Reports predict growth for Africa's hotels, but occupancy numbers drop

Growth in the African hotel sector has reached "a new level of maturity with less reliance on foreign visitors and increased demand from local businesses," according to a new report from global hotel consulting company HVS.

The 2015 African Hotel Valuation Index, published to coincide with the Africa Hotel Investment Conference at the Sheraton Addis Ababa in Ethiopia later this week, reports that African hotel brands such as Azalai, City Lodge and Protea are trading well, with a number of hotel investors showing faith in the continent.

Several international hotel brands are viewing Africa for expansion, such as Marriott International, which purchased Protea Hotels in 2014. AccorHotels announced plans in July to open 50 hotels across Angola by 2017.

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"These are exciting deals and proof that it is not just operators but also investors that are growing in confidence in Africa," report co-author Tim Smith, managing partner, HVS Cape Town, said in a statement. "Africa's travel and tourism industry has the potential to generate further growth and development, and the discovery of oil and gas in many African countries will also help economic performance."

City by city
Heading the valuation league tables in the African HVI for the second year running were hotels in the luxury resorts of the Seychelles, with values per room of US$476,000 - up 2.2 percent on last year. 

Hotel values in the Egyptian resorts of Cairo and Sharm el Sheikh registered particular growth in this year's African HVI, up 49 percent and 41 percent, respectively. Tourism in Egypt has made a strong recovery following recent political challenges although hotel values are not back to previous levels and this growth comes from a low base. Further value growth is expected until the country makes a full recovery.

Cape Town showed a 4-percent increase in hotel values in U.S. dollars as South Africa starts to show a slow but steady recovery. In local currency, the improved performance is more significant, the difference highlighting the weakness of the rand against the U.S. dollar.

The biggest percentage fall in hotel values were in the Nigerian cities of Abuja and Lagos, where the impact of the Ebola epidemic is still being felt. This, coupled with a fall in oil prices, has had an impact on hotel revenue per available room, which fell by 26 percent in Lagos in 2014.

"While hotel investment in Africa carries high risk, it also comes with higher reward, but the change in hotel values in some of these markets show that the reward can be substantial," said report co-author Sophie Perret, director, HVS London. "With improved airlift, confidence in democracy and economic growth all providing corporate and tourism demand, hotel investment in existing and new markets across the continent should be strong in the medium to long term. There will continue to be short-term challenges, but in the longer term, the future looks bright," she said. 

Investors may face other challenges: Research firm W Hospitality Group recently spoke to 37 hotel chains that cover 80 brands and uncovered "practical challenges" of developing hotels in Africa. For example, of the 11 hotel deals signed in Abuja, only two, the Fraser Suites and the Hilton Garden Inn, are actively under construction. Developers will need "patience and a long-term view,” according to the company.

According to a W Hospitality statement, to qualify for the study, hotel chains needed to be operating in more than one country—so, by definition, more hotel development activity actually is taking place because domestic players in the market were not counted.

STR Global also noted troubling occupancy numbers for South Africa's hotels compared to last year. In August, the country reported nearly flat occupancy performance (+0.5 percent to 62.7 percent) and increases in ADR (+4.3 percent to ZAR994.53) and RevPAR (+4.8 percent to ZAR623.76). The lack of significant change in occupancy came as supply (+0.9 percent) and demand (+1.3 percent) saw similar movement in August. According to STR Global analysts, ADR and RevPAR were up due to inflation and a weakened South African Rand.

Cape Town, South Africa, experienced a 2-percent decrease in occupancy to 60 percent but increases in ADR (+6.2 percent to ZAR1,138.41) and RevPAR (+4.1 percent to ZAR682.90). STR Global analysts believe that hotels in Cape Town have increased rate to counter a 5.6-percent year-to-date drop in occupancy. The decline in occupancy can be attributed to year-to-date supply (+2 percent) outweighing demand (-3.7 percent).

Recent deals
Sub-Saharan Africa's hotel scene has seen two notable deals over the past month alone. South Africa’s Legacy Hotels will reportedly manage and refurbish city and resort hotels owned by African Sun in Zimbabwe at a cost of $60 million (R797m), effective next month. Legacy will help African Sun manage the flagship Elephant Hills resort in Victoria Falls, the Troutbeck Inn in Inyanga, as well as three other hotels in Hwange, Victoria Falls and Harare. 

Marriott International, meanwhile, is expanding its presence in Africa with the signing of two new properties in South Africa, in partnership with The Amdec Group. Expected to open by February 2018, the 150-room Johannesburg Marriott Hotel Melrose Arch and 200-unit Marriott Executive Apartments Johannesburg Melrose Arch will be located in the Melrose Arch precinct in Johannesburg. The two properties represent the company’s signature brand, Marriott Hotels, as well as its upscale serviced apartments brand, Marriott Executive Apartments, and will be the first Marriott-branded properties under development in South Africa. 

French company Bouygues and Swiss hotel group Movenpick are partnering with Ivorian firm Saprim to invest 55 million euros ($61.56 million) on a luxury hotel in Ivory Coast's commercial capital, Abidjan. Work on the hotel will reportedly begin in the next six months and is expected to be ready within 30 months, or by the end of 2018.

Fairmont Hotels & Resorts is developing a new 270-room luxury hotel in the Nigerian capital city of Abuja that is planned to open in 2019. The Fairmont Abuja will be located in the city’s central business district and 30 kilometers from the Nnamdi Azikiwe International Airport. It will also be close to the new International Conference Centre, due to open in 2018, making it a strong choice for business travelers.

The project is being developed by Nigerian firm Asset Management Group. Key projects in the company’s portfolio include Harbor Point, a mixed-use facility including the Fairmont Lagos. It's the first announced FRHI property in the country and is scheduled to open in 2017.