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HOTEL DEVELOPMENTS IN AFRICA
Neels Heunis
Head of Sports & Leisure
Davis Langdon an AECOM Company
AFRICAN ECONOMIC FORECAST 2012
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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
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Davis Langdon, An AECOM Company
Operating in 43 countries in Africa
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It’s Time For Africa…
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AFRICAN ECONOMIC FORECAST 2012
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• 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?
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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
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Some Key Statistics
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Hotels – The Big Picture
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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
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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
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The Market – Global Travel
But where is Africa?
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“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
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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.
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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.
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African Leisure Market
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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.
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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.
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14% of African hotels are internationally branded vs 46% in Middle East
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Hotel Brands And Strategies In Africa
Regional
Passive
International
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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
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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
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Top 10 countries of Hotel development in Africa
• Top Countries for 2011
• Added Sierra Leone due to it currently being a ‘hot’ market
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Key Trends & SWOT Analysis of the market
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Key Drivers And Trends – Follow The Oil
• Exploration and discovery of oil and natural resources
• Influx of expats into Africa
• Need arises for accommodation
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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
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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
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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.
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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
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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
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• 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
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Experiences in Africa
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Transportation
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Accommodation
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Africa’s Delicacies
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The Real Picture
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The Fastest Hotel Ever Constructedhttp://www.youtube.com/watch?v=ogQRjGGxkZQ
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Questions ??
Tel: +27(0) 11 666 2000
Citi Bank Building145 West StreetSandtonSouth Africa
www.davislangdon.comwww.aecom.com