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Hotels come under siege
EA STANDARD
February 15, 2008
By Kenneth Kwama
Two weeks ago, a large hotel chain that was planning to expand and
hire more employees was forced to do the opposite.
The hotel retired 281 employees and suspended the renovation of
its major facility because it could not afford the costs involved.
Roughly, this is the picture of events in the hotel industry. The
dwindling number of tourists has not only reduced revenue, but is
now threatening to derail a number of large construction projects
that had been earmarked to take place in the country this year.
"Only three months ago, we were worried whether we were going to
cope with the high number of tourists we were expecting because
the number was bigger than bed space, but things have now changed.
We have now to worry about who will occupy the empty rooms in our
establishments," says the hotel manager who did not want to be
named.
This is as a result of the insecurity and violence that followed
the announcement of the disputed presidential poll results, which
have kept tourists away.
There are now doubts whether global hotel chains like Kempinski
Hotels Worldwide and Accor Hotels, which had expressed willingness
to invest billions into the hotel industry in the country, will
continue with those ventures.
"It is upon these investors to state whether those deals are still
on or not, but as things stand now, it will not be feasible to
carry on with the ventures. Nobody wants to invest billions in a
place where you are not sure to get returns," says the hotel
manager.
As it stood then, the country’s hotel industry was a strong
contender for foreign investors interested in emerging market
segments.
But the lack of enthusiasm had left a few investors competing
amongst themselves until the foreigners expressed their
willingness to invest in the sector.
It could be the wrong turn for a former booming industry, but the
significance has not been lost to property industry insiders who
used to view hotels as the next frontier of development in the
country’s property market.
"The number of tourists coming to visit in the past few days has
gone down to insignificant levels and rooms in most hotels are
vacant. Realisation that tourism could continue to slump has made
investors to start looking in other directions," says the manager.
Before the slump, investment in hotels was being driven not only
by tourists looking for holiday homes for their own use, but also
investors who thought property prices were pocket-friendly and
hope of rapid returns.
The growing interest was reflected in the tourist numbers. Late
last year, the Kenya Tourists Board (KTB) announced that earnings
from the tourism sector had jumped 26 per cent to Sh34 billion in
the first half of 2007, compared to similar period the previous
year.
But while most investors maybe lamenting a property market that
used to offer high yields and capital growth, but now experiencing
difficulties, for foreign investors like Kempinski Hotels and
Accor Hotels, identifying the right market is usually very vital
to realising such dreams.
The two investors first saw the opportunity about three years ago
when tourism numbers started shooting up. By then, other investors
were still hesitant, but they went ahead and started planning on
how to establish their presence in the country.
A manager with property management company Fitz Hazal Ltd, Mr
James Obora, says that it is still too soon to speculate whether
investment in hotels will continue or stop. But the appetite for
quality properties, he says, could still be there.
"For some time, the industry has been encouraging more investors
to put money in the hotel business because insiders thought the
facilities which were available would not be enough to support the
high number of tourists expected," says Obora.
The change in focus to hotels had been attributed to an influx of
tourists, and the country’s newfound status as suitable venue for
international conferences.
Although not healthy, to some extent, the small number of
investors in the hotel property business had driven demand,
especially during high seasons, to outstrip supply.
That is why investors with extra bucks to spare were capitalising
on the seasonal changes to temporarily let and sub-let properties
to tourists at exorbitant rates, especially in hotspots like Coast
and Nairobi.
Before the lull, other investors were buying land in prime areas
like Muthaiga, Lavington, Upper Hill and Hurligham, which they
would develop and later lease out for use by tourists.
Besides the land, they would also buy old single-dwelling premises,
which they would demolish and replace with tourist dwellings.
Both developers and management consultants agree that areas
formerly frequented by tourists were the new hot spots for
commercial development.
Before the violence, these areas had not only witnessed high
activity in large building constructions, but had also welcomed
myriads of tourists who used to rent housing space for short time
use.
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