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NairobiHotel Market Outlook
April 2016
DemandNairobi has well balanced hotel demand of international and domestic corporates, government, NGO, diplomatic and international leisure. We forecast this to grow at 7%-9% per annum from 2016-2020 with a high downside risk in the event of further terrorist related events. Arrivals to Nairobi decreased by 9.5% during 2015, impacting on hotel demand.
SupplyCurrent quality hotel supply in Nairobi is provided by 54 sizeable hotels with a total of 6,936 rooms. Branded supply makes up 43% of this with more global brands entering the market. A high level of new supply of 4,354 keys is due to enter the market between 2016-2020 creating oversupply.
PerformanceIn 2015 Nairobi hotels achieved an occupancy of 53.8% (-1.1%) and an average daily rate of USD 143 (-0.5%*). Occupancy led the RevPAR decline, falling -1.6% with the decrease in tourist arrivals in the first half of 2015. This occupancy remains one of the lowest in the region.
InvestmentNairobi has seen high quality new supply enter the market during the past five years including the Kempinski Villa Rosa, Crowne Plaza, Radisson Blu and Best Western Premier. Funding for hotels is primarily through local promoters with wide interests across numerous economic sectors. Equity is generally sourced from a number of private investors partnering in different deals, whilst debt is predominantly raised from local banks with the support of the promoter’s broader balance sheet. International capital has been slow to enter the market as the local players have been quicker to take the opportunities. We expect global investors to come into the market when acquisitions arise, although a long term view will be required.
OutlookThe security challenges and negative travel advisories have hit Nairobi hard during the past years and the lifting of these pressures will provide additional demand growth. Nairobi is firmly positioned as the preferred regional headquarter location in East Africa, which will continue to drive demand, coupled with a growing regional economy. Short term hotel investment returns will be affected by oversupply and we may see some distressed assets entering the market. With the saturation of the 4- and 5-star markets in Nairobi developers are looking to the budget and serviced apartment segments in Nairobi and into the provinces for new hotel opportunities. Liquidity may improve in the next three years yet remains low.
Key recent openingsRadisson BluGolden Tulip
Key future openingsTune HotelHilton Garden Inn JKIAPark InPullman Ramada
54% Occupancy*
523New rooms in 2015
143 USDADR*
77 USDRevPAR**STR Global, 2016
The capital of the world’s safari haven, home to the regional headquarters of numerous multi-nationals and major NGO’s, Nairobi continues to be an important gateway city to the high growth East Africa region. Aside from business and conference tourism, Nairobi benefits from being the major entry point for leisure travelers to the region. With a reduction in terrorism events, continued stability and high anticipated regional economic growth, Nairobi is seeing a significant number of new hotels being developed.
Kenya
Embakasi
Highridge
Kilimani CBD Nairobi
West
Upperhill
Kasarani
A 104
Nairobi Hotel Market TrendsHigh supply growthNairobi is a semi-mature hotel market with 6,936 rooms which ranks it as the third largest hotel market in Sub-Saharan Africa. The 4-star segment is the largest supply segment in the market with 3,993 keys followed by 5-star at 1,340 keys. Nairobi is poised to enter a period of high supply growth with the opening of 4,354 new rooms having been announced, which represents a 63% growth in supply. We project a realization rate of this pipeline at 65% and 2,743 keys to represent a 40% supply growth. 2016 will see the opening of Ramada Nairobi, Tune Inn Westlands and Park Inn Nairobi amongst others and we forecast a supply growth of 26%. Existing operators will need to work hard to ensure they keep their heads above water during this period. In most cases financial leveraging seems reasonable, reducing the likelihood of distress.
Room supply by grading 2000-2020
Branded supply 2015 vs 2020
Current Supply
2-star 3-star 4-star 5-star
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
6,000
5,000
4,000
3,000
2,000
1,000
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KILIMANI1,460 KEYS
CBD1,348 KEYS
HIGHRIDGE729 KEYS
KASARANI557 KEYS
UPPERHILL797 KEYS
NAIROBI WEST616 KEYS
EMBAKASI692 KEYS
Battle of the brandsInternational and regional brands comprise 43% of quality supply in Nairobi with IHG (542 rooms) currently being the largest brand and Accor having the largest pipeline (1,030 rooms). To date, some of the best performing hotels in the city have been the independent hotels but with the entrance of new branded supply this position will come under pressure. We anticipate more independent hotels looking for branding and distribution as occupancy becomes harder to maintain in the short term.
2015 2020
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Northern suburbs on the riseThe largest current supply node is Kilimani with 1,460 keys. By 2020 Kilimani and Highridge are likely to dominate the market with a total of 4,610 keys (110% growth). Highridge is a large business district North of the CBD including Westlands. This area is expected to see the most significant growth in new hotel room supply moving from just over 700 keys to nearly 2,500 in the next 36-48 months.
Upperhill is seen as the new financial district of Nairobi and a number of large commercial developments are driving future demand including 31 floor Britam Towers (31,500 sqm), 33 floor UAP Tower (28,772 sqm) and 10 floor Flamingo Towers (5,719 sqm). This area will see 410 new keys entering the market following the recent opening of the Radisson Blu.
Xander NijnensSenior Vice PresidentHotels & Hospitality Group Sub-Saharan [email protected]+27 (0)82 772 6490
Mark DunfordVice PresidentHotels & Hospitality GroupSub-Saharan [email protected]+254 0 730 112 024
