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Hotel Spurt seen in Lagos (II) (Business Day)

Hotel Spurt seen in Lagos (II) (Business Day)

Entry of international hotel operators increases hotel valuations while lowering revenue metrics

Lagos has emerged a clear favourite among international hotel operators in the race for frontier markets.

Hotel rooms in Lagos tripled between 2003 and 2013 rising from 2,994 to 9,567 according to data published by the W Hospitality Group.


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As one of Africa’s hottest spots in terms of hotel development, the pipeline for the Lagos hotel market is impressive, at more than 4,000 rooms, with a significant portion opening between 2014 – 2017.

Demand in the market has also increased. Stay unit nights increased 6.3% in 2013 and has grown faster than room availability over the past three years according to a PricewaterhouseCoopers report.

The drivers of supply and demand in the Lagos market are corporate travel, meetings & conferences, domestic tourism, cultural festivals and carnivals.

Despite these drivers causing a boom in the industry, occupancy rates have dropped from the 80% range recorded in 2008 to the 60% range in 2013 according to Trevor Ward, Managing Director of W Hospitality Group, a Lagos based hotel consultancy.
Recent data from STR Global, a hotel intelligence firm, show that occupancy rates dipped further to 59.4% in April 2014, representing a 13.8% Y-o-Y decrease.

The following month recorded a worse performance with occupancy rate decreasing on a Y-o-Y basis by 16.1 percent to 58.0 percent in May 2014.

The drop in occupancy over the years has been attributed to the opening of Radisson Blu, Four Points by Sheration, Best Western, Intercontinental Hotel, Ibis Ikeja and small scale hotel properties in Lekki and Ikeja between 2011 – 2014.
This huge surge in supply has also impacted revenue. Average room rates have grown slowly in the last two years, rising by only 2.5% in 2013.

Data from STR Global, showed that in April 2014 RevPAR (Revenue per Available Room) of Lagos hotels reduced by 15.0 percent to US$161.96 and in May 2014, the RevPAR decreased by 20.9 percent to US$150.74.

The decreasing revenue metrics are as a result of competition putting pressure on prices. “The boom will bring more four and five star hotels to Africa, hence prices will become more competitive and this will make some expensive cities more affordable,” said Markus Lueck, general manager for the Kempinski Hotel Gold Coast City in Accra, Ghana.

Nonetheless, there is still a striking shortage of international branded hotels, and Lagos is projected to still have significant capacity gaps till 2018.

A.T. Kearney, a US based consultancy, notes that there would be an undersupply by 1,043 rooms in Lagos, second only to Nairobi with 1,381 rooms.

The prospects for hoteliers in Lagos remain brilliant. Overall hotel room revenue is expected to expand at a 22.6% compound annual rate to $1.1 billion in 2018 from $413 million in 2013.

HVS, a UK based consultancy, published in a recent report that the average value of a hotel room in Lagos is US$380,300 as at 2013, rising by about 7% from 2011.

The report also alludes to unique insurgency risks in operating in Nigeria, pointing out that it certainly is not for the faint hearted, however the returns available can compensate for the higher risks.

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