Supply, demand and ADR data across Africa has yielded erratic RevPAR results, yet signs point to some stability.
GLOBAL REPORT—Over the last decade, global hotel development has increased its velocity outside of the usual American, European and Asian markets, and more development funds have been allocated to the African continent. The luxury sector is no exception, and STR has tracked healthy growth in supply and demand increases. (STR is the parent company of Hotel News Now.)
In the past, African luxury hotel stays were often associated with an exclusive, safari-type experience. It is probably fair to assume that the majority of international leisure travelers will include a couple of days of safari on their trip when visiting multiple countries in Africa. As most African currencies are weaker than the U.S. dollar, euro or British pound, this experience often is quite affordable. Lately, the influx of new development dollars has brought urban luxury hotels and operators to the continent and the results are a more adequate mix of remote and urban luxury hotels.
Supply and demand
In February 2018, STR recorded 532 luxury class hotels comprised of more than 73,000 rooms in our database. This compares to 466 hotels comprised of just fewer than 64,000 rooms in February 2008. This supply separates to approximately 21,000 rooms in southern Africa and more than 51,700 rooms in northern Africa. It is worth noting the supply increase that picked up considerable momentum after 2015 has recently leveled off.
It will be important to monitor the changes in supply to see if developer appetite for luxury product is waning or if the global and local real estate community is just taking a breather before the development reaccelerates.
Luxury hotel demand growth in Africa was wildly erratic and skewed by the performance of luxury hotels in Egypt that experienced severe demand declines during the unrest of 2013 followed by rapid re-acceleration the following year. The performance in the southern African nations was much more subdued. That said, luxury hotels in the southern states continue to show positive demand increases.
As the demand chart clearly shows, civil unrest and terrorism attacks have an immediate and deeply felt impact on the demand situation of all hotels and luxury hotels in particular. Leisure clients for luxury hotels have plenty of options for where to spend their dollars, rubles or euros and will easily divert their vacation destinations when negative headlines in Africa dominate the news cycle. On the other hand, the rebound in room demand speaks to a very resilient tourism industry.
Room rates (shown in U.S. dollars) have moved at an equally erratic pace. Luxury hotels in both subcontinents recorded average-daily-rate declines around 2016, but the rolling 12-month ADR changes for northern Africa have been persistently negative since then. No doubt the continued negative headlines coming from the Middle East and North Africa have had an impact on consumer sentiment that hoteliers are trying to counter by offering better deals.
The ADR change in southern Africa, on the other hand, has been on an uninterrupted positive trajectory since mid-2016. This can be partially explained by the very strong performance of luxury hotels in the Seychelles and Mauritius, which together reported a 2017 ADR of $395, up 13.3% from 2016.
The sample that STR covers has two very distinct ADR patterns. Luxury class properties in southern Africa command a high premium, most recently around $150. The ADR reported by operators in Mauritius, the Seychelles, South Africa and Kenya lead to this healthy ADR premium.
Taking all data on supply, demand and ADR change into consideration yields the following chart that shows the rather erratic revenue-per-available-room percent changes for the last 10 years. Since this data includes more than 500 hotels with more than 73,000 rooms in a wide geographic area and includes downtown and rural properties, it is not surprising that the data is varied. That said, it is still worth pointing out that the most recent history shows very positive RevPAR changes for the sample set. Monthly RevPAR growth has now been positive for 20 months, starting in July 2016.
The most recent positive performance has of course gotten the attention of developers. The STR pipeline database tracks 39 luxury properties with 7,422 rooms currently under contract (planning, final planning and in construction phases only). The majority, around 56% of total room count, are being developed in Morocco and Egypt. Morocco has 14 luxury hotels with 1,980 rooms under contract whereas Egypt has eight properties representing 2,169 rooms.
Both Morocco and Egypt have been working hard to increase their inbound tourism flows with projects like the completion of Cairo’s Terminal 2 in 2017, bringing its total capacity up to 20 million passengers. The opening of a new terminal at Marrakech Menara Airport in late 2016 doubled the airport’s capacity. Moreover, Hilton recently announced a $50-million fund with the intention of expanding its African presence even more.
Let’s hope that the coming quarters will continue to show positive demand changes and healthy ADR growth as the operators in the region get a handle on the continued political and economic uncertainty that governs some of the local headlines. Positive performance coupled with a healthy pipeline should give luxury operators confidence that Africa is a good long-term bet.
Maryke Dreyer is the STR Business Development Manager in South Africa.
Kostas Nikolaidis is the Account Executive - Middle East & Africa, based in London.
Jan D. Freitag is SVP of Lodging Insights, based in Hendersonville, Tennessee.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.