I have been travelling around various African capitals in recent months, and it strikes me that, whilst most developers are talking about constructing new 5 star hotels, they seem to be missing an opportunity in the market, that is the extended-stay hotel. Many of the cities I visit are absolute naturals for this type of hotel, as I shall explain. But first, an explanation of what an extended-stay hotel is.
Let’s imagine you are a seasoned traveller, who is in the habit of making fairly long visits when you leave home – perhaps a week or so at the time. Don’t you get fed up with having to rely on the hotel’s staff to do everything for you? OK, so increasingly you can make your own tea and coffee, but it would be nice to at least make your own toast for once! And perhaps to have a little more space to relax, or to work?
The extended stay hotel caters to just such demands, offering a fully-equipped kitchenette, and large accommodation units, ranging from 40 square metre studios to one and two bedroom apartments, with defined living, sleeping and working areas. Downstairs, the public facilities are limited, offering breakfast, vending machines and/or a mini-market, and little else. Some operators will sell the units only on a long-stay basis, weekly or monthly, others will take short stay guests when they are able.
Cities like Nairobi and Accra have several serviced apartment providers, but in almost all cases they tend to be apartment blocks which offer daily cleaning services, rather than the coherent product that brands such as Staybridge, Residence Inns and Homewood Suites offer in the USA.
Yet the markets are, as I mentioned, absolutely right for this kind of lodging product – expatriates relocating and waiting for permanent accommodation, aid agencies, bodies such as the UN and World Bank, teams of consultants, business travellers from Europe and the USA making longer than normal trips due to the distance, and so on.
At least two investors are looking seriously at the market. In Nairobi, ICDC Investments, a local financial house, are considering the development of a major new extended stay complex on a site in the CBD. And in Accra, Poly Group, a local manufacturing concern, are looking equally seriously at the market there.
What are the attractions of the extended stay model? Well, several! To start with, there are the strong demand dynamics noted above. Then there is the lower investment involvement, and the lower risk for the investor – there is no need to provide the extensive food and beverage, and other facilities, that full service hotels offer, reducing the up-front investment required, as well as the operating costs. And because the units are typically let on a long-term basis, there is less commercial risk for the investor, compared to the typical hotel. Plus, an extended stay hotel can, in the last resort, be converted to normal residential use as an alternative, providing an exit for the investor.
ICDC Investment’s Andrew Muriithi comments “We believe that the investment fundamentals of the extended stay product are more attractive to us than the typical hotel, which can have a much more volatile cash flow profile, particularly in African markets”.
In the USA, there are today more than 250,000 extended stay rooms, growing at an estimated 6 per cent per year, and achieving occupancy and average rate premiums over the mainstream hotel sector. Further, it is documented that extended stay properties can weather the storm better, experiencing better performance in downturns than the full-service hotels.
So why are there not more extended stay developers and operators entering the markets in Africa? Partly, I believe, this is due to the lack of maturity of the markets, which are only just beginning to see development outside of the 5 star sector –which tends to lead in developing economies – into the mid-market and budget sector. And also, there is a reluctance on the part of the global chains such as Marriott, Hilton and InterContinental, which dominate the market in the USA, to enter African markets with their extended stay brands before they have firmly established their core brands there first.
That to me represents a major opportunity for a savvy investor to exploit the markets with a home-grown brand.
W Hospitality Group, Lagos