Positive outlook for Nairobi hotel sector
“A positive picture for the Nairobi hotel sector emerges when conducting an analysis of STR figures for first quarter 2018,” says Wayne Troughton, CEO of African-based specialist hospitality, real estate and leisure consulting company, HTI Consulting.
This statement comes after recent indications, in ‘The 2017 Year in Review’ released by HTI, that occupancy in Nairobi, as published by STR Global, had declined by 11.1 percent in 2017, largely driven by increases in room supply (478 rooms) and a reduction in guest demand due to violence surrounding the 2017 elections.
In an encouraging turnaround, however, occupancy rates to March 2018 now indicate an increase of 1.8 percent, despite a 10 percent increase in the number of rooms available (rooms that have entered the market in 2018 include the Mövenpick Hotel in Westlands (276 rooms), Hilton Garden Inn Jomo Kenyatta (171 rooms) and The City Lodge Two Rivers Mall is also gradually opening rooms as they become ready).
“Most positive of all in the Nairobi analysis is the increase in rooms sold of 9.7 percent for the first three months of the year, in comparison to the 3.3 percent decline in rooms sold in 2017,” says Troughton. “It’s a strong indication that markets are returning to Nairobi after the challenges of the election year.”
Interestingly, tourism arrivals to Kenya as a whole increased in 2017, despite it being an election year. Much of the growth was, however, driven by regional African markets, as well as China. Traditional European and North American markets, who usually utilise Nairobi hotels for business or as a stopping point en-route to other destinations, declined in 2017, with a resulting knock-on effect for Nairobi hotels. Total tourism arrivals indicated by the Ministry of Tourism in 2017 amounted to over 1.4 million.
“When compared to the peak benchmark year of 2011 (1.8 million tourism arrivals) it is evident that Kenyan (and Nairobi) tourism demand has still not fully recovered from the terror attacks that followed this peak tourism year,” explains Troughton. “However, provided the positive sentiment around Kenya continues in the short to medium term, a full recovery in demand can be anticipated. This degree of growth is required if hotels in Nairobi are to continue to absorb the new supply coming online,” Troughton emphasises.
Though occupancy rates are currently increasing in Nairobi, the new supply in the market is continuing to negatively impact rates. Average Daily Rates (ADR) declined by 8.4 percent at the end of 2017, according to STR, whilst the first quarter of 2018 indicates a decline of 6.0 percent. “This is to be expected in a market that has grown by almost 2,000 rooms over 3 years,” explains Troughton. “It’s also important to note that, although this is a challenging environment, several individual properties are thriving through strategic management. Those properties where the ‘quality-to-value’ ratio is perceived as low by the market will be most affected by current market conditions.”