The number of hotel rooms in Kenya has more than doubled over the last five years due to heavy investments in the hospitality industry.
While boosting confidence in the country as an investment destination, the move could also be a cause of concern for investors, with an influx in the number of hotels bringing with it the possibility of reduced rates as hoteliers jostle for clients.
According to data from the Ministry of Tourism, about 15 high end hotels have opened since 2013, with about half of these opening in 2016. Of the hotels that have set up since 2013, most of them are in Nairobi and have added 1,700 new rooms in to the market. In 2013, the country had hotel room capacity of about 1,500.
Another 17 hotels have confirmed plans to set up Nairobi between 2017 and 2020, and would add another 2,000 rooms in the market. Thus by 2020, the country expects to have an additional 3,700 rooms, or as hotel industry players would put it, more than 7,000 new beds assuming that the rooms are at the least doubles.
The rise in the number of rooms is despite hotel occupancy remaining relatively low and posting marginal growth over the years. According to the Economic Survey 217, hotel occupancy rates were at 30 per cent in 2016, a slight increase from 29.1 per cent in 2015.
A recent PKF report warns of a possible situation where hotels might start experiencing low returns, even losses due to high competition as more hotels open.
Increased competition
Tourism Cabinet Secretary Najib Balala said the increase in investments in the hotel industry came about after the Government offered incentives in a bid to shore up the number of hotels.
“Our thinking then was that if there is no incentive, there will no investments. We have seen a growth in investments and today we have about 7,000 new beds in Nairobi alone. This is in addition to other refurbishments that were done outside Nairobi,” Balala said.
Most of the hotels are branded by international hotel chains, which Balala said have entered into management agreements with local investors.
“Almost all these buildings are owned by Kenyans. What is coming in from the foreign investors is the brand.
“This puts the local hotels in the network of hundreds of hotels from around the world and potentially gives you more business because if you are travelling, you are likely to use a hotel whose brand you are familiar with,” he added.
The CS does not foresee a situation where increased competition could lead to low returns. He noted that Kenya is coming from a situation where hotel beds were not adequate.
He noted that the Government is looking at ways to grow the numbers so that hoteliers do not resort to undercutting each other in order to win business.
Government efforts include the formation of the Kenya National Convention and Exhibition Bureau (KeNCEB), which will be tasked with marketing the country as a business and conference tourism destination.
“At the moment, the capacity is okay... we do not foresee any problems with extra accommodation now and over the next three years.
“After that, we might see a good amount of competition and we are evaluating ways to make sure that hoteliers do not burn their fingers because of low yields. This will include investing in marketing and pitching for big events,” he said.
According Lilian Gaitho, Head of Communications at Jumia Travel, the online travel agency, other than expected growth in tourism, the surge in investments has been due to the ideal position Kenya has as a regional hub as well as a ‘gateway’ to the region. Other factors include high quality human resource and increased awareness of Brand Kenya internationally.
“The country is viewed as an entry point for new investors looking into the region’s feasibility for businesses, and secondly because Kenya has a remarkable history in serving as a favourable host to regional headquarters for different investors.
Conferencing facilities
“This has bolstered business travel in the country and created a need for developers to cater for this new class of travellers,” she said. She added that the increased investments could result in hoteliers seeing their returns dwindle.
“Tourism is a seasonal business; where we have high, shoulder and off peak seasons. They all demand different approaches to stay afloat throughout the year... some operators will intentionally go below the general market price in order to attract customers during lean times.” Gaitho added.
“Hotels facing this (glut) and low demand can weigh other options such as building on their ancillary services and opening them up to non-residents. This may include on-site restaurants, gym and fitness facilities, conferencing facilities and travel packages.”
It costs between Sh3 billion and Sh5 billion to put up a quality hotel that can get a rating of three and five stars.
This would mean that Kenya will see investments of about Sh150 billion in the seven years between 2013 and 2020.
emacharia@standardmedia.co.ke
