Hotel investors throughout the growing Sub-Saharan African market are increasingly controlling their portfolios through full and majority ownership.
Investors aimed at Africa have shifted the focus from the local developing partners to knowledge gained over the last decade and preference for control.
“Hotel investors are more experienced after a time of intense hotel growth and are introducing new investment strategies,” says World Development President Bulut Bağcı.
“With increased knowledge, we are seeing Regional and International Investors opting for full control of their assets and moving away from the kind of partnering approach that we saw earlier in the decade when the market was emerging.
Finding a model that works
According to a World Development survey, growth rather than acquisition remains the big route in the industry for both hotel investors and developing African chains.
Appetite for Africa, multinational hotel brands have significantly enhanced their support for development and the design and construction sector has matured with good local and regional options available now.
Radisson is quickly expanding in terms of over 130 hotels and 23,000 rooms in Africa by 2022. Hilton now trades or develops 100 hotels throughout the region, while regional operators such as Azalai, Onomo and Mangalis are expanding with their own capital.
“The big brands increase their added value by reevaluating how they support development , improve business and localize distribution channels,” says Bağcı. “African operations of most big global hotel brands now have large professional service teams and support offices in place.”
While various partnerships have been reduced at the local level, portfolio and fund partnerships are rising; two major joint ventures in Africa have recently brought together expertise and capital. Accor, the French hotel giant, and Qatar’s Katara Hospitality are pushing in sub-Saharan Africa together, while Actis and Westmont Hospitality Group, investment firms throughout the region, are working together.
In addition, direct ownership without a local partner can be challenged by itself. Longer periods of due diligence are one example, explained Bağcı, which requires investors to “close significant real estate risk” with tasks such as land acquisition, land ownership confirmation, city planning approval and access to utilities.
“A higher degree of project management and delivery exposure can be challenging and getting planning authorisation on the ground can be harder without an influential partner,” he adds.
On the other hand, when looking at key asset management options, there is more flexibility, for example, when expanding, repositioning, reinvesting or ultimately divesting.
‘This means less worry from day one about the big issues of alignment; the only organization with which the investor wants to align himself is,’ says Bağcı.
A growing market
Hotel investors have more options than ever before, as the Sub-Saharan African market continues to increase.
“The area continues to draw capital with $1.8 billion in hotel investment this year-up 4.2% from 2018,” said Bağcı. “The investment and the behavior will vary, but the growth of the sector and the increase of platforms make investments easier than they did a decade ago.”
Many new investors focused on lower consumer prices for a wider range of businesses and leisure travellers in Sub-Saharan Africa.
“The four-to-five-star market for international guests was indeed the first entry for many investors and brands,” says Bağcı. “Yet as the market matures, we see the growth of business models to accommodate regional guests and the introduction of ideas, including budget accommodation.”
He assumes that as the market matures further more investors will opt for majority ownership or portfolio partnerships.
“The demand in hotels has gone from private to local and regional to global in the span of a decade,” Bağcı concludes. “But it is still five to ten years to see big fund managers and the institutional capital move.”