Rising tourist numbers to spur hospitality sector construction boom

GTC Tower which has 42 floors in Westlands,Nairobi, hostS the US chain JW Marriott hotel. [File, Standard] The upward growth in the number of tourists to Kenya is expected to drive the construction of more hospitality outlets in the country. Data from the Kenya National Bureau of Statistics (KNBS) shows international visitor arrivals recorded a 35.4 per cent increase in 2023 - from 1.54 million in 2022 to 2.09 million, while bed nights increased by 23.2 per cent from seven million in 2022 to 8.6 million in 2023. According to The World Travel and Tourism Council, tourism contributed seven per cent to Kenya's GDP, injecting Sh1.05 trillion into the economy last year. The country hopes to attract more than three million visitors by the end of 2024, with the figures expected to hit the five-million mark within the next three years. The steady rise in visitor numbers has created a need for more hotel rooms and facilities, prompting the construction of new hotels and contract signings to meet this demand. Earlier this year, W Hospitality, an organisation specialising in the hotel; tourism; and leisure industry in Africa, projected that 31 hotels were in the course of development in Kenya in 2024, adding 4,268 rooms to the market. Already, a number of the "Big Five" global hotel chains-Accor, Hilton, IHG, Marriott International and Radisson Hotel Group-have had a run for the local market, partnering with developers to open world-class facilities in the country. Following the completion of a 315-bed hotel operating under the JW Marriott brand at Nairobi's 35-storey GTC tower, several other branded hotels have entered the local market, including the 211-room Glee Hotel along the Northern Bypass, a rebranded 162-room Pullman hotel in Upper Hill, and the M Gallery with 105 rooms in the diplomatic zone of Gigiri. JW Marriott is also the group behind the exclusive lodge in Maasai Mara, the first of its kind in Africa's safari segment. In addition, TUI Group, a German global leader in the tourism sector, was planning to enter the local market by constructing the TUI BLUE Watamu, a 124-room hotel in Kilifi. According to W Hospitality, the African hotel development pipeline now stands at 524 hotels with 92,193 rooms, a 9.1 per cent increase over 2023. The report shows a majority, or 81 per cent, of agreements signed by the hotel chains are management contracts, while franchises account for 15 per cent of the pipeline deals. Other business models include joint ventures between hotel chains and hotel owners with a few owners doubling up as operators. "The new signings should be good news for developers as it shows there is a ready market for a developer who wants to invest in the hospitality industry," says Mike Macharia, chief executive at the Kenya Association of Hotel Owners and Caterers. "In Kenya, we are yet to scratch the surface as far as construction in the hospitality sector is concerned." Projected arrivals However, Mr Macharia says such figures should not make industry players complacent as the projected arrivals can quickly wipe out existing hotel rooms, making a case for more construction within the sector. He adds that real estate developers follow government policies, which highlight expected business projections in any given sector, hospitality included. "The potential for construction in the sector is very high considering that the president even projected arrivals of more than five million within a few years to come. A city like Berlin, in comparison, receives 12 million visitors annually, while Kenya was still projecting a million visitors by 1980 when countries like Uganda and Rwanda were still unstable. Now the regional players are almost catching up with us. Should the numbers increase as projected, where would these be accommodated?" he poses. Ideally, a global chain wishing to invest locally contacts a developer to see if the proposed construction fits in with the group's expectations and global standards. The two then work together to ensure the structural specifications are met. A developer might also contact a hotel chain to interest them in buying in an upcoming development. Conversions, where buildings originally erected for specific purposes such as apartments are converted to hotels, are also common, though these tend to be time and cost-intensive for both developer and operator. Some hotel brands may opt to convert a construction project that has stalled into a hotel, working with a developer to retrofit the building. Like in any other real estate development, hotel operators look to invest in prime locations with key drivers that will sustain the businesses. These include areas earmarked for airports, road and railway infrastructure or locations with easy access to key corporate locations. That is why Jomo Kenyatta International Airport, Nairobi's Upper Hill, Gigiri and Westlands are ideal locations for most global hotel chains. Interestingly, some hotel developers have opted to secure empty pieces of land adjacent to their properties to control future developments around their key investments. Apart from an ideal location, access to affordable credit is perhaps the key factor affecting the construction of hotels in Kenya. High interest rates continue to hinder would-be-developers from accessing affordable credit with capital markets struggling to attract investors interested in construction. "The few real estate entities that trade in the Nairobi Securities Exchange continued to struggle to attract investors in a market where local investment in stock markets is not predominant. For example, the performance of the only listed real estate company, Home Africa, has remained weak, offering little to attract investors," states Knight Frank's Kenya market update covering the first half of 2024. The Knight Frank report also shows that due to Kenya having the highest interest rates "in over a decade," treasury bonds and bills have seen an oversubscription during the period under review. As a result, the report says more investors have shifted to "these high-yielding, risk-free treasury products," resulting in a reduced money supply for real estate. According to Samantha Muna, a hotel development expert and director with Trianum Hospitality, a lack of liquidity to finish a hotel development can lead to protracted legal and financial issues since hotel chains usually work with a specific timeframe in mind. She says a developer's failure to honour the set timelines due to insufficient cash can lead to long arbitration processes that interfere with the hotel operator's schedule. "All the hotel operator gives the developer are the expected standards for the new hotel and the expected timeline. From there, it all depends on the developer's ability to harness the requisite finances to complete the hotel," says Muna, who has worked with a number of global hotel chains seeking to start operations in Kenya. Despite such hiccups, Kenya will need to up to accelerate the construction of hotels to meet the growing demand for accommodation. In turn, such construction will stimulate economic growth, infrastructure development, and accrued benefits for local communities.

Rising tourist numbers to spur hospitality sector construction boom

Get Full Access for Ksh299/Week.

Related Topics

Similar Articles

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS

Similar Articles

Mpesa drives growth as Safaricom hits record Sh99.7b profit

Kenya to spend nearly half of budget on debt servicing

KDC roots for creative economy, innovation and youth-led enterprise growth

Analysts say China's zero-tariff treatment to boost Africa's industrialization, value-chain integration

DIGGER JOBS

Digger Motors

Digger Real Estate

Rising tourist numbers to spur hospitality sector construction boom

Get Full Access for Ksh299/Week.

Related Topics

Similar Articles

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS