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Oil discoveries likely to drive demand for hotels in Kenya

The development of Kenya’s oil discoveries is expected to spur on the establishment of international hotels in the capital Nairobi. Europe’s oldest luxury hotel group Kempinski and US chains Hemingway Hotels & Resorts and Best Western Hotels are some of the leading brands which launched in Nairobi last year.

Other global chains currently constructing new hotels or planning to open in the city include Radisson Blu, Marriott, Hilton, Park Inn and Lonrho. Last year’s statistics indicate 1,437 new rooms will be put up in Nairobi by 2017.

Vernon Page, CEO of Hotel Partners Africa (HPA), says growth in the hospitality industry will be accelerated by the oil boom. HPA is an alliance of three hospitality consultancies including Nigeria-based W Hospitality Group, South Africa-based Hotel Spec and London-based Leisure Property Services.

“In Nairobi it looks like there are lots of hotels [but] there is still demand and the oil and gas has not come into play yet. When those oil companies and auxiliary companies start coming in… business hotels will be needed to meet the growth in demand.”

Nairobi is also witnessing an increase in the number of local brands, including Sankara Nairobi and Tribe Hotel which are already in operation, as well as Carnivore Hotel, CityBlue Hotels and Green Hill Hotel which intend to open within the next 24 months. Most of these hotels target business travellers.

Speaking to How we made it in Africa on the sidelines of the recent East Africa Property Investment Summit in Nairobi, Page noted there will be increased demand for serviced apartments among travellers who intend to stay in the country for weeks at a time.

“The oil and gas industry works on a rotational system. People don’t want to stay in a hotel room for six weeks, go off three weeks and then come back and spend another six weeks. I see serviced apartments operated by hotels becoming a big market.”

HPA offers developers and hotel owners a wide range of services, from the initial appraisal of a potential development, to acquiring the funds, building and opening the business, and finally to selling the asset.

The group is focusing on sub-Saharan Africa where Page says “there is so much opportunity”. According to Page, the hospitality industry in Africa is undersupplied with hotels of international quality at a time when demand is rising due to a growing African middle class and emerging sectors that are pushing local and international travel.

“Demand is being created in Africa by natural resources, financial services [and] the telecommunications sectors which are growing and are bringing in international money and players. Those people are demanding international standard hotels.”

Huge market for hotels

Page adds that there “is a huge market for hotels” in Africa in the various segments, a fact that should entice investors.

“There are a lot of luxury hotels being built, but there is a big market for mid-scale hotels [and] business hotels across Africa. Africa is the focus of the world now. What people used to think was a dead continent is now the place to be. With the undersupply, building hotels and getting the returns on hotels is an incentive for investors. Although there is high risk, there is a high return for them as well.”

Pages downplays fears of saturation, explaining that there will “be certain spots in the future” that may experience saturation of hotels, but generally, demand is expected to keep growing in most markets.

“It takes on average five years to build a hotel. What is the economy going to be like in five years time? By the time your hotel opens the market is changed. If you look at East Africa and West Africa, with all the natural resources and the service industry growing so big, demand for hotels will keep rising. The African hospitality industry will continue to grow.”

Hurdles to development

But even as construction gathers pace, Page warns that governments in Africa are a key stumbling block to hotel developers.

“They want to promote tourism, they want to promote businesses but they themselves are causing challenges [through] restrictive regulations, not giving incentives, customs being a problem [and] visas being a problem. For example, you can travel quite easily within East Africa [but] in West Africa getting in and out of countries is very difficult, even with [the regional economic community] ECOWAS.”

Air transport, he adds, is also a problem in many countries due to poor infrastructure which makes certain cities inaccessible.

“Hotel industries cannot work if there are no airlines. If you can’t get people in and out of a country or a city, hotels will suffer. So governments should put infrastructure in place,” he says. “Energy costs in the continent are a huge challenge. It is a major expense when operating a hotel. It’s a big cost to run a hotel 24/7 on a generator.”

Page cites Nigeria, Ghana, Kenya, Rwanda, Angola, Uganda, Tanzania and Mozambique as the “big markets” which are likely to attract hotel investors.

Ethiopia is a big one and it is going to boom. There is a lot going on there. It is difficult to do business now, but hopefully government will sort that out. It has potential for big business.”

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