2022 Outlook - Hotels & Travel in Africa

As the world begins to return to normal slowly, the hotel and tourism sector in Africa is poised for defining year, whereby we will see several trends shaping the course of investment into the sector. Wayne Godwin, Head of JLL’s Hotels & Hospitality Group in Sub-Saharan Africa, looks at five key trends shaping the sector in 2022.

Regional travel drives the recovery

While nobody quite knows the pandemics final course, there is an expectation from the sector that a recovery will gain momentum in 2022, buoyed by increasing vaccination levels and medical advancements such as the new Covid Antiviral pill and a potential pan-coronavirus vaccine. These welcome developments should bring more momentum in corporate travel, and we expect regional travel to recover a lot quicker than international travel to the continent.

This trend will remain beyond a recovery, with hotels increasingly focused on serving regional and domestic travellers. Africa’s urban population is expected to triple by 2050, with much of the population young, technologically connected and mobile. This demographic dividend will continue to underpin investment into the hotel sector for many years to come.

Revenge travel a welcome boost for Africa’s leisure sector

The prospect of travelling again is welcome news for most. Travellers are increasingly looking to use the opportunity to undertake a more unique, experiential trip than usual. Many of the largest outbound travel markets have seen significant household savings accumulated through the pandemic, and we expect that travel will benefit from this.

Africa is home to multiple “bucket-list” destinations and is well-positioned to attract this pent up demand. The safe passage and relative convenience of travel to the region will be critical to achieving this, with increased sensitivity around new variants and covid risk whilst travelling.

The discovery of a malaria vaccine has not received the same attention as the Coronavirus vaccine but will be a game-changer for leisure travel, particularly to Africa’s various safari circuits (where malaria tends to be more prominent). While the impact will not be immediate, we could see many more travellers, particularly with young families, feeling comfortable travelling to the region over the next few years.

Wakanda Forever. African design becomes mainstream.

The Economist notes the emergence of African fashion into the global mainstream as one of their five stories to watch out for in 2022, with African design influencing several sectors beyond fashion. In part this trend is driven by the meteoric rise of the Black Panther franchise and the release of its sequel in 2022.

The hotel sector is no exception. We expect to see hotel owners and operators in Africa embracing contemporary African design when interpreting consumer preferences and designing hotels, particularly within the lifestyle space. This will not be limited to new hotels, and we expect to see a lot of refurbishments incorporating this design-led thinking.

ESG can no longer be ignored.

ESG needs to be central to any hotel investment strategy in the region. In the 2019 Urban Land Institute Hotel Sustainability Report, hotels globally recorded the highest per square metre energy and water usage of all commercial buildings, making them the highest energy and water-intensive properties. This carries a high operating cost and an opportunity to improve profitability for hotels across Africa.

However, the social impact or “the S” presents significant opportunities for ESG focused capital in Africa. Globally, sustainability funds are hitting record highs. In Q2 2021, sustainability-related fund assets reached $3 trillion. Africa has a compelling story for attracting this capital, with the IFC estimating that regional investment into the sector creates an average of 1.5 to 3 direct jobs for each hotel room.

Understanding the ESG impact of investment will become critical in 2022 if investors want to access this growing pool of global capital. Equally, it will be important to align regional reporting with emerging global disclosure and taxation frameworks and valuation best practices.

Investors shift from developing hotels to acquisitions.

During 2021, the sector saw an uptick in acquisition volumes, while investment into new development has been impacted negatively due to Covid. We expect to see a further uptick in acquisition volumes during 2022, with many owners and lenders now either under pressure to dispose of their hotels or themselves eyeing an opportunity to recycle capital into assets where they perceive value.

This trend has been somewhat inevitable, with the development cost of new hotels in the region increasing consistently over the past decade, while room rates have declined in many markets. Subsequently, the acquisition cost of a hotel is far less than the replacement cost of the same hotel in many circumstances. The sector needs to critically evaluate all aspects of the development value chain to bring down the cost of hotel development in the region.

What presents itself is a more realistic picture of Africa’s hotel investment prospects, with much of the exuberant narrative fueled by service providers to the sector rather than by investors over the past decade. While development activity has decreased, we have seen a resolute commitment from stronger, seasoned developers who expect their hotels to open in a post-covid environment and thus still enjoy good prospects if they can successfully execute their strategy.

Whether capital is used for acquisition or development, investors willing to take a longer-term view and invest in well-located and suitably positioned hotels have very strong prospects for success.