VENTURES AFRICA – The race to build hotels in Africa has never been bigger than it is today. Global hotel chain Marriot International’s recent announcement of a $1.5 billion Africa expansion plan stirred the market and a recent hotel conference on Africa. The capital investment will be used to build nine hotels, amounting to a 1,300 additional rooms, by 2015 and 30 additional hotels by 2020, adding another 5,550 rooms to the continent’s hotel room count.
Marriot International’s construction plan for 2014 and 2015 still trails more aggressive developers, such as Radisson Blu and Hilton, who plan to build 60 percent-plus more hotels and more than two times as many rooms as Marriot International in a similar period. These large numbers sadly (or happily for investors) are only the beginning of a continued investment in the hotel sector. Room rates will moderate during the next couple years. But room rates per star level will leave great opportunities for further construction across the continent.
This week’s article picks the top five countries for building a hotel or two (well…if you can afford it).
Ethiopia
Ethiopia has the 2nd largest diplomatic city, the vibrant Addis Ababa, in the world after Washington D.C yet it has an amount of hotels rooms that amounts to less than 50 percent of Washington, D.C. That statistic does not look to change anytime soon unless hotel investors get more active in the country’s capital. During the last African Union (A.U.) meeting, Sheraton rooms charged out above $700 with many hotels based on their normal price rates able to achieve 150 percent to 200 percent occupancy rates during most A.U. meetings. Diplomats and government officials willingly pay the fees but grumble at the excessive lack of rooms in the country. As business executives join the fray in the country in the near term, local hotel operators should continue to greatly benefit.
Nigeria
Nigeria is an investor fan favourite in this space. It ranks highest both in terms of the number of hotels and the number of hotel rooms planned for 2014 and 2015 combined. International hotels typically achieve rates in excess of $300 in Nigeria and most operators believe that revenue per room will likely not drop to below $250 in the near term despite the aggressive hotel pipeline for the country. Most operators reference increasing business travellers and Nigeria’s newly emergence as sub-Saharan Africa’s biggest economy as the biggest drivers, complimented by high-spending oil and gas business executives. Hotels will also benefit from increasing airline connectivity and Nigeria’s reputation as the entry point to West Africa. While bigger high-end hotels come online, the 3 to 4-star subsection of hotels in the country remains very lacking and will require a boost when tourism begins to match the business excitement in the country.
Mozambique
Mozambique is an emerging economy with massive gas potential. The hotel industry salivates at the opportunity to support the growing presence of gas (and oil) executives. The Southern Sun’s recent rehabilitation has not necessarily lowered the per room revenue rate in the country which still hovers above $250 for most 4-star to 5-star hotels in the country. Local operators, particularly recent Chinese investors, have suggested that this room revenue rate will not slow in the near term because the realization of the country’s energy ambitions only suggest that there could be more occupants than the country predicted at the beginning stages of exploration. Contrarily the most ambitious forecasters will have to footnote that the hotel sector’s success is possibly too dependent on the country’s energy sector and its ability to achieve its forecast timeline. A small pipeline of planned hotels for 2014 and 2015 suggests investors are waiting before risking it for big returns in this country.
Angola
Sub-Saharan Africa’s second largest oil producer is still drilling and bringing in more business executives each year. The boom in Angola’s other business sectors, particularly financial and transport, has also boosted the presence of foreign executives and workers. Living in hotels and compounds is the nature of business in the country for those executives. Hotel operators speak optimistically (and excitingly) about the current situation. But how could they not? Local prices for everything, including hotels, exorbitant at approximately $500 any night in Luanda. More hotel construction is required to change that number.
South Sudan
There is a trend in this article…the oil and gas sector usually brings more business executives, more workers, and more hotel occupants. Ongoing spurts of violence and local strife rightfully concern investors. But the long term outlook by political experts (and government officials off the record) is that the strife cannot continue indefinitely unless both sides are willing to forego oil revenue and watch the country internally destroy itself (which they are not prepared to do). High quality (4 to 5-star) hotels are lacking with very few planned hotels in the pipeline for development. The newly independent country already imports many foreign advisor and workers to aid in building its civil society and country infrastructure and will have to do the same in the oil sector over time which will burden (and benefit) the underdeveloped hotel sector.