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HospitalityWed, 31 Mar, 21

Disposition of Hotel Properties in Africa in 2021 to Surge – Report

Disposition of Hotel Properties in Africa in 2021 to Surge – Report

The hotel sector is at a critical crossroads in 2021, with the world expecting to see a marked increase in travel as the various COVID-19 vaccines are rolled out. Nonetheless, an overview of the hotel real estate market in Sub-Saharan Africa for the first quarter (Q1) 2021 by JLL Group suggests that, hotel investors’ decision to dispose of their properties would observe a surge in 2021. This, according to the research, would be done by investors who own several hotels to unlock working capital for the rest of their portfolios. Also, investors who have breached loan covenants obviously due to the impact of the pandemic and cannot supplement working capital from other businesses would dispose of the assets, the research further explained.

From 2021, there will be an increased need to dispose of properties. This will come from large groups who own several hotels, looking to dispose of non-core properties to unlock working capital for the rest of the portfolio, or owners of single assets who have breached loan covenants and cannot supplement working capital from other businesses or sources. Therefore, there will be more assets brought to market during 2021 than in recent years, and we are seeing strong evidence of this already”, the report read.

Hotel and hospitality industry was hard hit by the COVID-19 pandemic and investors are still skeptical regarding the pace of recovery of the sector. But the JLL’s ‘Spotlight on Africa’ report provides the general outlook of the sector going forward.

The report also revealed a fascinating phenomenon within the hotel real estate investment market which according to JLL is expected to continue. Survey revealed that, despite hotel acquisitions often providing better returns, investors in the Sub-Saharan Africa rather prefer development as a means of capital deployment.

It is important to state clearly that, development has and will always have an important place in an emerging region, but the Sub-Saharan Africa’s situation appears out of ordinary as development costs have continued to increase in numerous markets up to about 50 percent higher than the market value of an equivalent existing hotel. Therefore, notwithstanding acquisition offering better returns and development cost surging, the hotel investors would still opt for development which seems to defy investment logic.

The report also observed that, while investors are notably, and understandably more pessimistic around investment into the sector, many are taking a broader view of the real estate industry and looking at ‘pandemic-proof’ investments such as healthcare, industrial or other commercial property asset classes, the survey observed.

JLL concluded that it believes “that those who do have capital, and are able to take a long-term view of the sector, have an opportunity to acquire excellent investment-grade hotels at reasonable pricing that will make for attractive return prospects”.

 

 

Source: Mohammed Bomanso Issah (Real Estate Times Africa)

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