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Hospitality industry growth seen higher on new investment

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The Kenyan hospitality industry is expected to grow more than eight per cent in 2018, buoyed by increased hotel investments, a report by audit firm PwC said.

“We expect the arrivals to increase by 8.8 per cent in 2018, building on the pickup in December 2017. Going forward, assuming a period of relative stability, we expect tourism to Kenya to increase at a 6.9 per cent compound annual growth rate, rising to 2.06 million in 2022 from 1.47 million in 2017,” said the PwC hotels outlook 2018-2022.

The anticipated rise in number of tourist arrivals has been buoyed by the increased investment activity in the hotel segment.

Kenya has seen the increase in number of properties lining up for a space of the market with an expected 1800 rooms added to the market over the next two years.

Over the five year forecast by PwC, 13 hotels with 2,600 rooms will enter the market accounting for a 14 per cent increase in hotel capacity.

Kenya as at the end of 2017 had an estimated 19,100 rooms with an occupancy of 47.3 per cent. The occupancy rate marked a decline from 52.9 per cent in 2016 despite the bed space growing by just about 500 rooms.

“Instability following a Supreme Court ruling in September that overturned the result of the August Presidential election led to a drop in tourist arrivals in October. Although tourist arrivals rebounded strongly in December, hotel guest nights were down during the latter part of the year (2017)”, explained the PwC survey.

Despite the period of instability, Kenya topped key sub Saharan Africa rivals Nigeria and Tanzania in the count of global chain hotel brands presence.

“The combination of new hotels, more flights to Kenya, stronger economic growth, lower inflation and, most importantly, greater security should contribute to growth in guest nights. We project guest nights to rise at a 6.9 per cent compound annual rate during the next five years,” reads the Hotels Outlook 2018-2022.

PwC Hotels Outlook states that the increase in the development of new hotels and the refurbishment of existing ones is an indication of confidence in Kenya’s economic growth. Several new properties under development in Nairobi and some upcountry towns indicate a targeted effort to attract increasing numbers of business travellers who may require specific services like conferencing facilities.

“Increasing business traveller demand is driven by Nairobi’s position as an East Africa commercial hub and the multiplier effect of devolved government including county economic development,” further reads the PwC Outlook.

Four Points by Sheraton and Best Western chains have refurbished and rebranded properties in the country, taking over management. Four Points by Sheraton last year took over a hotel in Hurlingham previously managed under the Best Western Premier brand, while Best Western rebranded Meridian Hotel in the city centre to a Best Western Plus.

The PwC Outlooks shows that there has been n significant differentiation within the hotels sector and specifically among four- and five-star hotels. Certain hotels have hosted global leaders and international conferences, helping to position them as high-end and world class. Some offer bespoke, luxury experiences whereas others have focused on amenities attractive to short-term business travellers.

“Some hotels are making investments to maintain or improve the experience of staying with them whereas others are struggling a bit. Remaining or becoming relevant could end up being a factor of how much money they have and the willingness of their owners to invest,” says Bernice Kimacia, PwC Assurance Partner in the report.

According the Knight Frank 2018 hotels report growth will be increasingly concentrated in the large cities of Sub-Saharan Africa, with the populations of cities such as Luanda, Lagos, Dar es Salaam, Nairobi and Addis Ababa between 2015 and 2030.

“West Africa has the main pipeline activity with over 23,000 rooms in its pipeline, a large proportion in Nigeria. This is followed by East Africa with about 14,000 pipeline rooms, mainly in Kenya and Ethiopia,” says the Pipeline 2018 report by W Hospitality.

The Pipeline 2018 report further shows that Kenya has 80 per cent of its rooms onsite, mostly in Nairobi, where there are 1,424 rooms in nine hotels due to open in 2018. Tanzania has a much slower growth who with all of its 1,494 pipeline rooms under construction. However, the pipeline (which includes Zanzibar) is very small compared to many other countries, and development there is muted due to the prevailing economic and political environment.

As it is, Kenya has the second highest number of branded hotels in Sub Sahara Africa, topping Nigeria, Ethiopia and Tanzania seen as competitors for the tourism market. South Africa has the highest number of branded hotels in the Sub Saharan region with 430 branded chain hotels compared to Kenya’s 68. Tanzania has only 46.

Even as the infrastructure grows, the average occupancy rate predicted to rise to 58.1 per cent in 2022, up from 47.3 per cent in 2017 is still well below the 62.3 per cent rate in 2012.

“Kenya Airways is introducing a direct flight to the United States in late 2018 that should boost U.S. travel to Kenya. Kenya should also continue to benefit from rising tourism from India, Poland, Russia, the Czech Republic and China, which has been a source of growth in recent years.” Says PwC.

Kenya is also making a more concerted push to promote tourism from African countries by marketing the country as a destination for experiences including the free visa on arrival initiative.

The country has also been marketing itself as a key destination for Chinese tourists tapping the 42.9 per cent growth since 2011.

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