NAIROBI, KENYA, OCTOBER 17, 2016 – The hospitality sector in Kenya remains attractive supported by Kenya’s position as a regional hub for East and Central Africa and the attractive tourist destinations eg the MaasaiMara and the Mombasa beaches. This has led to and increase in the Investments in serviced apartments and hotels. As per Cytonn’s Hospitality Report 2016, Nairobi and Mombasa led the way in the total supply of both hotel rooms with a combined market share of 63.4% with Nairobi having the highest occupancy levels in the market at 51%. The Maasai Mara Region is the best performing as measured by the total revenue per room, due to higher room rates as a result of the Maasai Mara game reserve attraction.
“The report themed ‘Sailing through the storm’ focuses on hotels in Kenya and serviced apartments in Nairobi is aimed to allow us inform our partners on the best investment segments in the hospitality sector. ’’ said Elizabeth Nkukuu, Cytonn’s Chief Investment Officer. “ We take a look at the key fundamentals driving the sector among them the business travelers and tourism and review how this translates to occupancy levels and revenues per room and hence the returns available for the investors. We are now increasingly witnessing a shift in consumer preference away from mainstream hotels, towards serviced apartments, especially in the Nairobi region. With more affordable rooms for long-stay business travelers, increased security and larger room sizes, serviced apartments have outperformed hotels in both revenue per room and occupancy,” added Elizabeth.
The Cytonn Hospitality Report 2016 establishes that despite increased supply of hotel accommodation, average hotel occupancy for all regions in Kenya remains low at an average of 33% for 3, 4 & 5 Star rated hotels, with revenue per available room at an average of USD 98. The low occupancy is attributed to (i) insecurity brought about by terrorist attacks, which in turn has led to issuance of negative travel advisories, and (ii) heightened competition from both local and emerging markets in the region such as Ethiopia, with relatively low room rates.
From the findings of the report, as of 2015 Kenya had a supply of approximately 58,000 beds, majority of which are found in the coast region, which has a 39.8% market share, with approximately 22,000 beds. Nairobi has the second highest supply at 13,104 beds or 23.7% of the market share. This translates to an annual bed capacity of 21 mn, against an occupied bed capacity of 5.8 mn, resulting in an occupancy rate of 27.6%. This is an indication of (i) oversupply in the market, and (ii) Investors not focusing on capturing local demand with affordable rates. With the insecurity in the coast region, occupancies are low at 29.0% and revenues per available room at USD 57. This is in contrast to Nairobi, with higher revenues at USD 149 per available room, and occupancy at 51%. Driving occupancy and higher rates in Nairobi is the Meetings, incentives, conferences and exhibitions (MICE) segment of hospitality, which has continued to improve, indicated by a 3.3% and 20.9% growth in the number of local and international delegates to Kenya, respectively, between 2011 and 2015.
Despite the relatively poor performance in hotels across Kenya, serviced apartments in Nairobi have performed remarkably well, with average occupancies of 90% and revenue per available room at USD 127. The occupancy are 29.6% higher than that of hotels, and are 33.5% cheaper on average than a hotel room. Upperhill is the best performing market with average revenue per room of USD 140 and they have a high occupancy in the market at 97.0%. The Nairobi CBD has the lowest total revenue per available room of USD 85. The serviced apartments in this node are relatively old hence unable to a fetch a premium in the market.
The best markets for investing in the hospitality sector are (i) serviced apartments in Nairobi (ii) 3 & 5-star rated hotels in Maasai Mara (iii) business hotels in Nairobi. They should however be differentiated by product offering, location or customer service to attract high occupancy rates.
“As per our analysis on the hospitality sector, we considered 3 key metrics; occupancy rate, average daily rate per room and revenue per available room, to provide a comprehensive report of the viable hospitality opportunity according to location and performance.” said Johnson Denge, the Research & Site Acquisition Manager at Cytonn Investments. “Our outlook for the sector is still positive, and we expect increased focus on development of serviced apartments in Upperhill, Westlands, Kiambu Road and Lavington due to the high occupancy levels already in the market. The hotel industry will continue to face a few challenges before occupancy levels improve to profitable levels again, however development is rife with more than 2,500 beds being added over the next 1-year”
The report is available online: Kenya's Hospitality Sector Report
Table 1: Hotel vs Serviced Apartments Performance
| Hotel vs Serviced Apartments Performance |
|||
| ADR (USD) |
Total RevPAR (USD) |
Occupancy Rate |
|
| Hotel |
212 |
98 |
33.0% |
| Serviced Apartments |
141 |
127 |
90.0% |
| Average for the Hospitality Sector |
177 |
113 |
62.0% |
Table 2: Kenya Hospitality Sector Regional Performance
| Kenya Hospitality Sector Regional Performance |
||||
| Regions |
Occupancy Rate |
Average Daily Rate (USD) |
No of Rooms |
TRevPAR(USD) |
| Maasai Mara Region |
37.0% |
395 |
397 |
182 |
| Nairobi |
51.0% |
229 |
4,389 |
149 |
| Mt Kenya Region |
29.0% |
256 |
485 |
133 |
| Nakuru Naivasha Regions |
29.0% |
218 |
614 |
81 |
| Coast |
29.0% |
152 |
1,909 |
57 |
| Nyanza |
28.0% |
140 |
501 |
50 |
| Eldoret |
25.0% |
92 |
341 |
32 |
| Market Average |
33.0% |
212 |
8,636 |
98 |
Table 3: Nairobi Serviced Apartments Performance
| Nairobi Serviced Apartments Performance |
|||
| Node |
Occupancy |
Average Daily Rate (USD) |
TRevPAR (USD) |
| Upperhill |
97.0% |
172 |
172 |
| Lavington |
90.0% |
150 |
135 |
| Kileleshwa |
89.0% |
145 |
129 |
| Gigiri |
97.0% |
132 |
128 |
| Westlands |
85.0% |
151 |
128 |
| Kilimani |
79.0% |
141 |
111 |
| CBD |
90.0% |
95 |
85 |
| Average |
90.0% |
141 |
127 |
Source: Cytonn Real Estate
