pipeline will be driven by the operators’ mid-market brands. In the long-term, the bulk of hotel demand for these hotels is projected to come from domestic and regional travelers,” Nijnens said.

Adapting in a maturing market

Africa's hotel industry continues to face impeding obstacles despite its rapid growth. Regional markets have been coming up against ineffective debt funding and excessive development and land costs, on top of extended development approval processes and construction periods, pushing completion times back by three and five years. 

Investors are adapting to the changes in demand and traveler needs as part of the planning process for new developments in the works. “Better positioning properties within the mid-market sector should help to provide investors with stronger returns and offer a wider range of acquisition opportunities for institutional investors,” Nijnens said. “As the mid-market sector becomes more established, activity and liquidity levels within the market should pick up, which ultimately will attract more global capital to the sector and drive future growth.”