The receptionist realized her mistake immediately. The hotel was overbooked and there was no room for me.
In almost any other city in the world this would be an annoyance, forcing me to move to the nearest hotel with a vacancy. But in Luanda, Angola, in 2004, this meant I was out of options and found myself sharing a room with a stranger. Today, you wouldn’t expect this to happen in Luanda, or anywhere else in Sub-Saharan Africa, where hotels are no longer in such short supply. Instead, you should expect to pay $350 for a decent hotel in the city.
It’s a remarkable transformation. Sub-Saharan Africa’s hospitality industry has moved from embryonic to emerging in just 10 years.
High economic growth, increasing political and social stability, foreign investment and positive demographic variables have led to favorable real estate development and investment potential across the asset class board.
Africa’s hospitality boom is business-driven. Global corporates are flocking to take advantage of growth in industries such as pharmaceuticals and finance, as well as regional corporate expansion. For the hospitality sector, this has proven particularly profitable as global hotel operators pursue growing levels of business travel dollars.
Bridging the supply gap
As a result, global hotel investors increasingly are turning their attention to the region’s largest developing economies such as Nigeria, Kenya, Ethiopia, Tanzania and Angola, and a number of hotel specific investment platforms are being raised. Four have launched in the last six months. Duet Group, for example, signed a partnership agreement with Bouygues Batiment International to establish Duet Africa Hotels, a hotel investment, development and asset management company.
New global platforms such as this could inject as much as $1 billion of hotel-targeted equity in the region in the next five to seven years. This should create much needed growth in investment grade hotel stock; development, to date has, largely, been led by local and regional players teaming up with international and regional operators. Major hotel groups now are stepping up the pace of development in the region.
In Nigeria, for example, the number of projects in the pipeline from the major hotel parent companies represent more than half of the existing supply, according to HNN sister company STR Global. The same applies in Ethiopia, and project pipelines are picking up pace in markets such as Tanzania, Rwanda and Angola.
As many of the markets emerge from decades of instability and resource dominated economic growth, investors, who are predominantly from Europe and Asia, are still concerned with Africa’s ability to offer them scale. Mature markets like South Africa and the Indian Ocean are thriving, yet they’re competitive. Developing markets such as Kenya and Nigeria are growing, albeit from a low base, but with high potential returns.
While full-service hotels in gateway cities remain in favor among most investors speculating on the Africa growth story, it’s the midmarket segment that demands greater attention. It’s often overlooked by local and regional investors in favor of more prestigious developments.
The lack of transparency and liquidity are key concerns for investors and operators alike. Further to this there is a need for more robust governance; further development of capital markets; development of local talent; infrastructure expansion; and the removal of myriad administrative barriers.
But what cannot be overlooked is the overwhelming potential to participate in what’s widely regarded as the final frontier market for hotel real estate.