Overview
Overall room revenue in South Africa, Nigeria, Mauritius, Kenya and Tanzania rose 7.4% in 2018, up from the 1.9% increase in 2017, principally reflecting a 28 percentage point turnaround in Kenya, a 15.4 percentage point turnaround in Tanzania, as well as a 7.2 percentage point improvement in Nigeria. Mauritius continued to grow at double-digit rates in 2018 but room revenue growth in South Africa fell to only 0.5%.
The hotel market in Kenya benefited from an increasing number of foreign tourists as travel advisories were lifted and the country enjoyed a period of peace and security.
In Kenya, the period of peace and security was interrupted in early 2019 by a terrorist attack that may lead to a drop in tourism and guest nights in 2019. Thereafter, assuming confidence in overall security is not impacted, Kenya’s appeal as an adventure destination, with more flights, and new hotels will continue to grow.
(Main picture: Montecasino - Image courtesy of Tsogo Sun)
Image courtesy of The One Hotel
Image courtesy of Lake Naivasha Resort
Key trends
- The January 2019 terror attack at a hotel and office complex in Nairobi may temporarily affect the revival in tourist arrivals and guest nights that began in 2018.
- Growth in air connectivity, visa-on-arrival policies, and a strong economy can again become a significant driver of tourism and business travel assuming a period of security.
- Kenya will benefit from growing demand for experiences and adventure, with mid-scale hotels being the main driver, but growth in Airbnb and the shared economy will cut into the hotel market.
Hotel room revenue
Hotel room revenue for the five markets as a group will increase at a 5.8% compound annual rate to R50.6 billion in 2023 from R38.1 billion in 2018.
Destination in 2018 and Rough Guides named Kenya as one of its top-10 destinations. Kenya also gets positive reviews from Trip Advisor, which ranked Nairobi as the third best place to visit in 2018. National parks, wildlife, and attractions such as the Great Rift Valley and the Maasai Mara National Reserve are major drawcards.
The economy
Real GDP rose 6.0% percent in 2018, up from the 4.9% increase in 2017 and the largest gain during the past six years. The surge in tourism played a major role in the uptick in GDP growth in 2018. We anticipate slightly slower, but still healthy, growth of 5.5% in real GDP in 2019.
Assuming that the security situation remains stable and tourism grows, we look for real GDP to grow faster beginning in 2020 and to average 5.8% compounded annually for the forecast period as a whole.
Helped by a modest appreciation of the shilling, inflation dropped from 8.0% in 2017 to 4.7% in 2018. We expect inflation to remain moderate during the forecast period at 4.4% compounded annually.
Tourist arrivals
Tourist arrivals rose a remarkable 37.7% in 2018 to more than two million visitors. A number of factors contributed to this gain, not least of which was that it was a period of economic growth and security, which in turn led to an easing of travel advisories, making Kenya a more desirable destination.
Increased air connectivity played a major role as well. Kenyan Airways acquired new planes and introduced non-stop flights to New York. Kenya Airways also reinstated daily flights to Gabon after a six-year absence. Air France also returned to the market with three weekly flights. Qatar Airways also added flights between Doha and Mombasa.
Kenya undertook a massive ‘Magical Kenya’ promotional campaign , which positioned Kenya as an appealing destination to audiences in the United States, Europe,
India and China. The open border policy contributed to this effort by making it easier for people from Africa to travel to Kenya. Half of the international arrivals in 2018 came from East Africa, the United States, the United Kingdom, India and China.
Kenya has a low ranking with respect to safety and security and lags well behind Mauritius in it tourist service infrastructure, factors that we expect will limit growth in tourism over the forecast period.
Recent developments
The hotel market benefited from the growth in tourism in 2018 and posted an 18.2% increase in guest nights. If tourism declines in 2019, we would look for guest nights to fall as well and we project a 5.1% decrease. Thereafter, the strong fundamentals of the Kenyan market should prevail, leading to a rebound in guest nights from 2020. Over the entire forecast period, we project guest nights to increase at a 3.4% compound annual rate.
A number of hotel openings in 2018, including two Hilton hotels, a City Lodge, and a Mövenpick hotel contributed to a 5.2% increase in the number of available rooms, the largest gain during the past six years. A number of major hotel brands are expected to enter the market in the coming years, including five from Best Western, two each from Hilton, Hyatt and Rotana, along with single entries from Marriott, Radisson, Pullman, Novotel and Protea, among others. In total, we expect an additional 3 700 rooms to be added during the next five years, a 3.4% compound annual increase.
The increase in available rooms in 2018 prevented a spike in occupancy rates, but the average occupancy rate rose to 53.2%, comparable to rates in 2015-16. With available rooms and guest nights projected to grow at similar rates over the next five years, we see little change in the overall occupancy rate.
Contact us
Michael Mugasa
Partner and Leader | Private Business Services, PwC Kenya
Tel: +254 (0) 731 912 693
