As the naira continues in its free-fall, and banks tighten interest rate for long term lending to 23 percent, the Nigerian hospitality industry is at the risk of losing investments or experiencing delays in investments expected to deliver over 2,000 hotel rooms (from about nine hotels in the pipeline) between 2015 and 2017.
Though Nigeria has the biggest number of hotel rooms in the pipeline in Sub-Saharan Africa, with 6,614 rooms in 40 hotels, especially international brands, the fear that some of the projects could abandoned looms, with the present economic reality.
The development reflects the slow pace of getting hotel projects started in the country. According to the 2014 Hotel Pipeline Report of W Hospitality Group, only 38 percent of the hotel rooms that are reported to open in 2015 are under construction.
This most likely means that most of the hotels planned for 2015 will not open on schedule and will be delayed by one or more years.
This also results is the over pricing of the available rooms, especially when the demand is high, and less job creation.
In Lagos alone, no work is ongoing in the various sites of over ten hotel projects in the pipeline. The 250-room Hilton Lagos Airport hotel, expected to open in the first quarter of 2013, has not opened, though work is about beginning on the site of Hilton Ikoyi. Work seems abandoned too in Starwood’s Luxury Collection Brand under construction at Ikoyi Crescent, Lagos, which the developer said was nearing completion since 2012.
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Since the 340 rooms beside 125 choice apartments, whose delivery is expected to impact room rates is delayed due to lack of funding.
Four Points By Sheraton Ikeja is also abandoned, while an investor has handed over a proposed Starwood brand in Victoria Island to a real estate developer to convert to luxury apartments.
In Abuja, a Movenpick is half way abandoned because the developer is having challenges with the bank, which insisted on reviewing the contract because of the economic realities and new Central Bank polices, while an attempt to kick-start a mid market Starwood brand in Port Harcourt is stalled by funding.
Now under Marriot, many Protea hotels in the pipeline are still facing funding issues, as well the Golden Tulip brand that devised to review its franchise and branding deal if project developments linger unnecessarily.
While credible partners and sustained funding are necessary in delivering hotel projects on schedule, the report also noted, “Although these hotel deals have been signed by the hotel chains, this does not always mean that the hotels are actively being built, or are even on site. In deed one cannot be certain that the hotel deal will actually be open by the indicated completion date, or even at all. “This is unfortunately the norm in the African business environment, where development programmes tend to have much longer durations than are originally planned.”
An analysis of the hotel deals by region, and by construction status, shows North Africa with 75 percent of its signed deals as having commenced construction, versus 56 percent in Sub-Saharan Africa, where Nigeria leads.
The way out of the situation, according to Akingbola Oluleye, a hotel expert, is getting many investors to pull their funds together to ensure sustainable funding. This would ensure delivery of the projects on time, and offer the investing partners opportunity to share the risk and profits.
Oluleye also noted that consortiums with huge investment capacities can be approached by local investors, instead of doing it alone at low pace.
But Raphael Onwe, a hotelier, decries the high bank interest rate, which scares investors from borrowing quick money from the banks. “At the current bank interest rate of between 22 and 23 percent, no investor is sure of starting and finishing a hotel project because of the unstable economic policies that keep pushing the banks and lenders to review their rates.
Even when you succeed with banks loans, the pressure to repay results in high room rates and sell of personal assets to offset the loans and save the embarrassment of seizure of your property.”, Onwe said.
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