IS THE FIVE STAR TREND GIVING WAY TO MORE PROFITABLE FOUR AND THREE STAR HOTELS IN NAIROBI?
(Posted 20th April 2015)
Investors in the hotel industry in Kenya’s capital Nairobi seem to be unperturbed by the present challenges the tourism industry in particular at the coast is experiencing. The business market for hotels in the city shows some unexpected but welcome resilience and while lesser tourist numbers have left a mark on occupancies does it appear that the flow of ‘regular’ business, conference and meeting travelers continues to support the hospitality industry in Nairobi and is in fact growing.
New 5star hotels are of course in the pipeline, next to open is the Radisson Blu probably by mid-2015, but it seems there has been a quiet shift by developers towards more 4star and even 3star hotel developments. According to some hoteliers spoken to during an ongoing fact-finding mission in Nairobi this is very likely driven by profit considerations and the return on investment which at the top end of the hospitality market appears lower than for a four or three star hotel, where the overall investment can be considerably less and where the operating cost are substantially below those of a 5star hotel.
A perfect example would be the Best Western Premier, located outside the CBD in the Hurlingham area of the city, where it is the only ranking internationally branded hotel for that matter. Since its opening in December 2012 has the 96 bedroom hotel gained rapid acceptance by travelers seeking out a quality 4star hotel as opposed to a much higher priced 5star hotel, especially when the difference in service levels and facilities does not make a fundamental difference for a visitor. According to some hotel guests spoken to, the distance to the CBD apparently also does not matter too much as they either got business to attend to near the hotel or else just take a cab to meet their appointments in the city centre.
The Best Western Premier offers a gym and a pool, but not a Spa, guests forgo the free newspaper slipped under the door in 5star hotels and do only have a limited hours room service available, but that of course reflects on the tariffs and those again are perhaps the main reason for the high occupancies this particular hotel enjoys. The well sized rooms at the hotel are equipped with everything a business traveler needs, ironing board and flat iron included and besides a stocked minibar does a guest find coffee and tea making facilities. Free high speed broadband WiFi is available throughout the hotel and several meeting rooms, all booked up during my visit, help to cater for the lucrative conferencing market. An all-day dining restaurant, the Pablo’s on the ground floor, offers breakfast, lunch and dinner, both indoors and outdoors, while a rooftop restaurant next to the pool, and an adjoining club lounge, complete the facilities. It is in particular the rooftop which offers a sweeping view over the CBD skyline, as the bird flies less than two kilometres away and for getting a table there is a reservation highly recommended.
General Manager Vivek Mathur, who joined the Best Western Premier only in February this year and Cynthia Chebii, Sales and Marketing Manager, shared their insights into the market dynamics and both confirmed that while many of the higher rated hotels, vis a vis the number of stars over the front door, perhaps find it harder to generate a stronger return on the investment, this is not the case with them. High occupancies, though no specific number was quoted, have since the opening of the hotel confirmed the choice of the owners for both the location and their franchise as the right one. This is maybe the reason why there have been persistent murmurs that Best Western was in the market for another hotel in Nairobi, be it a Premium, a Plus or their basic version of a property.
As reported here a few weeks ago is a new 175 bedroom Hilton Garden Inn coming up for opening in 2016, which will no doubt siphon away business from what once was a flagship Hilton Hotel in the heart of Nairobi but has since then, due to lack of regular upgrading and modernization, lost favour in the market. Again will the expected 4star ranking result in lower rates compared to 5star hotels and that should help fill the rooms.
On the local scene have the owners of the Heron Portico Hotel, formerly know as the Heron Court Hotel – a four star 108 room property located in the Milimani area of Nairobi ranked number 15 of 122 by TripAdvisor – bought another similarly rated hotel in the Spring Valley / Westlands area of the city, the Zehneria Hotel. Ranked by TripAdvisor as number 45 of 122 hotels in Nairobi is the acquisition, which according to information received is worth approximately one billion Kenya Shillings, a further confirmation that the 4star market has gained in appeal for investors. While not stroking the ego of owners as a 5star or 5star luxury hotels does, is the bottom line result no doubt stroking the ego of the accountants and financial advisors who expect to see higher returns in this hotel segment as do incidentally new 3star properties, especially when sporting an international brand acquired by franchise.
Across the Eastern African region have global hotel brands expressed interest to acquire properties on either outright management or through a franchise agreement, reflecting the potential of this part of Africa vis a vis recent oil and gas finds and the more determined effort to mine for a range of minerals, all activities supplementing the tourism industry which presently is facing wobbles in all the EAC countries except Rwanda.
Starwood Hotels, only present at this moment in Kampala through a Sheraton franchise, is said to be keen to increase its regional footprint and newcomers Marriott – which acquired the South African Protea brand last year which does have a wider presence already in Uganda and Rwanda – Hyatt and Radisson Blu among others like Dusit are all actively seeking new opportunities to expand their brands into East Africa. Various African hotel investments conferences in recent years have all focused heavily on the Eastern African region, a sign for sustained confidence in these markets to produce good financial returns.
