ONE type of urban property development which is attracting attention and has great potential in the African market are serviced apartments.
Globally, a hybrid of a hotel room and a rental apartment, the number of serviced apartments in the world has grown by 80% since 2008 to about 750,000, according to a report by The Apartment Service, a global provider of short-term accommodation.
The serviced apartment began life in the US in the 1980s, and while North America still accounts for 61% of the world’s serviced apartment locations, followed by Europe (17%), Australasia (11%) and Asia (5.5%) - at an increase of 34% Africa is showing the second fastest market growth after Europe (42%), making it low hanging fruit for developers out there.
Their mushrooming growth on the continent has been impressive. In 2015/16, there were 8,802 serviced apartments in 102 locations in Africa - a rise of 89% and 34% respectively.
These furnished apartments, available for short and longer term stays, and complete with hotel-like amenities, are seen by proponents as an ideal combination to accompany Africa’s growth and the companies that come with it.
Since 2000, Africa has averaged growth of over 5% per annum, with the Sub-Saharan region averaging growth of close to 6%. Africa’s economic progress has come from a range of sources and, according to McKinsey, the large majority of recent growth has come from non-commodity sectors.
This has resulted in a wave of multinational and tech start-up companies looking for offices in African cities. According to the Brookfield Global Mobility Trends Survey 2014, the international assignee population grew in 47% of companies that year.
This generates a demand for high quality space, particularly in key regional hubs such as Nairobi and Lagos.
The Knight Franks Global Cities 2016 report explains how over recent years the nature of how these people work, along with the financial crisis of 2007-8, have fundamentally altered how these companies set down their roots.
Before the traditional “expat” package was based on a longer-term, two to five year deal. That approach is still popular, but ultimately the world is more global and clients have a growing need for short-term project work and there is also a new generation of younger employees used to more flexible business and leisure travel, which is encouraging companies to deploy people around the world for shorter periods.
Staying in an African city short-term however, isn’t cheap.
Take for example Nairobi, Kenya, the regional hub of East Africa. Jonathan Seex of the Tamarind Group describes how the city has seen an increase in hotel inventory of approximately 1,500 (35%) rooms in the past 4 years with the arrival of local and international hotel groups. However, the walk-in rate of an international-standard room in Nairobi is between a whopping $220 - $350 a night.
On the other hand, research by the Apartment Service found that a studio apartment costs about $64 per night in Nairobi. In fact, internationally serviced apartments in Africa cost, on average, less than anywhere else in the world making it a very attractive option being more homely and cheaper. They save employees making multiple trips out to scope an area before they move out full time, and with their uniformity in service and quality, are perfect for short-term assignments.
This convenience has proved itself with now 84.62% of companies using apartments for business travel in Africa. The demand has skyrocketed yet outside of South Africa and Nairobi, the serviced apartments sector is severely under-served.
In Lagos, for example, the average daily rate for a serviced apartment has outpaced London and New York due to limited supply!
International brand serviced apartments have taken notice and are eyeing up the African market with great interest. Recently Residence Inn has been looking to Accra and Lagos, while Marriott has signed deals for Marriott Executive Apartments in Abuja, Nigeria and Addis Ababa. Fraser, Adagio, The Ascott Ltd and Accor are also looking to enter the sub-Saharan market.
The rise of service apartments could sound the death knell for many of Africa’s city hotels if they have a heavy reliance on business clientele and don’t adapt to this newer player.
The hotel industry is already at a disadvantage. Hotel construction costs are high - in Nigeria a mid-market hotel costs around $400,000 per room compared to the global average of $200,000. They charge high rates and in terms of their quality, just 10% of the region’s 390,000 hotel rooms are estimated to meet international standards, with South Africa housing around half of this inventory.
If the city hotel is to survive it needs to take a leaf out of the book of international operators who are incorporating the trend and moving into the private rental sector too. One way they’re doing this is to locate serviced apartments in the same buildings as hotels. For example, in 2014 the Intercontinental hotels groups announced that their next Staybridge Suites development in Manchester would share the same building with the group’s Crowne Plaza hotel brand.
With African markets taking a bigger chunk of the international business travel share the developments that come with it will be an incredibly interesting space to watch.