Following a Peak in the Economic and Hotel Demand cycle in 2014, Supply growth in Nairobi has been at an unprecedented high Level over the past three Years. Despite the 2017 Political Disturbances, Demand fundamentals have been strong. Nairobi was last year ranked the third best city in the world after Paris, France and Isfahan, Iran. British travel guide Rough Guide described the city as “Africa’s youngest, fastest-growing metropolis and the beating heart of the continent’s largest economy.” The ranking was published on roughguides.com featuring top 10 tourists’ destination cities among them Bristol, Antwerp, Medellín, Atlanta, Osaka, Guadalajara and Palma. This positive ranking has seen a boom in the Hotel and Tourism sectors in Nairobi.

With the entrance of many Global Hotel Operators, Nairobi, has Outpaced demand in Supply Growth. With the Hotel Development Pipeline having now reduced, Hotel Performance should recover and create new investment opportunities.

To date, if you have been keen, Hotel investment in Kenya more so in Nairobi has been driven by Local Private Investors with access to Prime Land and Lending Capability off their diversified Balance Sheet. Simba Corporation Group is a Perfect Example Having acquired the Services of Kempinski Hotels to run its Villa Rosa Portfolio. However, there has been an increase in acquisition opportunities from foreign investors as the Hospitality continues to mature rapidly. International Branding has increased significantly during the past five years and new supply is, by Global Standards generally of investment grade quality.

Nairobi is expected to see an increase in the level of Hotel Conversions to international Brands in the coming years since owners of these Properties seek broader distributions. It is on record that Nairobi has undergone a High supply growth Circle with more than 2,000 Rooms Entering the Market. With Currently Close to 8,500 rooms, and about another, 1,000 Rooms anticipated to enter the market in the next two or three years. Industry Experts, however, warn that despite this Positive Growth in Number of Rooms, Nairobi as a City is nearing the end of its Supply Growth. Performance is expected to remain under pressure in the short Term However the medium Long-term Fundamentals are Strong. Great Tourist arrivals growth, the Public Sector support for tourism, improved infrastructure, new air routes, and corporate expansion will drive demand growth.

THE KEY METRICS

It is reported that Nairobi Tourism industry in the year 2017 resulted in an increase in arrivals.1.47 Million Tourists Visited the City despite being an Election Year. In the First half of 2018, arrivals Reached close to 445,000 versus 440,000 for the Same Period Last Year.

Hotel Demand, on the other hand, has continued to show strong growth across the first half of 2018 with Performance remaining relatively flat despite a Considerable increase in supply. As stated earlier, new air Routes will help drive demand into 2019.

Nairobi has seen an unprecedented growth in the supply of more than 2,000 Rooms. More Supply will enter but growth will slow, allowing demand to begin to catch up.

Hotel Occupancy and ADR (Average Daily Rate) are under Pressure due to oversupply Leading to 7% fall in RevPAR for the First half of 2018 compared to Last Year. This Performance is forecasted to remain subdued in the short Term if the Fundamentals remain Strong.

INVESTMENT

As Local Investors begin to look at avenues to expand their Portfolios beyond Kenya, There has been an increase in Regional institutions looking at the Sector as well. It is understood that Hotel operators have increasingly shown a Willingness to invest through operators Loan, Key Money, or Support Conversion. Conversion Present good Investment opportunity.

 

OUTLOOK

The High Level of new supply that has entered the Market, as well as a realistic pipeline of a further c1,000 rooms, will continue to place pressure on Room rates as Occupancy will remain around 45% to 55% for the Market. Demand fundamentals are however strong with renewed political stability, strong growth in the leisure Tourism sector and Government commitment to the sector. Investment returns will be impacted by reduced profitability in the short term yet this may present acquisition opportunities of distressed assets. Various sub-nodes and niche segments continue to provide positive investment


PIPELINE DEVELOPMENTS

Pullman Nairobi Westlands.

2018 ( 340 Rooms)

JW Marriott Nairobi

2020 (365 Rooms)

Radisson Blu Hotel & Residences

2018(123 Rooms)

 Hilton Pinnacle

2022 (255 Rooms)


RECENT COMPLETIONS

City Lodge at Two Rivers 

2018 (171 Rooms) 

Hilton Garden Inn JKIA

2018 (175 Rooms) 

Movenpick Hotels & Residences

2018 (223 Rooms) 

Four Points By Sheraton JKIA

2017(194 Rooms)


QUICK FACTS

1.4 Million International Tourists arrivals in 2017

1,000-1,500 New Rooms Expected

49% Occupancy

12,300 ksh Average Daily Room Rate

6,100 ksh RevPAR

 *Source STR Global,2018 Prospects and these are being driven by increased local hotel investors.


Kennedy Uduny

Passionate Hotelier & a Lifestyle Concierge.

The writer is also KENYAN HERALD Writer for Hotels Review and Travel