HOTEL DEVELOPMENTS IN AFRICA

Neels Heunis

Head of Sports & Leisure

Davis Langdon an AECOM Company

AFRICAN ECONOMIC FORECAST 2012

Davis Langdon, An AECOM Company

• Recognised as one of the world’s leading global construction consultancies, we are focusing on providing managed solutions for clients.

• Over 90 years experience of delivering construction consultancy services

• Part of the AECOM family

• 45,000 employees globally

• Operating in more than 130 countries

• Fortune 500 company

• Our approach:-

Manage client expectations

Reduce and control risk

Manage and control Cost

Maximise Value for Money

AFRICAN ECONOMIC FORECAST 2012

7

23

12

131

9

43

24

1

6

30

323

401811

2135

3517

26

28

25

31

41

22 14

937

8 15

36

4

38

29

39

20

42

33

6

1610

27

Davis Langdon, An AECOM Company

Operating in 43 countries in Africa

It’s Time For Africa…

AFRICAN ECONOMIC FORECAST 2012

• 54 countries

• 3 times the size of China

• 1 billion people

• Speaking 1,000 languages

• Exceptional natural resources

• 26,000 km of coastline

• The most diversified natural environment

• Opportunities• Labour supply• Global focus on Africa• Developing consumer economies • 100m households > US$5000 pa – 160m

Why The Interest In Africa?

The Past, The Present & The Future…

Old Africa New Africa

 

Poverty Civil War   World Cup Investable

 

Famine Genocide   Nollywood Consumers

 

Disease Piracy   GDP Growth Commodities

 

Internet Scams Dictatorships   Agriculture Democracies

 Source: Mara Capital

Some Key Statistics

Hotels – The Big Picture

The Market: global travel industry

• Strong correlation between GDP growth and tourism– Tourism has more pronounced cycles

• Hospitality and tourism heavily affected by– Consumer discretionary spending– Companies’ travel budgets

• Global travel industry is making an uneven recovery from recession, mirroring world economy– Growth returned in 2010– US and Europe sluggish– Asia, Latin America and Africa are

hotspots.

GDP and Tourism

-6%

-4%

-2%

0%

2%

4%

6%

8%

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source: IMF, WTTC

Ann

ual %

Global visitor arrivals

Global GDP growth

Shift In Economic Power - East And Horizontal

What is driving future growth?• Industrialisation

• Population growth

• Domestic consumption

• Net investment in capital stock

• Availability of a labour force

• Increasing quality of ‘human capital’

• Increased productivity

The World at a turning point• EE to grow much faster than AE

• AE unfavourable population trends and fiscal constraints make it unpopular investment choice

• EE share of world GDP to grow

• China will overtake the US as the world’s largest economy by 2025

• Championship economies will join BRICs as global engines of growth

The Market – Global Travel

But where is Africa?

“Nine of the 25 fastest growing economies will be in Africa”

Ed Fuller, Marriott International

Leisure Is One Of The Top 5 Sectors That Will Offer The Greatest Potential

The Big Picture• Markets in transition leading to Emerging Market status, currently termed by

many developers as PRE-EMERGING

• Attractive - ability to grow exponentially

• NOT the traditional Hotel Investment model– High tolerance for risk– Long term horizons (ten years for an investment)– Commitment to active local participation– Commitment to sustainable ecology model

2011 Branded Pipeline Update

• Most international brands are increasing activity on the continent despite challenges:

− Limited access to Capital (Debt vs Equity) for hotel developments

− Availability of experienced owners and institutional real estate investors

− A global economic crisis that has brought hotel development to a halt.

The Big Picture

• Most dynamic economies in Africa have sustained a higher level of GDP growth and demand is based on strong fundamentals

• Low return in the US and European real estate and private equity markets is directing capital towards emerging markets, which generates a major opportunity for African countries

• African trade with Asian countries is increasing and capital flow from Asia should be directed towards hotel real estate

• Emerging professional real estate vehicles and hospitality dedicated funds in some African countries are encouraging new capital flow into hospitality.

African Leisure Market

The Market – Urban Hotels

• Flight to brand by banks – funding is still challenging

• Continuation of operators moving to being “asset light”

• Re-emergence of business travel

• Sporting and major world events

• Sustainable development; Green Star certification

• Corporate travel to green locations increasing

• Number of outbound visitors from BRIC economies – major western cities need to be ready to receive

• Gap in budget end of market for BRIC economies

• North America & Europe will see a focus on conversion.

The Market – Resorts

• Flight to brand by banks – funding is still challenging

• Continuation of operators moving to being “asset light”

• Sporting and major world events

• Sustainable development; LEED certification

• Number of outbound visitors from BRIC economies – major western cities need to be ready to receive

• Emergence of medical tourism, eco tourism, sports tourism.

14% of African hotels are internationally branded vs 46% in Middle East

Hotel Brands And Strategies In Africa

Regional

Passive

International

Hotel Development in Africa 2011Regional Summary

  

2011 2010 2009

Hotels Rooms Hotels Rooms Hotels Rooms

North Africa 75 17,038 72 16,909 61 15,611

Sub-Saharan Africa

81 14,101 80 15,223 90 15,753

TOTAL 156 31,139 152 32,132 151 31,364

• Current data shows average of 150 new planned hotel developments per annum• Globally numbers have decreased substantially.

Source: W Hospitality

Hotel Developments in Africa 2011

Hotel Development in Africa 2011Top 10 Brands by Number of Planned Hotels and Rooms

Rank by Hotels Rank by Rooms

1 Radisson Blu 16 1 Radisson Blu 3,327

2 Ibis 14 2 Hilton 2,807

3 Novotel 11 3 Ibis 2,150

4 Hilton 10 4 Mövenpick 2,053

5 Etap 9 5 Novotel 1,955

6 Park Inn 7 6 Holiday Inn 1,900

7 Holiday Inn 6 7 InterContinental 1,532

7 Lonrho 6 8 Etap 1,294

7 Mövenpick 6 9 Kempinski 1,000

10 Sofitel 5 10 Le Meridien 965

Source: W Hospitality

Top 10 countries of Hotel development in Africa

• Top Countries for 2011

• Added Sierra Leone due to it currently being a ‘hot’ market

Key Trends & SWOT Analysis of the market

Key Drivers And Trends – Follow The Oil

• Exploration and discovery of oil and natural resources

• Influx of expats into Africa

• Need arises for accommodation

Key Drivers & Trends – Aerotropolis Concept

“52% of companies consider transport links the vital factor in deciding where to locate their business.”-- 2007 survey of 500 of Europe’s top companies

“Access to markets and ease of international travel are often more important than availability of skilled labour and overall business climate.”-- 2007 survey from Think London

Examples of this trend:• Ghana• Free Town• Nairobi• Cairo

Commercial

Recreation

Residential

Exhibition

Aviation Related

Logistics /Light

Industry

Urban Land Institute

Airport

Key Drivers & Trends – Urban Regeneration

Melrose Arch, Johannesburg South Arfrica

Levy Junction Mixed Use Development Lusaka Zambia

• Revitalisation of inner cities• Cape Town• Maputo• Accra

• Bespoke mixed use developments• Uganda• Zambia• South Africa• Nigeria

Investment Challenges in Africa

• Most Hotels are owner-operated and few international brands

• Gray economy, cash economy and limited banking

• Limited financing for hotel projects

• High interest rates

• Confusing, conflicting and ever changing governmental

regulations with so much grey area in terms of interpretation of

laws as well the mix of government agencies with jurisdiction

• Slow legal system with limited protection of  property rights

• No reliable market  research

• Limited destination marketing

• Accessibility and airlift challenges

• No guaranteed construction period – most projects have major

overruns (7 yrs)

• Education of alternative procurement routes for construction -

reducing risk to the operator and developer.

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATS

• Lack of experience & expertise

• Client education – hotels not their core business

• Air lift into key destinations

• Currency stability

• Debt funding and limitations

• Political instability

• Impact of global economy on Africa

• Health issues

• Land ownership – regulations

• Natural disasters (drought, floods)

• Very strong GDP growth • Pre-emerging continent

• Minerals and resources

• Natural beauty

• Untapped business market (lack of competition)

• Needs and desirability (Liberia - not one recognised hotel in the country)

• Growing economy (demand outweighing supply)

• Pioneering business opportunities

SWOT Analysis For Hotels In Africa

DESIGN & COST PARAMETERS

• Location is KEY

•Star Rating (Size of rooms)

•Size of the hotel

• Shape of the hotel

•Service offerings of the hotel

•Infrastructure requirement to the hotel

•Operator Selection

•Specific design issues:-

• Servicing strategy

• Type of facade system

• Space / area utilisation

Radisson Maputo

• Finance typically structured 7-11%

• Typical total construction cost: • 3* Hotel - $130,000 - $165,000 / key• 4* Hotel - $175,000 - $200,000 / key• 5* Hotel - $260,000 - $350,000 / key

• Still high risk

• 2 percentage points more – debt/equity returns

• Returns decreasing• IRR’s were 20% - 25%• Now accept 14 – 18%• Certain developers would even accept

10%Structured over time?

• Construction• First 1- 3 years operation• Ongoing operations

Typical Investment (Source Grant Thornton)

Hilton Windhoek 150 Keys

Experiences in Africa

Transportation

Accommodation

Africa’s Delicacies

The Real Picture

The Fastest Hotel Ever Constructedhttp://www.youtube.com/watch?v=ogQRjGGxkZQ

Questions ??

neels.heunis@davislangdon.co.za

Tel: +27(0) 11 666 2000

Citi Bank Building145 West StreetSandtonSouth Africa

www.davislangdon.comwww.aecom.com