The demand for hotel feasibility studies is expected to increase in 2018, as some key markets begin to show a rebound due to improved economic conditions. In 2017, occupancies in cities like Accra and Lagos showed a growth of 13,7% and 14,8% respectively, according to STR Global. Other cities like Dakar also continue to show strong occupancy growth, with some key competitors increasing occupancies by between 4-7 percentage points for 2017.
Such growth is expected to attract a greater level of optimism for investors seeking to enter hotel markets in the medium to long term. Hotel feasibility studies will be critical for investors to undertake, in order to reduce the risk on potential investments. Feasibility studies will estimate the extent of future growth, determine the drivers of growth, identify the number of rooms that can be absorbed, and project the occupancy levels at which the market and new properties might perform.
It is important to understand that hotel feasibility studies distinguish between the performance of individual competitors and the competitive set as a whole. For example, Accra performed at an overall occupancy of 61% in 2017. Some strong, quality properties offering value for money will however be achieving occupancies and rates well above the market average due to their unique combination of quality, service, location, and price. Hotel feasibility studies serve to unpack the winning formulas of competitive hotels, identify the gaps in the market, and determine the extent to which future supply plans will impact the market as a whole.
Hotel feasibility studies can also assess the impact that a brand can have on the performance of a hotel by comparing the average performance of branded versus independent properties. In a large majority of cases, international brands are able to achieve better performance than their independent counterparts. There are, however, always exceptions, with some independent properties providing strong competition to branded properties.
Significant opportunities exist for new hotel development on the African continent. However, as competition and diversification increase, so does the need for hotel feasibility studies and their associated expertise in order to navigate the nuances and identify the gaps that exist in these complex markets.
HTI Consulting has conducted numerous hotel feasibility studies in over 43 African markets and is strongly positioned to assist investors in the development of hotel projects.