Hotel Development

Hotel Valuations
December 13, 2017
Hotel Industry
January 4, 2018
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Hotel Development

The year 2017 was perceived as challenging for hotel development in Africa. Several markets have been under pressure due to high levels of increased supply and reduced accommodation demand due to lower commodities prices. Several new hotel developments have therefore been placed on hold in many markets until some recovery in the market is evident.

Despite this, there are several markets where new hotel development is pushing ahead. This development is concentrated in markets with economic diversity and/or high levels of tourism. Cape Town represents one such market. In 2017, the city saw five new hotel developments come online, representing a total of 998 rooms. The StayEasy Cape Town City Bowl (302 rooms), SunSquare Cape Town City Bowl (202 rooms), Radisson Blu Hotel & Residence (214 rooms), Radisson RED Cape Town (252 rooms), and the Silo Hotel (28 rooms) all represent the most recent hotel developments in the Cape Town market.

So far, there has been a limited impact on the hospitality sector, with STR reporting continued growth for the year to date November 2017 in both occupancy and average daily rate (ADR) across the 3- and 4-star sectors. Although occupancy has dropped in the 5-star sector, this is largely due to the significant rate increases occurring in this segment. ADR for the 5-star segment has increased by 10,1% for year to date November 2017. The pipeline for future development in Cape Town currently under construction is limited and includes one hotel development, an AC by Marriott, which will equate to 186 new rooms. New hotel developments in the early planning phases include a Marriott Hotel & Residence Inn proposed as part of the Harbour Arch development in the Culemborg node of the city.

Nairobi is also a city that has experienced a high level of new hotel development in recent years. Between 2015 and 2017, new hotel development has included more than ten hotels with more than 1300 rooms. These developments have coincided with declines in demand, driven by terrorism-related incidents that occurred in 2013 and 2015. A recovery in the market was evident in 2016, thanks to an increase in tourism numbers after four years of continued decline. However, the general elections held in October, the subsequent investigation into the validity of the elections, and incidences of violence are expected to have a negative impact on demand.

Year to date November 2017 occupancy is down by 10,9% when compared to the same period in 2016, whilst price pressure is evident in the declining ADR performance. Despite subdued market conditions, development planned in Nairobi is extensive, with an estimated eight new hotel developments in the pipeline, equating to 1400 new hotel rooms. This is likely to put the market under increased pressure over the medium term.

Although markets like Nairobi are under pressure, the opportunities in this and other markets are numerous, driven by enhanced economic and leisure tourism prospects. However, quality hotel development still has a long way to go to provide the infrastructure needed to capitalise on available opportunities.