Nearly 60 percent of hotel rooms planned to be built in Nigeria’s two major cities over the last five years have been stalled by lack of funds. So far, only about 4000 of the 9,603-room deals signed by developers, investors and brand operators in the period are under construction, leaving over 5000-room deals under threat of termination, BusinessDay investigations show.
The 9,603 rooms are contained in 57 hotel projects planned by leading hotel brands mostly in Lagos and Abuja, Nigeria’s commercial and political capitals, respectively.
Nigeria has experienced the emergence of transaction-heavy and deal-making environment over the past few years, occasioned by improvements in the economy and a favourable investment climate, but this has not been matched by a corresponding rise in the supply of quality hotel rooms.
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Trevor Ward, CEO of W Hospitality, a Lagos-based hospitality solution, data mining and development firm, explained that raising funds to execute these projects has been constrained by high cost of funds and inability of developers to co-fund the projects.
Ward added that the number of pipeline projects in Nigeria is expected to increase in the coming years as many developers, investors and brand operators are still queuing to strike more deals across the country because of the assurance of return on investment.
At present, there are over 20 abandoned hotel projects planned by international brands, especially in Lagos and Abuja, while many others did not live beyond the deal singing and ground-breaking ceremony, all due to lack of funding to realise them.
“If hotel projects stay longer in the pipeline, the developers will become jittery because the banks or others sources of the loans used in financing the projects will start calling for their money. As at present, over five hotels have been taken over by the Asset Management Corporation of Nigeria (AMCON) due to the failure of the owners to repay bank loans,” said Angwe Ikpe, a hotel development expert and former investment banker.
Kfir Rusin, host of the West African Property Investment (WAPI) Summit, expressed excitement over the significant opportunities in Nigeria for hotels, but said he was sad because of the funding challenge. He urged all the stakeholders in the real estate and hospitality business to seek platforms that can address the issue.
Ward advised developers to go for hotel projects targeted at the mid-scale market instead of the top-end of the market, which he said has been the focus of some global operators such as Hilton, Marriott, and the Radisson. He argued that it is cheaper to build economy or mid-scale market hotels than the capital-intensive five-stars, which most international brands believe they can use to rapidly expand their footprint across Africa.
Still on how to address the funding challenge, Ward suggested that developers and brands could leverage on new trends such as Meetings Incentives Conferences and Exhibitions (MICE), Airbnb, serviced apartments among other options where current demand is concentrated.
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