Article Summary: There is a change happening across East Africa, with family-run hotel companies looking to maintain the control they’ve always enjoyed via franchises, and brands looking for country-capital sites and improved occupancies and employment skills.
There is a change happening across East Africa, with family-run hotel companies looking to maintain the control they’ve always enjoyed via franchises, and brands looking for country-capital sites and improved occupancies and employment skills.
Primary Category: Middle East/Africa
ABU DHABI, United Arab Emirates—A new sweep of branded hotels is coming to East Africa as the old stock from the 1970s is retired or replaced, and accompanying these new upstarts is the world of franchises, according to sources.
Speaking on a panel at the Gulf & Indian Ocean Hotel Investors’ Summit, Yasin Munshi, Marriott International’s director of development for the Middle East and Africa, said there has been an acceleration in East Africa hotels in general and certainly branded ones in the last 10 years.
“We also have seen a number of independents going into soft collections,” he said.
Trevor Ward, managing director of business consultancy W Hospitality Group, said one change connected with this rise in product is the move away from hotel management agreements and towards franchises.
“There remains a lot of unbranded hotels in the region,” he said.
Munshi added that “a lot of the metrics in the region are quite low, pulled down by this unbranded supply.” To understand the new dynamic, follow the money, he said.
“Family offices made money the hard way, and then you present to them an HMA. That does not work, especially further down the chain,” Munshi said, noting that Marriott is looking for more franchises in the region.
“What a sea change we’ve seen towards franchises,” Ward said.
Panelists said hotel chains are looking more and more at franchises, or at least some kind of franchise-plus agreement in which the GM, CFO and engineering are all set up and the relationship between brand and operator may change further down the line.
East Africa on the rise
Ayaz Jivraj, director of family-run company Opulent Hotel Group, said growth in the region is concentrated on Ethiopia, Kenya, Rwanda, Tanzania and Uganda.
“Two-thirds of our growth has been in the capitals, and that is true of our portfolio in East Africa. One great resource there is the people,” he said.
Jivraj said Tanzania has excellent occupancy; Zanzibar is cheaper (for guests) and easier to get to than Mauritius and The Maldives, which are challenging markets.
“Airlift remains the biggest challenge, although this has been relieved by the continued growth of Turkish Airlines, Ethiopian Airlines and Oman Air,” he added.
Ward agreed Zanzibar is a market to watch.
“In Zanzibar, arrivals have doubled, and it continues to be an interesting market,” he said. “Ritz-Carlton has signed a deal there. … Accor, Hilton, Marriott International, too.”
Calling out other markets, Ward said: “Ethiopia accounts for 40% and its capital Addis Ababa, 86%, a year-on-year increase of 50%, but with the first ripples of concern of oversupply. Kenya makes up 25% of the total, Tanzania, 15%.”
Munshi noted of the hotel pipeline in Addis Ababa, “40% to 50% of (projects have) reached spades in the ground.”
“The numbers seem scary, but when you see what is happening in that city, (that supply) can be absorbed,” he said.
Jivraj said while “a 4-star turnkey property” in Africa might cost developers $150,000 to $175,000, in East Africa that sum would buy a property somewhat farther down the scale.
Ward said he thought $120,000 was nearer the cost in Nairobi, although not for a first-time developer, and that investments are the most secure in the history of the region.
“There are tax breaks, although the administrative procedure through the channels can be a pain,” he said, adding one problem in the area is the lack of quality surveyors.
Panelists agreed debt in the region is hard to come by, with the banks generally looking at the person first and the project second.
“You can get 6% to 12% interest in U.S. dollars, 12% to 24% in local currency, and $15 million maximum,” Jivraj said.
Despite the challenges, there is a lot of investment interest across the region, and there are distinct pockets of opportunity, so you have to know the markets well, panelists said.
“The hotel and hospitality industry is the one major industry providing jobs. Clove-picking is not doing that,” Ward said, referring to the spice industry, which Zanzibar once was a major hub.
“What restricts Zanzibar is airlift,” Jivraj said. “East Africa is a destination that will do very well. … Good hotels will see 90%-plus occupancy.”
Hide Headline: No
Hide Feature Image: No
Hide Summary: No
Force Login: No
Third Party Article: No
Headline: East Africa franchises soar as 1970s hotels disappear
Article Date: 3/1/2019
Article Time: 8:53:00 AM