Investors struggle as 80% of Ghana’s hospitality projects stalled

These are not the best of times for investors in Ghana’s hospitality sector as about 80 percent of pipeline hotel projects in Accra, the country’s capital, is on hold, according to a Pipeline Projects Report.

The report said whereas it seems the total stock of internationally branded hotels in Accra is set to almost double, only 14 percent of the pipeline projects are actively under construction.

The rest of the projects, according to the report compiled by Estate Intel, a pan-African real estate data company, have been stalled due to the impact of the COVID-19 pandemic and currency devaluation.

These two factors, which are also major real estate challenges in Nigeria, have affected not only room and occupancy rates, which have dropped, but also Revenue Per Available Room (RevPAR).

“For 2021 year end, Accra was 40 percent down on RevPAR compared to 2019,” said Trevor Ward, managing director of W Hospitality Group, noting, however, that it was not bad compared to Nairobi (50 percent down) and Johannesburg (65 percent down in Sandton).

Northcourt Real Estate had, in an earlier report, noted that the impact of the pandemic was more pronounced in the hospitality and office submarkets, revealing that office vacancies continued to rise, following an increase in the supply of new office developments.

“Prime office rents have declined substantially – but this is not the case with well-built low-rise buildings that seem to have sustained both tenancies and rents,” the report said.

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Because of the currency devaluation, Ghanaian investors in hospitality and real estate generally need more local currency to import building materials for their hotel projects, hence many that do not have the needed cash have to put their projects on hold.

Ward said there was hope but this, according to him, was hinged on the oil sector picking up pace, and the government coming up with new initiatives to encourage tourism, just like it was done in the ‘year of return’ in 2019. “The market is currently oversupplied, but it can be temporary,” he argued.

As in hospitality, the office sector remains relatively subdued as a large proportion, about 33 percent, of the development pipeline is on hold potentially due to the pandemic impact on the sector.

“Overall, the office sector in Accra has been impacted by the significant layoffs and space reductions that came with the Covid-19 pandemic, therefore impacting the sector with vacancy rates remaining high at 20 percent and 25 percent in grade A and B offices respectively, Dolapo Omidire, CEO Estate Intel, noted.

He pointed out, however, that leasing activity has started to recover with new entrants expected to make a comeback this year. He added that currency devaluation has continued to limit developers’ access to financing which impacts the overall pipeline.

Ghana’s real estate sector has expanded over the past three years due to a concentration of developers operating in the mid to high-end segments, the arrival of non-resident Ghanaians as well as foreign investors such as Grit, a German corporate finance and investment management firm.

The Northcourt report recalls that, before the pandemic, the real estate sector’s contribution to GDP was robust due to growing transaction volumes and an increase in the supply of real estate assets. The majority of real estate transactions in the Ghanaian market are concentrated in Accra and Kumasi.

“An estimated 42.1percent of Ghanaians own their dwelling unit while 29.7 percent live rent-free. Typically, Ghanaians prefer to build and own their houses incrementally which accounts for the moderated intensity of land use.

“Numbers from the Centre for Affordable Housing (CAHF) indicate that compound houses account for 57.3 percent, while detached and semi-detached houses account for 28 percent and 4.7 percent respectively. Huts and flats account for 4.8 percent and 3.3 percent,” Ayo Ibaru, chief operating officer at Northcourt explained to BusinessDay.

He said that as high interest mortgages were the order of the day, the Ghanaian government continued to support affordable homes by easing access to housing credit for government workers, adding that developers focus on the middle to high income segments of the housing market.

In Nigeria, the residential segment of the market is faring better and that is the same in Ghana where sectors such as mid-low end residential seem to be performing better. According to Estate Intel, there are up to 800,000 residential units in Accra, with the development pipeline currently consisting of only 23,000 units.

“This is just about 3 percent of the total stock, with the majority of this pipeline (80 percent) falling within the middle income to affordable sectors. However, demand remains high in these segments, pointing to an exciting opportunity for investors and developers due to the domestic nature of demand in this segment.

“Demand in the residential sector is quite nuanced in the market. While occupancy rates remain low in the prime residential segment due to a decline in demand from expatriates and multinational employees against the backdrop of the pandemic, the mid-low end residential segments have continued to record relatively high occupancy rates owing to the domestic nature of demand,” Omidire said.