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Flexibility the key to unlocking Africa’s hotel doors

Even with the inherent risks associated with the continent, for those investors looking for growth the answer could come from Africa’s booming hotel sector.

The continent can boast with 50 months of positive revenue growth per available room (RevPAR), says James Parsons, head of Business Development Hotels at London-based data and information service provider STR. Parsons was speaking at Expo Real, Europe’s largest business platform for the property sector, held in Munich, Germany, in October.

“Africa as a whole shows occupancy at 54.3%, with an average daily rate (ADR) of $103, which is just over $56 for RevPAR.” 

In some cities, depending on the supply situation, the ADR is much higher, sometimes three times as much.

Africa's hotel pipeline

Given that the region is considered a tough one to operate in, the pipeline coming from the branded hotel groups is a healthy one. Egypt tops the list with 10?000 rooms (see graphic).

There’s a whole lot of hotels earmarked for the continent – around 300 from the branded hotel groups – but much of the pipeline is going into markets where there is already branded supply. Angola is the only country with little branded supply soon to have that situation reversed.

Opportunities

With the exception of a few markets, Africa has an undersupply of rooms. Countries like Morocco, Tunisia, Egypt and South Africa have more than 50 000 branded rooms. But others have very little branded supply. “This spells opportunity for big branded companies and developers to build hotels,” says Parsons.

It’s an opportunity that The Rezidor Hotel Group, one of the largest global hotel operators (Radisson Blu is one of its brands), has not passed up on. An accelerated African growth strategy has meant a footprint in 28 countries, with 37 operating hotels and 32 in the pipeline.

“Wherever you look in Africa, you see opportunity, but the markets are very different. Some, like South Africa, are mature, some in development. What is interesting is the number of branded hotels versus the population. A city like Lomé in Togo for instance has a population of 1.5m inhabitants, but only three branded hotels,” says Olivier Harnisch, executive vice president and chief operating officer of The Rezidor Hotel Group. Branded hotels are usually targeted at the up-scale sector, with virtually none existing for the mid-market segment, says Harnisch. This he views as a clear opportunity.

Hotel guests like to know what to expect and branded hotels give them that. It also gives the branded hotels a clear advantage over private local hotels when it comes to the Western traveller, Harnisch tells finweek.

“There is a certain apprehension towards Africa, and the Western traveller who comes to an African country for the first time will usually stay in a branded hotel, no matter what the price.”

Financing

While there might be contractors, like Turkish real-estate developer and investor Summa Group, ready to finance a development project, access to capital to finance real-estate projects in Africa can be a challenge. More so with funders that have a short-term view and want to exit very rapidly.

But, says Harnisch, the group of funders in Africa is becoming more diversified. “In the past funding was mostly provided by local high-net-worth-individuals or governments. Now there is much more international financing coming through, and that shows growing confidence in Africa.”

Risk versus reward

Aside from risks, there are rewards. Margins in Africa tend to be higher, says Selim Bora, chairman of the Summa Group. “On average, hotels in Africa generate higher margins than Europe,” he says, citing lower labour costs as a contributory factor. 

“The risk-reward profile in Africa is really positive and we see an increasing amount of investment going into African countries,” says Harnisch. Africa is Rezidor’s biggest growth market. But the most stable growth, Harnisch tells finweek, comes from South Africa.

Investing in Africa is not that different to other markets, says Harnisch. “We do our due diligence; a thorough background check on the owner – but we do that everywhere – we look at the political situation, the supply situation, safety and security, intricacies of the country, availability of labour, etc. With the exception of UN- or US-embargoed countries, there are no deal breakers; we would look at any country in Africa.”

Challenges

Delivery can also be a factor and it’s one of the reasons why Bora says finding the right partner to work with is crucial.

“Delivery is a key issue in Africa. Many people promise but cannot deliver, either on time or on quality,” he says.

The flexibility that is required on the continent that is perhaps central to an Africa success story. “You have to be ready for any situation,” says Bora.

The writer was a guest of Messe München South Africa (Pty) Ltd at Expo Real.

This is a shortened and edited version of an article that originally appeared in the 3 November edition of finweek. Buy and download the magazine here

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