Hotel investors in Africa are shifting gears. According to global real estate firm, JLL, investors with an eye on the growing Sub-Sahara African market are moving towards greater control of their portfolios through outright and majority ownership.
Experts explain the trend, that investors now feel more comfortable flapping their own wings after accumulating market and operational knowledge over the past decade.
“After a strong period of hotel development, hotel investors are more seasoned and they are implementing new investment strategies,” explains Xander Nijnens, executive vice president of JLL Hotels & Hospitality Group in Sub-Saharan Africa.
“With an increase in experience we are seeing regional and international investors opt for full control over their assets and they are moving away from the kind of partnering-up approach we saw earlier in the decade when the market was more nascent. Doing so increases control and exit option, as well as easing decision-making.”
The preference for control has shifted the focus among investors targeting Africa away from local development partners even though most investors still prefer development rather than acquisition as an entry mechanism according to a sentiment survey carried out by JLL.
But more control is not without risk as outright ownership without a local partner can come with its own challenges including longer due diligence periods, taking on a higher level of exposure to project management, loss of influential partners on the ground among other risks.
For the upside however, there’s more control when looking at key asset management decisions such as expansions, repositioning, reinvestment or eventual exits.
“The region continues to attract capital with investment in hotels set to hit $1.8 billion this year- up 4.2 percent on 2018,” Nijnens says. “How that is invested and how it behaves will vary. But the maturing of the sector and an increase in platforms is making investing easier than a decade ago.”
He believes more investors will opt for majority ownership or portfolio level partnerships as the market further matures.
“In the space of a decade, the interest in the hotel sector has gone from private to local and regional, to global,” Nijnens concludes. “But seeing major fund managers and institutional capital step is still five to ten years’ away.