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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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Presentation on theme: "HOTEL DEVELOPMENTS IN AFRICA Neels Heunis Head of Sports & Leisure Davis Langdon an AECOM Company AFRICAN ECONOMIC FORECAST 2012."— Presentation transcript:

1 HOTEL DEVELOPMENTS IN AFRICA Neels Heunis Head of Sports & Leisure Davis Langdon an AECOM Company AFRICAN ECONOMIC FORECAST 2012

2 Davis Langdon, An AECOM Company Recognised as one of the worlds 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

3 Davis Langdon, An AECOM Company Operating in 43 countries in Africa

4 Its Time For Africa…


6 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?

7 The Past, The Present & The Future… Old AfricaNew Africa PovertyCivil War World CupInvestable FamineGenocide NollywoodConsumers DiseasePiracy GDP GrowthCommodities Internet ScamsDictatorships AgricultureDemocracies Source: Mara Capital

8 Some Key Statistics

9 Hotels – The Big Picture

10 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.

11 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 worlds largest economy by 2025 Championship economies will join BRICs as global engines of growth

12 The Market – Global Travel But where is Africa?

13 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

14 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.

15 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.

16 African Leisure Market Eco- Tourism Business Travel Resort / Leisure Destinations Medical Tourism Sport / Extreme Tourism

17 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.

18 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.

19 14% of African hotels are internationally branded vs 46% in Middle East

20 Hotel Brands And Strategies In Africa Regional Passive International

21 Hotel Development in Africa 2011 Regional Summary Hotels Rooms Hotels Rooms Hotels Rooms North Africa7517, , ,611 Sub-Saharan Africa 8114, , ,753 TOTAL15631, , ,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

22 Hotel Development in Africa 2011 Top 10 Brands by Number of Planned Hotels and Rooms Rank by HotelsRank by Rooms 1 Radisson Blu161Radisson Blu3,327 2 Ibis142Hilton2,807 3 Novotel113Ibis2,150 4 Hilton104Mövenpick2,053 5 Etap95Novotel1,955 6 Park Inn76Holiday Inn1,900 7 Holiday Inn67InterContinental1,532 7 Lonrho68Etap1,294 7 Mövenpick69Kempinski1, Sofitel510Le Meridien965 Source: W Hospitality

23 Top 10 countries of Hotel development in Africa Top Countries for 2011 Added Sierra Leone due to it currently being a hot market

24 Key Trends & SWOT Analysis of the market

25 Key Drivers And Trends – Follow The Oil Exploration and discovery of oil and natural resources Influx of expats into Africa Need arises for accommodation

26 Key Drivers & Trends – Aerotropolis Concept 52% of companies consider transport links the vital factor in deciding where to locate their business survey of 500 of Europes top companies Access to markets and ease of international travel are often more important than availability of skilled labour and overall business climate 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

27 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

28 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.

29 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

30 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

31 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 IRRs 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

32 Experiences in Africa

33 Transportation

34 Accommodation

35 Africas Delicacies

36 The Real Picture

37 The Fastest Hotel Ever Constructed

38 Questions ?? Tel: +27(0) Citi Bank Building 145 West Street Sandton South Africa

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