High supply growth during the past five years has placed pressure on hotel performance in sub-Saharan Africa, yet the outlook in the medium term is positive, with a more sustainable pipeline and stronger demand fundamentals.
This was the argument of Xander Nijnens, executive vice president, hotels and hospitality Group, JLL sub-Saharan Africa, at the forum attended by leading international hotel investors in Africa.
Nijnens said that investors in the hotel sector in sub-Saharan Africa are positive about the outlook for the sector, yet they also acknowledge that finding suitably yielding opportunities is more difficult today.
Investors are increasingly looking at niche segments, new secondary markets and value-add acquisitions to reach their return targets.
The report confirms expectations for hotel trading to remain under pressure during the balance of 2018 and in 2019, as new rooms continue to be absorbed into the market.
Nijnens said that despite a muted trading environment in many markets, there is evidence that well placed, distributed, branded, and developed products can consistently outperform the market.
“New segments such as serviced apartments and branded economy hotels hold strong returns prospects,” he said.
“For investors looking at the market, the wide spectrum of market prospects and asset performance brings both opportunities and challenges.”
JLL forecasts annual investment into hotel development of US$1.7 billion in 2019, with investment sales in 2018 of US$350 million and increasing to US$400 million in 2019.
Nijnens added: “We expect liquidity and trading of hotel assets to continue and this will improve pricing transparency in the market and reduce ownership risk.
“Value add strategies will be the most successful approach to acquisitions as there is a lack of well-priced quality assets available for trade.”
Development returns are highest when focused on disrupting the sector or when addressing emerging demand and differentiating projects.
Brand conversions present strong revenue upside prospects and they are well supported by the international brands in the current climate.
Regional markets are increasingly diverse and out of sync, and the prospects and risks across the region vary immensely.
In 2018, hotel performance has been mixed across the region, largely due to the impact of new supply entering the markets, as well as external demand pressures.
West Africa has seen the most improvement in performance with commodity pricing on the up and many economies thriving.
East Africa has experienced good demand growth, yet occupancy has been under pressure due to recent supply growth.
Performance in wouthern Africa is stagnant as a result of the economic slowdown in South Africa, as well as the impact of the drought in Cape Town.
Indian Ocean performance continues to be very strong with an excellent outlook.
The outlook for hotel investment in sub-Saharan Africa in the medium and long term is positive.
Developing cities with high supply growth were always going to place pressure on performance and this is now being felt.
Africa Hotel Investment Forum
AHIF is the premier hotel investment conference in Africa, attracting many prominent international hotel owners, investors, financiers, management companies and their advisers.
It is organised by Bench Events, which has an established record of delivering high-level networking and thought leadership conferences for hospitality investment and aviation in Europe, the Middle East, Africa, Asia and Latin America.