Investors are projected to put US$1.7 billion into Africa’s hospitality industry next year according to a report by property group JLL represented at the Africa Hotel Investment Forum in Nairobi yesterday.
Xander Nijnens, the Executive Vice-President, Hotels & Hospitality Group, JLL Sub-Saharan Africa said that investors in the hotel sector in Sub-Saharan Africa see a positive outlook in the medium term, yet they also acknowledge that finding suitably yielding opportunities is has become more challenging.
Investors are increasingly looking at niche segments, new secondary markets and value-add acquisitions to reach their return targets.
The hotel market is expected to stay under pressure for the rest of 2018 and the greater part of 2019 as pipeline projects and acquisitions continue to empty rooms into the market. Increased supply over the past five years has raised competition and operators are now looking to supply well placed, distributed and branded products to consistently beat the market.
“New segments such as serviced apartments and branded economy hotels hold strong returns prospects. For investors looking at the market, the wide spectrum of market prospects and asset performance brings both opportunities and challenges,” said Ninjens.
According to JLL forecasts, investment sales which are projected to reach US$350 million in 2018, will rise to US$400 million in 2019 as demand fundamentals remain strong.
“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 due to a lack of well-priced quality assets available for trade,” Nijnens added.
With regard to financing, the report highlighted the continuing prudence and shy attitude of banks towards lending and leverage. A number of new lenders are also entering the sector through their existing relationships with diverse real estate players, thus widening the lender pool.
It would be interesting to see whether the sector would attract mezzanine lenders and other alternative financiers over the coming years. Mezzanine lenders operated by issuing convertible debt instruments, much like venture capital.
Regional market performance has been an intricate mix in 2018 due to the shifting demand supply dynamics. So far, West Africa has seen the most improvement in performance propped up by commodity pricing and thriving. East Africa has experienced strong demand growth but occupancy has been under pressure due to recent supply growth.
Southern Africa has stagnated due to South Africa’s economic meltdown as well as the impact of the drought in Cape Town. Offshore, Indian Ocean performance continues to be very strong with an excellent outlook