Africa’s hospitality market: 2017 in review

Africa continued to attract new regional and global investment, with political and economic events, currency shifts and fluctuating tourism demands bringing both rewards and risks to the hotel markets across the continent.
The Hospitality and Tourism Industry Specialists (HTI) Consulting group summarised the top five performers across 14 African cities for 2017, as indicated by STR Global, a company that provides data benchmarking, analytics and marketplace insights.

“Both upward and downward trends were noticeable across the continent in 2017, with more positive conditions in West Africa…Political instability in several East African countries served to dampen those markets in the area, albeit on a temporary basis,” says Wayne Troughton of African-based specialist hospitality, real estate and leisure consulting company, HTI Consulting.

Occupancy rates
Occupancy growth saw Lagos and Accra ahead of the 14 African cities, compared with 2016, where Cape Town and Lusaka came out on top.

Strong growth was recorded in Accra, Ghana, which propelled occupancy rates to a level of just above 60%.
Other markets in Southern and East Africa that showed moderate growth include Pretoria and Durban in South Africa and Windhoek in Namibia. Namibia’s economy revealed signs of recovery after poor economic growth in 2016.
In Kenya, Nairobi’s occupancy performance was the weakest of the cities assessed, with a decline in occupancy of 11.1%. A new supply of 478 additional rooms were recorded in 2017, with 334 internationally branded, coupled with a decline in demand due to the violence surrounding the August 2017 elections substantially reduced accommodation demand.

Dar es Salaam in Tanzania followed the same decline in occupancy of 9%. This is largely attributed to investor uncertainty in new government policy, limiting business travel to the city.

Additionally, direct flights to key tourism destinations reduced leisure demand in Dar es Salaam.
Lower occupancies in Addis Ababa, Ethiopia, and Gaborone, Botswana, continued into 2017, following an occupancy decline of 10% and 7.1% respectively in 2016. Although supply increased in these cities, demand declined due to political unrest in Addis Ababa and economic challenges driven by mining in Botswana.

Average daily rates
Nine of the assessed cities achieved Average Daily Rate (ADR) growth in US dollar terms in 2017, as opposed to two of the 13 cities reviewed in 2016.

Windhoek led the market, followed by Cape Town, Pretoria, Sandton in Johannesburg and Umhlanga in KwaZulu Natal. Strong growth in these areas was largely driven by the strengthening rand.

In local currency, Windhoek showed growth of 9.9% and Cape Town 7.2%. Both were positioned in the top five growth markets. Local currency growth in Pretoria, Sandton and Umhlanga was well below inflation, which was 5.4% in 2017.
Lagos showed the biggest decline in ADR at 19%. In local currency terms, ADR increased by 5.4%, with Nairobi following Lagos with an ADR decline of 8.4%. Here, increased supply coupled with a decline in demand forced hoteliers to compromise on rate with a knock-on effect for ADR. A similar situation was apparent in Dar es Salaam. The former leader in terms of ADR growth in 2016, Lusaka in Zambia was one of the weakest performers with negative ADR (US dollar) of -6.2%. In local currency, Lusaka’s ADR declined by 13.4%.

Rooms sold
Pretoria revealed positive demand increase as investment in casinos and commercial office space in new nodes drove growth. One of the growth leaders in room nights sold in 2016, Cape Town, showed negative growth in 2017 of -0.2%.
New supply in the market has not yet been included in STR data and demand accommodated at such properties would therefore not be reflected, which has influenced a downward trend in demand growth. Demand is therefore widely believed to have increased.

Dar es Salaam showed the biggest decline in terms of room nights sold in 2017. An uncertain investment environment, coupled with a ban on the export of unprocessed gold and copper ore, did much to deter investors over this period. Room nights sold declined by almost 6.0% in Addis Ababa, with the State of Emergency in Ethiopia, which was lifted in August 2017, limiting opportunities for a recovery in visitor demand. The slowdown in the mining sector in Gaborone negatively impacted demand in the city, while the continued election violence in Nairobi led to 3.3% reduction in total number of rooms sold.

Future supply

Addis Ababa recorded the highest number of hotel projects under construction. Several projects expected to come online in 2017 experienced delays and should be realised during the course of 2018. These high levels of new supply, if completed, are set to increase pressure on an already struggling market, meaning that medium term outlook is therefore subdued.

Planned supply in Lagos and Nairobi remains high and continues to place pressure on competitors. The nodal nature of competition in both cities is enabling quality developments, offering international standards and value for money, to continue to outperform market trends.

Also nodal in nature, Accra is expected to experience an increase in supply of just under 900 new rooms. A large proportion of this supply will be positioned in the expanding airport node. The pace of growth in the city, combined with new oil- and gas-related investment is expected to limit the impact of the new supply on occupancy rates. Competitive pressure is therefore expected to be short term.

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