Is Lagos the hottest hotel development market in Africa? Look at the fundamentals: a city of some 15 million inhabitants, projected to be one of the world’s 10 “mega cities” by 2025; the commercial centre of the continent’s second-largest economy; the main aviation and shipping hub for West Africa, with a compound increase of 10 per cent in international arrivals in the last 10 years; and with occupancies in the city’s hotels running at 85+ per cent year round.
Demand for Lagos’ hotels is generated by three main sectors – telecommunications, banking, and, of course, oil and gas. The latter is the driver of Nigeria’s economy, with oil output of 2.5 million barrels per day (mbpd) due to double by 2010, and major expansion in gas production.
Yet no major new hotel has opened in Lagos since the Sheraton in 1985. So demand outstrips supply, leading to high rates for rooms, and high profits for owners. The leading hotels are charging US$300 to US$400 per night for a standard room, and despite some high operating costs, particularly energy and maintenance, that translates into high profits. Large hotels in Lagos can produce operating profits of 55 per cent and more, compared with European hotels averaging in the order of 35 to 40 per cent.
There are several new hotels under construction, but many are delayed from their originally-projected opening date. Why? Most often due to a lack of funding. Whilst in most markets hotel developers secure the total funding before starting work, it seems to be the norm that only part of the funding is secured, and developers underestimate the time it takes to raise the balance, leading to (expensive) delays in completion, most often measured in years. Other expensive mistakes include not bringing the hotel operator on board from the outset, and very often the operator requires changes to the existing structure in order to meet brand standards.
What’s the solution? Clearly, it makes better sense to raise 100 per cent of the finance prior to starting work on site, or at least before starting the superstructure. And it is never too early to bring the operator on board, to save expensive alterations later on, and even to save money through better design and procurement.
Lagos is, indeed, the hottest market in sub-Saharan Africa, and there are multiple opportunities for new investors to enter the market, from boutique hotels, catering to the discerning executive traveller, to large internationally-branded operations for the corporate and conferencing market. Problems in the Niger Delta are forcing many companies to relocate their operations to Lagos, resulting in higher demand for hotel accommodation at all levels. Proper planning of a project, avoiding the mistakes of others, could well mean that your new hotel will open before some of those currently under construction!
|International Hotel Supply in Lagos|
(Standard Room US$)
|Eko Hotel and Suites||584||345||None – unbranded|
|Protea Victoria Island||58||314||Protea|
|Protea Kuramo Hotel||60||254||Protea|
|Protea Oakwood Park||62||308||Protea|
|New Hotels Under Construction|
|Sheraton Federal Palace||Victoria Island||140||2008|
|Radisson SAS||Victoria Island||170||2008|
|Four Points by Sheraton||Victoria Island||220||2008|
|Crowne Plaza||Ikeja (Airport)||220||2008|
W Hospitality Group, Lagos