Earlier this year, the W Hospitality Group Hotel Chain Development Pipeline Survey revealed that the number of planned hotel rooms in Africa was up to 64 000 in 365 hotels. This is an almost 30% increase compared with last year, driven by strong growth in sub-Saharan Africa.
However, a slump in commodities has hurt corporate travel on the continent and occupancies in a lot of African cities are down, raising the question of whether the pace of development is exceeding demand.
Lee-Anne Bac, Director of Grant Thornton Johannesburg, points out that while Africa has presented itself as a growth opportunity to many investors, the oil crisis has slowed the continent’s growth. Likewise Wayne Troughton, CEO, Hospitality & Real Estate Consulting at HTI Consulting, says the commodities slump has put investments on the continent in limbo, with some countries seeing investors pull out.
Commenting on the pipeline of hotel developments on the continent, Bac says it will be tough for investors and that it will take longer to achieve targeted occupancies and average room rates. Troughton points out that, as a result of dropped demand, occupancy rates in a lot of African cities were in the low 50% area. “At the moment I don’t see demand keeping pace with the supply coming in.”
Bac says it remains to be seen whether this will impact hotel rates. She points out that while rates are known to be high on the continent, the costs of operating hotels is also high. She explains that hotel operators often have to create their own infrastructure, installing generators and water storage systems because many African countries lack infrastructure.
Asked about the sustainability of the pipeline, both Bac and Troughton point out that not all the hotel developments planned in the pipeline will come under construction. Troughton says there is a lot in the pipeline that is signed, whereas only a small proportion of them are under construction. Moreover, he says a good deal of these hotels are also under construction for five to seven years. “A good proportion of developments that have been signed, I don’t believe will actually be developed,” he says, adding that construction costs are also rising, making projects more difficult to work. “The appetite for financing is not as significant as it was three or five years ago.”
Some hotel developments on the continent would likely be paused as a result of the slowdown, says Troughton, adding that banks may also call in some of the loans because of the drop in demand. Bac also anticipates that projects may slow down, especially those that have not yet started construction.
However, Troughton says the current economic slowdown is likely to be short term, with the oil price already showing some recovery.