Global brands target Africa for expansion
 
Global brands target Africa for expansion
17 NOVEMBER 2016 9:58 AM

While Africa offers a wide range of opportunities for hotel developers, operators and brand companies, it also presents challenges and hurdles to success.

REPORT FROM AFRICA—The continent of Africa has become a hotbed of activity for hotel developers and operators, and especially for global hotel brand companies. In recent months, brand companies from Best Western Hotels & Resorts to Marriott International and others have announced projects in many of the continent’s 50-plus countries, most notably in sub-Saharan Africa.

According to sources, a number of factors make Africa ripe for hotel development. They include a rising middle class, commodities-driven economies in many countries and continued interest in tourism to the continent.

“There are opportunities right across the continent,” said Patrick Fitzgibbon, SVP of development for Europe, Middle East and Africa at Hilton Worldwide Holdings. “If you look at the fundamentals of Africa in terms of domestic, regional, inter-regional and international travel, there is a growth forecast on every front.”

According to a JLL report released in early October, hotel demand in sub-Saharan Africa will increase annually between 3% and 5% for the coming three years. That translates into $1.7 billion in investment in hotels this year and an additional $1.9 billion in 2018, according to the report. 

As of September, 303 hotels with 56,858 rooms are under contract in Africa, an increase of 8.3% in rooms over the same period a year earlier, according to STR, parent company of Hotel News Now.

“Given that the hotel sector (in Africa) is primarily business-driven, it’s linked to economic growth, foreign investments and infrastructure development,” said Xander Nijnens, SVP of JLL’s Hotels & Hospitality Group in sub-Saharan Africa. “The period between 2001 and 2014, there was strong economic growth paired with good resource pricing. That’s fallen off a little bit in the past 18 months primarily due to lower resource prices, some currency fluctuations and a bit more political and social instability in certain parts of the region.”

Tourism to Africa has quadrupled since 1990, according to the World Tourism Organization. In 2014, more than 65 million international tourists visited the continent, up 4% over 2013. In 1990, the region hosted 17 million tourists.

“From a leisure tourism perspective, you have Mauritius, South Africa, Tanzania and Kenya that are the traditional leisure tourism destinations, and they are very much driven by the national parks and game activities,” said Nijnens. “Increasingly, that tourism is paired with beach holidays, which has positively impacted the Seychelles and Mauritius and some other beach destinations like Mozambique.”

Invasion of the global brands
With more than 1.2 billion people, Africa is the second-most populated region in the world. Yet in recent years, most hotel development has focused mostly on country capitals and gateway cities and a few tourist destinations. With a few exceptions, most global brand companies plan to grow in those kinds of markets and some others:

  • Since its acquisition of Protea Hotels Group in 2013, Marriott has been aggressive in expansion in Africa. By 2015, the company plans to expand to 27 countries (from 19 today) and have more than 200 hotels and about 37,000 rooms, according to Alex Kyriakidis, president and managing director of the Middle East and Africa for Marriott.

Last month, the company opened a 254-room Marriott in Rwanda in the capital city of Kigali and a 135-room Westin golf resort in Cairo. It also announced deals for six more hotels on the continent, including three in Cape Town, a Sheraton resort in Mauritius, an Element in Cairo and a Four Points by Sheraton in Nairobi.

  • Hilton has 40 hotels open in Africa and 40 more in its pipeline, Fitzgibbon said. Growth vehicles for the company in Africa are the Hilton and Hilton Garden Inn brands, he said. The first Hilton Garden Inn in Africa opened last year at the Nairobi airport; and a second, modular-build property is set to open in Accra, Ghana, in 2018.

Other developments in the works include a 255-room Hilton in Nairobi in what will be the tallest building in Africa; and the 135-room Legend Hotel, a Curio Collection property, at the Lagos, Nigeria, airport.

  • Best Western has 21 properties in eight African countries, with 20-plus hotels in the pipeline, said Suzi MacDonald, SVP of international operations. Much of the chain’s new development focuses on South Africa and Kenya, but MacDonald said Best Western also has interest in Cameroon and Angola.
  • Carlson Rezidor plans to have more than 23,000 rooms in Africa by the end of 2020. It currently has 67 hotels with about 15,000 rooms open or under development.

Last month, the company announced plans to enter Angola with five Park Inn by Radisson properties. The hotels are scheduled to open in early 2018. Earlier this year, the company announced development of a Radisson Blu in Durban, South Africa. When it opens in early 2019, the 207-room property will be the brand’s third hotel in the country.

Challenges and opportunities
While sources tout opportunities for hotel development in Africa, they also warn of the challenges to develop and operate in many countries on the continent. Working with partners with local market knowledge can help mitigate some of these obstacles.

“Local partners are important because they know how things work,” said Tim Smith, managing partner of HVS Consulting in Cape Town. “We all fall into the trap of thinking about the ‘African hotel market,’ but in reality there are 54 different countries, cultures and ways of doing business.”

Nijnens said choosing the right partner for a particular hotel project is also important.

“It’s critical that if you work with a local partner you have alignment of investment goals and investment horizons, so it’s clear between the local partner and the foreign capital coming in what are the roles and responsibilities for each,” he said. “It’s also important to have an understanding of who is going to play the most active role in implementing the investment as well as in asset management.”

Currency fluctuations are another issue owners and operators need to address, sources said.

“The challenge we have is the need to present things in a common currency so we can evaluate Accra against Nairobi and so on,” Smith said. “And given fluctuations in the value of those currencies this year, that’s proved to be even more challenging.”

Relative lack of supply in some markets creates both opportunities and challenges, Nijnens said.

“A big investment risk is that most of these markets tend to be fairly thin. They have a low supply base so there is a higher level of impact when new supply comes into a market,” he said. “You tend to have higher levels of fluctuation in terms of hotel performance, so if you’re in the right part of the cycle where the markets are fundamentally undersupplied you can make some fantastic returns. However, there are some markets that have already come through a period of saturation.”

Labor is one of several operational issues facing hotel owners in the region. Maintaining supply chains and dealing with diverse bureaucracies also puts pressure on operators, sources said.

“There is a fabulous workforce in Africa, but one of the things you must do is work with local communities, local colleges and schools to provide specific hard skills,” Fitzgibbon said. “The soft skills are often there, but if you’re the first major hotel in a market you probably will need to do a little more training.”

Marriott provides training opportunities for local residents to help solve its labor issues, Kyriakidis said.

“A good example of this is what we’ve done in Rwanda, where we have partnered with a local organization, the Akilah Institute for Women, to train women in hotel skills,” he said. “And today some of these women (trained at the Institute) are in leadership roles in our hotels in various countries.”

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