Where Next for the Big Hotel Brands? - JLL Report
World leading hotel operators are active in almost every corner of the globe leaving little room to expand in developed markets, which are awash with well-known hotel brands.
AccorHotels is reportedly dipping its toe in Iran, becoming the first international hotel group to operate in the country with parts of South East Asia and South America also offering hotels groups a chance to expand.
Africa's 'overwhelming potential'
However, nowhere looks more promising than Africa, according to Xander Nijnens, Head of Hotels & Hospitality, JLL Sub-Saharan Africa: "Africa offers an overwhelming potential to participate in what's widely regarded as the final frontier market for hotel real estate."
But there's no single route into the African market, he says: "Without a doubt, there's room for international brands in capital cities and gateway cities because this is where international travellers go. These people are looking for the safety and security that comes with trusted names."
A recent JLL report shows there is just 22 percent global brand penetration in Africa, contained mostly in the higher end of the market. African hotels are largely dominated by local chains.
Buying local brands
However, buying up these local hotel brands presents a viable strategy. Good local names often outperform their international rivals.
Marriott, for example, bought local chain Protea Hotels in 2014, acquiring more than 100 properties, which continue to trade under this well-known local name.
"To me, this makes a lot of sense because they [Marriott] are providing a product that is more visible to the local market, where there's high demand from local and regional travellers," adds Nijnens.
While Marriott's acquisition was a relatively rare opportunity, as few sizeable local brands do exist in Africa. "There are a number of new small local and regional operations in the market that are growing at a good rate," Nijnens says.
"In the medium to long term they could prove to be good acquisition targets. And South Africa is home to a larger number of more established outlets," Though Nijnens warns that they are asset heavy and own or lease the majority of their hotels, which would not necessarily suit an incoming foreign investor.
But the reality is that many more small portfolios exist and to reach any meaningful scale, a global hotel brand would have to buy clutches of mini-chains – a complicated undertaking, which would result in far less brand value.
A hotel shortage
Exacerbating this problem is the serious shortage of investment grade hotel real estate; Africa's 54 countries containing less than 5 percent of the world's hotels.
But this could all be about to change. Global investors are looking to Africa and targeted hotel investment platforms are being raised, which could inject as much as US $1 billion equity in the next five to seven years, providing large chains with the high-quality, new-build rooms they seek.
Opportunities for hotel operators would open up, too, as a result of more investible assets coming to market. The current model exists on a management contracts and a few franchise agreements.
More international companies are setting up in Africa, trade is formalizing and air access is improving. As a result, growth in the hotel market is expected to be largely business driven – outside the tourist hotspots of North Africa and the Indian Ocean.
Overall, traveller numbers to Africa for business and leisure are projected to rise by 5.7 percent a year up to 2030, compared to 3.2 percent globally. Fuelled by economic development and a rising African middle class, mid-market and budget sectors have particular potential to flourish.
Investors shying away from volatile emerging markets – namely Brazil and Russia – could also translate into growth for Africa.
As with any emerging region, Africa also suffers from currency fluctuations and economic volatility, which continue to create a challenging environment for investors and developers. But for hotel chains with an eye on the long term, Africa's relative blank canvas presents plenty of space for creativity.
About JLL's Hotels & Hospitality Group
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. AFortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $136 billion. At year-end 2016, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of more than 77,000. As of December 31, 2016, LaSalle Investment Management has $60.1 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit www.jll.co.uk