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Commodities Slump & Impact on Hotel Investment

Short-term commodities slump won’t impact on long-term hotel investment

Hotel development in Africa is up 30% on 2015’s numbers but a commodities slump has led some to question whether the pace of development is exceeding demand.

Not so, says managing partner of global hospitality consultants, HVS, in South Africa, Tim Smith. The commodities slump in Africa and subsequent impact on business travel should not impact on long-term sustainability of hotel development in Africa, currently experiencing a boom on the continent, he says.

“Hotel investment should always be seen as long-term so the re-adjustment of commodity prices is a short term impact,” he says. “Allowing for development, plus the time to allow the business to ramp-up to full performance, takes over seven years from concept to full operation, plenty of time for commodity prices to change.  There are many other factors pushing demand that proves the overall growth is sustainable, perhaps the most important being stable government,” says Smith.

“It is also important to understand the low base from which we start; in the US there is one hotel room for every 95 members of the population. In Europe that rises to 185 people per hotel room and in the Asia Pacific region it climbs to 1 361 people for every hotel room,” he says.“But in Africa it is 4 736 people per hotel room. Given demand is increasingly derived locally, it illustrates the lack of supply. The World Bank Global Economic Prospects Survey shows six of the 12 fastest economies to be in Africa.”

Smith says it’s also important to get the supply growth in context. “In the July Pipeline reports by STR, Africa has approximately 10 times more beds under contract than London and approximately 10% of those under contract in the US,” he says. “In summary investors should not be deterred by short-term challenges when the overall opportunity is so large.”

HVS’ inaugural THINC Africa conference takes place on 6-7 September 2016 in Cape Town. One of the topics under discussion is Hotels: A Currency Hedge in Emerging Markets, moderated by HVS chairman in London, Russell Kett, with panellists Brian Singer of The Singer Group, Lourie Kruger of Kingdom Hotel Investments and St John Bungey, CEO of Sanlam Africa.

Among the list of speakers are:
·      Tim Harris, Wesgro
·      Mark Satterfield, Marriott
·      Elie Younis, Rezidor
·      Portia Tau-Sekati, Property Charter
·      Gavin Courtenay, SATIB Insurance Brokers

For more information visit www.thincafrica.hvsconferences.com

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