International hotel brands target sub-Saharan Africa

Sub-Saharan Africa is becoming more attractive to international hotel chains as economic growth, improved travel links and record tourist arrivals drive new investments. Finbarr Toesland reports.

From high-end business hotels in Luanda to sprawling leisure resorts near Victoria Falls, the diversity of properties in the sub-Saharan African hotel industry is growing.

With much of the European and North American hotel markets highly developed and little room left for wide-scale expansion by established firms, leading hotel operators are seeking out opportunities in sub-Saharan Africa and other emerging markets. A confluence of several factors, including solid economic growth, improved travel links and record tourist arrivals, are driving new investments by global brands.

“A growing middle class within Africa with more disposable income and the ability to travel plays a role in growth for the industry,” explains Thomas Emanuel, a director at STR, a global hospitality research and benchmarking firm. “We believe another top factor to be improved connectivity that has created an increase in travellers across the continent.”

Revenue per available room in African hotels has increased for each of the last 87 months, according to STR, reflecting the strong demand for quality hotel accommodation across the continent.

Multinational hotel chains are beginning to see the potential in the market. The Radisson Hotel Group recently announcing it had signed 11 new hotel deals in Africa during the first nine months of 2019, bringing its African portfolio to almost 100 properties. Radisson is expecting to reach more than 130 hotels and 23,000 rooms in Africa by 2022.

“We are currently focusing on 23 of the 60 larger cities in Africa and have a proven track record when one compares the size of our portfolio in Africa for the 19 years we have been active on the continent… Aligned with our five-year development plan, we are seeking scale in proactive key cities, such as Addis Ababa, Nairobi and Kampala.

“There are great opportunities in Ethiopia because of the population and ease of airlift access, with Africa’s leading airline, Ethiopian Airlines. Addis Ababa has the potential to host each of our five active hotel brands in Africa,” Andrew McLachlan, senior vice president for development in sub-Saharan Africa at Radisson Hotel Group, said in a statement.

Radisson is just one of several international brands upping their presence on the continent, according to industry consultants, both through acquisitions, new developments and partnerships with local firms and franchisees.

“In terms of international hotel operators, Accor and Marriott have the largest footprint each with approximately 25,000 keys across the continent. Looking specifically at brands however, Hilton, Protea (Marriott) and Radisson are the most prevalent,” says Ali Manzoor, partner in hospitality and leisure at property consultancy firm Knight Frank.

Yet international hotel groups still only hold a fraction of their portfolio in the continent. Hilton has almost 5,800 locations around the world but only 100 hotels trading or under development in Africa.

Fast-growing demand

With a record 67m tourists arriving in Africa in 2018, up from 58m in 2016, the continent now ranks as the second fastest growing region for tourists globally. As the number of flights and routes into Africa continues to develop, both leisure and business visitors can be expected to grow and new hotel capacity will be required to accommodate these arrivals.

“Generally speaking, there is an undersupply of quality internationally branded hotels throughout Africa, and this is particularly true within sub-Saharan Africa. To date, demand has continued to outpace supply, and we have been seeing sustained revenue per available room growth across the continent since 2012,” says Manzoor.

Few international hotel firms actually own the properties that are branded with their names, but rather act as operator. Some multinational hoteliers instead seek to purchase and rebrand current hotels or acquire smaller hotel groups. For example, Marriott International acquired Protea Hotels in 2014 to expand their network on the continent.

“The vast majority of the international brands are not investors, so can do little to actually implement new development. But once they are in situ, working for an investor, there is nearly always an appreciable uplift in quality standards, as a result of their training programmes,” says Trevor Ward, managing director at W Hospitality, a provider of advisory services to the hotel, tourism and leisure industries.

South Africa may dominate the sub-Saharan African hotel industry but only 5% of current hotel development projects are in Southern Africa. Western Africa accounts for 35% of hotel development projects, but just 9% of total African chain and branded hotels.

The combination of local tourism and international arrivals are providing a strong base, as is the surge in business arrivals. Kinshasa contains one of the best performing hotel markets in Africa due to an average daily room rate of $220 over the first eight months of this year and a relatively strong 60% occupancy rate.

The expansion of the hotel industry has not been balanced across all countries on the continent, with high-profile, fast-growing and stable cities significantly outperforming less prominent locations. For example, close to 30% of chain hotels in Africa are in South Africa, principally in Cape Town and Johannesburg, with over half of African capital cities having fewer than five chain hotels each, according to a report from Knight Frank.

“Addis Ababa has many solid demand drivers, however, there is a significant pipeline with 4,677 new rooms planned through 2023 which could prove a challenge for the market. Accra is another sub-Saharan city with positive performance and a more muted pipeline, and Rwanda is also showing significant growth, reflected in the hotel performance of its capital, Kigali,” says Emanuel.

Deep challenges

From political instability and power supply issues to terrorist attacks and currency fluctuations, there are deep challenges. Muted economic growth could undermine the sector – in October the World Bank predicted that the region would grow 2.6% this year, down from a 2.8% projection in April, although it said that growth would rise to 3.1% in 2020 and 3.2% in 2021.

Ward says that financing for new developments is constrained, as the risks involved in the hotel sector in Africa are often perceived as greater than other continents.

“So long as new development is constrained, that is a benefit to existing owners, but the operating challenges include the shortage of skilled staff, over-regulation by government and the impact of global political and economic trends, such as oil and mineral prices,” says Ward.

Not all threats to hotel firms come from conventional areas. Airbnb now has over 130,000 listings in Africa on their online marketplace and says that 3.5m people have used the platform to book accommodation in Africa over the past five years.

Local operators move forward

Domestic firms like South Africa’s City Lodge Group, which operates 58 properties in four African countries and plans to expand into East and Southern Africa, also play a central role in the industry and compete with international chains for an increasingly discerning clientele.

“While international operators would generally point to their distribution systems, loyalty programmes, and ability to drive rates as evidence of their operational superiority, local operators tend to highlight a nuanced understanding of the local market and personalised attention to hotel owners as key differentiating factors. The reality is that both may well be correct, and the two will continue to compete as the market continues to mature,” concludes Mazoor.