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Nigeria to lead African hospitality market with 10.5% revenue gain

By BusinessNews Staff on May 15, 2015

The Nigerian hospitality market is set to overtake the rest of Africa as the fastest-growing over the next five years, with a projected compound annual gain in room revenue of 10.5 percent.

This is despite the challenges faced in the past one year, resulting in declining revenue.

Beyond the projected gain in room revenue, PricewaterhouseCoopers (PwC’s) Hospitality Outlook 2015 report, which forecast the revenue gain, also revealed that the number of hotel rooms in Nigeria is expected to more than double in the next five years, with much of the growth taking place in Lagos.

Comparing the Nigerian hotel market and South Africa which has enjoyed its third consecutive year of strong revenue growth with a 9.1perecnt advance, following two years of double-digit gains, the Hospitality Outlook 2015 report (the 5th edition in this series), noted that virtually all of the gain forecast in the Nigerian hotel market is expected during the latter three years, between 2015-2019.

In line with the projections, the hotel industry in Nigeria, which has attracted significant investment of over US$3 billion in the past five years, is getting stronger with the opening of more properties as indigenous investors, partnerships and foreign direct investments take advantage of the rebasing of the economy to grow their businesses.

According to Nikki Forster, Hospitality Industry Leader for PwC, Southern Africa, increase in investments in the sector would continue on account of growth in travel and tourism. “Growth in travel and tourism is also expected to boost growth in the accommodation industry across the African continent during the next five years”, Forster says.

The PwC’s Hospitality Outlook 2015 report, which studied four key hospitality markets in Africa, comprising South Africa, Nigeria, Mauritius, and Kenya also revealed that within the forecast period stay unit nights average (total available rooms for sale in a hotel per night) are projected to increase at a 6.6 percent compound annual rate to 2.2 million in 2019 from 1.6 million in 2014.

While growth in available rooms is expected to continue rising by 10.2 percent in 2015 and at a 20.7 percent compound annual rate through to 2019, hoteliers are making frantic efforts at taking advantage of these projections by looking for credible partnerships and, especially cheap funds to build more hotels.

To partake in the projected growth, Magnus Okpeta, a hotelier, said that going by about 23 percent bank interest rate, most hospitality investors are rather embracing cheap funds from equity firms and mutual partnership formula of some hospitality brands, especially Swiss International, African Sun and Golden Tulip to fund new hotel projects across the country.

Okpeta however observed that the major brands are likely going to take advantage of the projected growth than indigenous hotels because of their strong brand appeal, ownership, and connections.

“You need from N5 billion to build a three -star hotel. But the money does not come easy if you are borrowing from any Nigerian bank. The pressure to service and repay the loans at 23 percent interest rate is often difficult.

Samuel Oloyede, a hotelier said, “The hospitality sector here needs intervention fund to enable indigenous investors to compete in delivering standard hotels that will impact room rates.”

However, over 10 branded hotels are expected to open between 2015 and 2019 across the country, to increase the number of available rooms that is expected to impact PwC’s projected growth in compound annual gain in room revenue.

[Business Day]

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