Why Africa’s hotel investors are now choosing to go it alone
More hotel investors are turning away from the traditional route of working with local development partners.
Hotel investors across the growing Sub-Sahara African market are moving towards greater control of their portfolios through outright and majority ownership.
Knowledge accrued over the last decade and a preference for control have shifted the focus among investors targeting Africa away from local development partners.
“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.”
Finding a model that works
Development rather than acquisition is still the main route into the sector among both hotel investors and up-and-coming African chains, according to a sentiment survey carried out by JLL.
Global hotel brands with an appetite for Africa have greatly improved their development support, and the design and construction sector has matured, with strong local and regional options now available.
Radisson is rolling out quickly as it aims for more than 130 hotels and 23,000 rooms across Africa by 2022. Hilton now has 100 hotels trading or under development in the region, while regional operators such as Azalai, Onomo and Mangalis are expanding with their own capital.
“The big brands are increasing their value-add by reassessing how they support development, improve operations and localise distribution channels,” Nijnens says. “Large technical service teams and support offices are now in place at the African operations of most major global hotel brands.”
Whilst diverse partnerships at local level have reduced, portfolio and fund partnerships are on the rise; two major joint ventures have recently brought together expertise and capital in Africa. French hotel giant Accor and Qatar’s Katara Hospitality are jointly pushing into sub-Saharan Africa, while investment firm, Actis and Westmont Hospitality Group, are collaborating across the region.
Moreover, outright ownership without a local partner can come with its own challenges. Longer due diligence periods are one example, Nijnens explains, with tasks such as sourcing land, confirming land ownership, town planning approval, and accessing utilities requiring investors to “close out significant real estate risk”.
“Taking on a higher level of exposure to project management and delivery can be a challenge and getting planning permission without an influential partner on the ground can be harder,” he adds.
On the plus side, there’s more control when looking at key asset management decisions, for example, to expand, reposition, reinvest or eventually divest.
“It means less concern from day one about key issues relating to alignment; the only entity the investor needs to be aligned with is itself,” Nijnens says.
A growing market
With the Sub-Sahara African market continuing to grow, hotel investors have more options than ever before.
“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.”
Many new investors looking at Sub-Saharan Africa are focusing on lower consumer price points to cater for a wider range of business and leisure travellers.
“The four- to five-star market aimed at international guests was really the first entry point for many investors and brands,” Nijnens says. “But as the market matures, we’re seeing business models adapt to cater for regional guests and concepts, such as budget accommodation, emerge.”
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.”