Welcome to the third edition of the African Hotel Valuation Index (HVI). We are thrilled that the number of markets included in the study continues to grow. In the first edition, we had 14 cities, that grew to 18 last year and this year it has increased again to 21 cities in 16 different countries. A 50% increase in markets in such a short space of time is indicative of the ever-increasing interest in the African hotel market. Moreover, and equally importantly it also illustrates an improved transparency and increase in data across the continent.
The HVI offers critical information on 21 African hotel markets and the countries, including hotel value changes and projections through 2016 and intelligence on market dynamics. It is an index, a statistical concept reflecting a measure of the difference in the magnitude of a group of related variables compared with a base period. As such, it is a measure of broad market trends, rather than a conclusion as to the specific value of any asset, and cannot be applied to an individual asset.
Numerous factors influence the value of an individual asset, including the property’s age, condition, location, amenities and services, brand, management expertise, and reputation. These factors must all be considered in the context of the hotel’s specific competitive market, including the nature, strength, and trends in demand generators; the character and competitive posture of the existing hotels; and the potential addition of any new properties. The value of any individual asset can only be concluded after a thorough investigation of all these factors. And that conclusion will invariably differ—often materially—from the index indicated by the HVI. Although the HVI cannot tell you what a particular hotel is worth, it does provide excellent “big picture” data, indicating which market areas are experiencing positive trends, and thus may present good investment opportunities.
It is becoming as important to look at performance in local currency as in US$. Although revenue from abroad will continue to form part of the attraction of hotel operation and investment in Africa, local demand is becoming increasingly important. Many markets are showing a drop in value in US$ this year, in local currency terms, hotels have performed well and had another good year. However, values are reported in US$ to allow some level of comparison between markets, and because much lending and investment is made in US$.
As with all hotel investment, anywhere in the world, there are many influences outside the control of hotel managers and brands that can impact the trading cycle; currency fluctuations being only one. Unfortunately, again we have to mention terrorism and the threat of terrorism, especially in the North African markets. If there is a silver lining to the cloud of terror over Turkey and parts of Europe, it may be that tourists may be displaced to new markets, including some in Africa. Similarly, with travel advisories being lifted for East Africa the possibility of safari and sun holidays in Kenya and Tanzania will increase for more tourists.
Accessibility and visas remain key issues for both tourists and commercial travelers. However, there is an increase in low cost airlines, and others are expanding and increasing code share agreements. Kenyan Airways and Ethiopian Airlines are continuing to expand and South African Airways, through their various affiliates serve an increasing number of regional cities in southern Africa. Visas remain a challenge and visitors to many African countries will either have a long and costly wait for a visa before they fly or on arrival; either will deter many. However governments are aware of the problem and appear keen to find a solution; the latest being the African Union discussing the possibility of an African Passport. Things do not change quickly in Africa, but every journey starts with a single step...
The other major challenge facing some of the markets included in the HVI continues to be commodity prices. Oil prices have increased in recent months, however the price per barrel remains below $50, adversely affecting economies and demand for hotel rooms.
Despite some short term challenges hoteliers of all sizes continue to expand, it is not just Accor Hotels, Hilton and Rezidor that have substantial pipelines of hotels under development, smaller regional chains including Azalai, City Lodge, Onomo and Protea all continue to expand. The long term climate for hotel development and investment remains sunny and we look forward to growing the HVI into new markets over the next few years.