Hotel investment in sub-Saharan Africa set to grow more than 10% in 2018 to $500m
Hotel investment volumes in sub-Saharan Africa is forecast to grow year on year by between 10 and 20per cent in 2018 to about $500million (R6.07billion) in transactions, according to real estate and investment management firm Jones Lang LaSalle (JLL).
Xander Nijnens, the head of hotels and hospitality group for sub-Saharan Africa at JLL, said yesterday that transaction volumes had increased during the past five years despite open market transaction volumes remaining low compared with the broader growth in hotels as an asset class within the real estate sector.
However, Nijnens said the maturation of hotel ownership should see an increasing number of owners recycling their capital into new hotel developments, which, in turn, would create an opportunity for new capital to acquire existing assets in the hotel sector.
Nijnens added that, with the global search for yield in a long real estate cycle and the current mid-cycle rotation in mature markets, global capital was increasingly assessing opportunities in Africa.
“Growing Chinese influence in Africa and new politically motivated investors coming to the region should result in fresh capital looking at opportunities in the hotel sector.
“We do not expect a flood of new foreign capital to enter the region. However, in 2018 we do expect these investors to ramp up their exploration of opportunities,” he said.
Nijnens said hotel performance in sub-Saharan Africa was expected to improve this year following the subdued performance last year, with the budget and mid-market segments showing the strongest demand fundamentals.
“Despite high global debt liquidity, we expect financial leveraging to remain challenging in the region, while transaction volumes are forecast to continue their upward momentum,” he said.
Nijnens said occupancy for last year was estimated at 58percent to 60percent, with the average daily rate and revenue per available room effectively flat year-on-year.
Subdued economic growth in key markets, oversupply biting many primary cities and political instability made last year challenging for hotel performance, he said.
But Nijnens said stronger occupancy growth was expected this year, with revenue per available room growth of between 3and 5percent as occupancy increased to above 60percent as growth recovered this year in sub-Saharan Africa to 3.2percent year-on-year.
Nijnens said investment returns in the budget- to mid-market segments were the highest in sub-Saharan Africa, because of the more stable local and regional base, together with more sensible development and operating costs.
He said JLL predicted higher investor interest and supply growth in these segments than any other supply segments in the region this year and beyond.
Nijnens added that hotel investment in the Indian Ocean since 2014 had been excellent and investor demand for assets in Mauritius, Seychelles and Zanzibar was strong.
“Investment returns have been driven by a combination of increased demand, due to safety concerns and instability in competing resort destinations, improved airlift and limited supply growth.
“We expect the Indian Ocean to be the top-performing region in sub-Saharan Africa in 2018, with aggregate occupancy rates remaining north of 75percent and average daily rate growth of 6percent to 8percent,” he said.
Nijnens added that developing a portfolio of hotels in Africa to reach scale was tough, which was driving interest from real estate investors, institutional investors and global brands to acquire existing portfolios and platforms.
He expected to see demand for platforms to grow as investors and operators sought scale in Africa, with a few platform deals this year supported by global merger and acquisition trends.