Kenya Hotel Real Estate – The Growing interests by International Brands and available Opportunities

Between the years 2011 and 2015, the hospitality sector recorded a decline in total revenues per room available and occupancies at 5.8 and 7.8 percent respectively. International arrivals also declined from 1.82 million in 2011 to 1.18 million in 2015 owing to insecurity ascribed to terror attacks that saw some countries including the USA, France, and the United Kingdom issue travel advisories restricting visits to Kenya.  In 2016, however, these countries lifted the travel advisories, and as a result, foreign visits rose to 1.31 million in the same year. This is according to the PwC Hotels Outlook 2017 – 2021 which featured South Africa, Nigeria, Mauritius, Kenya, and Tanzania.

In Kenya, 13 new hotels –including international brands- are expected to open by 2021, adding 2400 new rooms, therefore expanding the hotel capacity by 13 percent. PwC projects a 2.5 percent compound annual increase over the next five years which will result in a total number of 21000 rooms in 2021 from 18600 in 2016.  International companies which have announced plans to open in Kenya within the next five years include Ramada, Sheraton, Best Western, Mövenpick, America’s International luxury hotel, Marriot, Hyatt Hotels & Resorts, and Pearl of Africa by Dubai based luxury resort company, One & Only.

Notably, Hilton Worldwide has embarked on rigorous expansion plans in Africa. In Kenya, the luxury chain is set to re-brand Nairobi’s Amber hotel as part of a US$50 million project to open 100 hotels in Africa within next five years. Also under its umbrella, is the 171- roomed hotel development dubbed Hilton Garden Inn near JKIA. The construction is currently underway. Additionally, the chain is set to open a 255 guest-room establishment in Upperhill. Housed by The Pinnacle, the twin tower is set to be the tallest skyscraper in Africa and is due to be completed in 2020. The hotel will be the third by Hilton besides the CBD’s which was established in 1969.

The above reveals what seems to be a scramble for the Kenya hospitality market. The conversation bound to arise is why the haste by global hotels to set up in Kenya and what this means to the Kenyan people. In this article, we discuss the growing interest by International hotel brands and the opportunities it provides to Kenyan Investors.

The Kenyan economy, improved with a rise in real GDP at 5.8 percent in the year 2016. This was the highest GDP growth reported since 2013. The rate is expected to grow at 6 percent annual rate for the next five years. The realized economic potential, as well as the introduction of Pan- African visa-free passports, continued improvement in the connectivity of the national airline, and increased intra-African & global travel, are some of the reasons that have attracted international brands to Kenya. Domestic tourism has also increased, boosting local tourism thereby driving the hospitality industry back to growth. In efforts to promote foreign tourism, the government continues to invest in transport infrastructure. Such is Dogo-Kundu road, which will allow travelers to access to South Coast by road. Also growing is the international recognition of Kenya’s economic stability characterized by a diversified economy, a good credit ratio and improved conference facilities in Nairobi which is quickly becoming a favorite conference destination.

While there have been questions over competition and ownership of buildings, the Kenyan government does not anticipate intensified competition leading to low returns or oversupply between now and over the next three years. The notion behind this is that Kenya is coming from a state where it did not have sufficient hotel rooms. Furthermore, as the Kenyan market matures, it is expected that the projected growth in GDP and the ever-growing middle class will enable the demand to catch up with the supply. However, to control the competition that is bound to ensue in the next couple of years, the government has set up the Kenya National Convention & Exhibition Bureau (KeNCEB). The bureau’s mandate will be to market the state as a business and conference tourism destination. On building ownership, the ministry of tourism has confirmed that Kenyans own almost all buildings that will host the hotels. For instance, The Pinnacle, which will host Hilton Hotel is owned by Hass Petroleum Group.

While there are numerous opportunities bound to be created such as employment, the most significant takeaway is that the hospitality industry is presently looking up local investors in search of asset classes offering long-term investment opportunities. Hotels are both real estate ventures and operating companies. There are three groups of opportunities presented, namely; luxury, upper mid-scale and mid-scale. With most brands choosing optimal locations with high-end communities with multiple drivers and attractive demographics to set up, investors stand to yield high sustainable income returns.

Local investors are advised to proceed with a lot more attention, putting in ample time for the entire development of a hotel to be successful. This is because the resident investors are mostly first- time owners of hospitality assets and having the right consultants and partners for the development – such as real estate developers, architects and a financial institution that comprehends the African market- are significant factors which will determine the completion of a project.

One of the segments that may need investment consideration by both local and international investor is the long-stay branded hotel residence. There exist a large section of regional and international business travelers who fly in for a four weeks’ stay or more to work on specific projects. Presently, the majority of this segment rent apartments or hotel rooms for their entire duration of stay. This presents investment opportunities for space utilization, which is what brands like Hyatt Hotels & Resorts are looking to offer.