Evolution of Lagos Hotel Supply

Sheraton Hotel, Ikeja, Lagos
EVOLUTION OF LAGOS HOTEL SUPPLY
By Damilola Adepoju
Currently, the supply of international standard hotel rooms in Ikeja is extremely limited and is not sufficient to keep up with the growing
demand that this area is experiencing, and should continue to experience in the future.
I
n recent years, the Lagos hotel market
has grown rapidly, with the increase of
international and regional (mostly
s o u t h e r n A f r i c a n ) b ra n d e d h o t e l
properties. Growth had previously been
slow-moving from the 1980s when the
Sheraton opened. However, the period
beginning from the late 1990s and into the
2000s saw new properties entering into the
market.
Lagos is still in an emergent phase of
development, of course, and it will be a long
while before it matures and growth
eventually begins to plateau. As is typical of
a growing market, Lagos currently does not
have enough segmentation amongst
various classes of hotel accommodation.
That is, availability of adequate supply at
different hotel categories. This is primarily
because the pattern of supply growth in
Lagos has followed the direction of demand,
hence the majority of branded and other
major hotels in Lagos today are high-priced
business hotels and there are very little
mid-market properties.
now independent); the Federal Palace Hotel
(built in the 60s during the country's
In the 1980s, the country was in the transition to independence); and the Festac
middle of an oil boom. The Sheraton 77 Hotel (now operated by Golden Tulip).
1980s
Ikeja opened in 1983 after which, the
1990s
market did not see another branded
hotel open for almost two decades. The The next decade saw a slowdown in hotel
Sheraton opened with a far superior quality
and most foreign business visitors and
airline crews patronized the hotel. The
proximity to the airport, international
branding, professional management and
high profile allowed Sheraton quickly
become a market leader, with average
occupancy rates of above 90 per cent. Some
of the other major hotels that had existed in
Lagos in this period had been opened in
time for the FESTAC 77 – a major arts and
culture festival that brought participants
and attendees from around the world to
celebrate African heritage in Lagos. Among
these were – Eko Hotel (which opened in
1976 with a management agreement with
the Holiday Inn brand, was subsequently
operated by Le Méridien and Accor, and is
demand due to extended periods of political
and economic instability in the country.
With foreign visitors shying away, growth in
hotel supply was negligible and hotel
occupancies reduced. The return to
democratic rule in 1999 has brought
political stability, which helped to stimulate
the economy and encourage foreign and
local investment in infrastructure,
telecommunications, oil and gas, amongst
other sectors. A direct result of all this
business activity was the resurgence in
hotel demand levels, thus creating the need
for new hotel supply of international quality
standards.
Indeed, it can be asserted that a growth in
supply is spurred by hotel demand which, in
FINANCE AND INVESTMENT
FINANCIAL NIGERIA I NOVEMBER 2013
has increased from 1,073 in 2003, to an
estimated 3,299 by the end of 2013,
representing over 200 per cent growth.
There have also been numerous
o p e n i n g s o f s m a l l e r, i n d i g e n o u s
independent hotels, some of which operate
at acceptable standards but vary widely in
the standard and quality offered. In fact, a
more inclusive estimate of the relevant
hotel rooms in Lagos is in the region of
9,000 rooms.
turn is directly linked to economic
conditions – especially in the Nigerian
context where demand is primarily
business-generated. When an economy is
growing, there is a corresponding increase
in business travelers requiring hotel
accommodation, thus an increased supply
of hotels serving this demand. (The
Nigerian economy has continued on a
growth trajectory since the early 2000s and
hotel demand has tended to follow this
trend.)
A good validation of this assertion can be
seen in the US where hotel demand is
linked, quite closely with the business cycle.
Indeed, demand reacts, or over-reacts,
quite sharply to economic upturns or
downturns in GDP growth.
An oversupplied market?
Damilola Adepoju
Graph 1
US Hotel Demand Growth vs. GDP Growth
1989-2013 Q2, Quarterly % Chg
10.0
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
GDP % Chg
-10.0
1989 Q1
1992 Q1
Demand % Chg
1995 Q1
1998 Q1
2001 Q1
2004 Q1
2007 Q1
2010 Q1
2013 Q1
Note: Percentage change is current quarter vs. same quarter last year (GDP in 2005 dollars)
Source: BEA
2000 to date
By the early 2000s, there were a little over
1,000 rooms in branded and major
unbranded hotels. These included the Eko
Hotel & Suites, Moorhouse M Gallery
(formerly Sofitel), the Protea Victoria
Island and the Sheraton Ikeja. The market
has continued to evolve, strengthened by
increasing demand and Lagos has seen the
introduction of more brands such as
Southern Sun, Golden Tulip, Four Points by
Sheraton, Radisson Blu, Best Western and
the recently-opened InterContinental. In
the last 10 years, the total number of
branded and major unbranded hotel rooms
Graph 2
Lagos Branded and Major Unbranded Hotel Rooms
Supply Evolution 2003 - 2013
3,000
2,500
2,000
1,500
1,000
2004
2005
W Hospitality Group research
2006
2007
2008
2009
2010
2011
Remarkably, however, this recent growth in
supply is still not adequate compared to the
demand for international standard rooms
in Lagos. This is clearly evident in the
strength of average room rates achieved by
the hotels operating here. Lagos is
generally an expensive city, and the prices
of quality hotel rooms are no different. A
2013 hotel survey published by Hogg
Robinson Group cited average room rates
achieved in Lagos as being “some of the
highest in the world”, despite new additions
to supply. In its ranking of the top 55 cities
by hotel rate, Lagos was second only to
Moscow. I often get asked if Lagos needs
any more hotels. If any factor can help to
drive home the resounding YES that I
answer with, it is the above statistic. These
high rates are a direct result of inadequate
number of rooms serving a relatively priceinsensitive, business-driven market. This
demand largely comprises major national
and international companies who prefer to
use recognized branded hotels that will
offer an expected quality of service, security
and general insulation from the perceived
harshness of Lagos. They are more capable
of paying these rates than tourist groups,
for instance, who tend to be more pricesensitive hotel guests. Of course, there are
other factors that contribute to the high
rates – the high cost of energy, a heavy
reliance on imported supplies and so on –
but none as significant as the inadequate
supply and resulting lack of competition.
Two markets, one city
3,500
2003
29
2012
Another occurrence has been a creation,
effectively, of two major hotel markets
within Lagos – Ikeja and southern Lagos.
The Ikeja area still continues to serve the
demand requiring proximity to the airport,
such as air crews and transient guests. Also
the location there of the Lagos State
Government administration, as well as
industrial estates and other businesses
ensure a substantial level of commercial
activity to sustain a thriving hotel market.
Currently, the supply of international
standard hotel rooms in Ikeja is extremely
limited and is not sufficient to keep up with
the growing demand that this area is
FINANCE AND INVESTMENT
Four Points by Sheraton, Lekki, Lagos
experiencing, and should continue to experience in the future. We
see the evidence of this in the high occupancy and average daily
rates achieved by the existing hotels in the area. Of the over 3,000
branded and major unbranded hotel rooms in Lagos,
approximately 32 per cent are in Ikeja.
In addition to the Sheraton, the brands present in Ikeja include
Protea, Best Western and Ibis, each with two hotels in the area.
The increase in supply in Ikeja has focused on the mid-market
segment, trying to bridge the gap between the highly positioned
Sheraton and a more price-sensitive market. There has also been a
proliferation of small, independent hotels to cater to the growing
demand.
Table 1
Ikeja Branded and Major Unbranded Hotel Rooms Supply Evolution
Sheraton
332
1983
Protea Leadway
49
2007
Protea Ikeja
92
2008
Best Western Ikeja
112
2010
Ibis MMIA
199
2011
African Sun GRA
65
2012
Ibis Ikeja
165
2013
Best Western Starfire
38
2013
Total Rooms
1,052
Southern Lagos encompasses Victoria Island, Ikoyi and Lekki and
caters largely to business demand generated by the companies
located in these areas. In this market, the additions to supply have
mostly focused on the upscale to deluxe categories, with very little
supply operating in the midscale space.
The current supply of low- or mid-market properties tend to be
locally operated properties built to low quality standards and are
usually not expertly managed. However, as the market does
Table 2
Southern Lagos Branded and Major Unbranded Hotel Rooms Supply Evolution
Eko Hotel and Suites
Moorhouse M Gallery
654
94
1976
2000
Protea VI
58
2003
Protea Kuramo
60
2005
Protea Oakwood
65
2005
Federal Palace (Sun International)
150
2008
Southern Sun
195
2009
Protea Westwood
56
2009
Four Points by Sheraton
234
2010
Best Western, VI
94
2010
Radisson Blu
170
2011
Legacy Wheatbaker
65
2011
InterContinental Victoria Island
352
2013
Total Rooms
2,247
continue to grow and evolve in the future, we will expect greater
segmentation and well-defined tiers in hotel supply. And this will
mean more international standard properties at different price
points to cater to a more diversified hotel demand market. A
strong advantage of some of the bigger hotel chains is the variety
of brands in their portfolio to serve different demand categories.
For instance, Hilton has identified Hilton and Hilton Garden Inn as
the core brands in their Africa development strategy while Carlson
Rezidor is looking to grow its Radisson Blu and Park Inn by
Radisson brands in the region. These hotel chains are looking to
establish and grow their brands at both the up- and mid-market
tiers and the current lack of branded mid-market hotels certainly
highlight an opportunity to be tapped into by interested investors.
Damilola Adepoju is a hospitality industry consultant, with professional and
academic experience in diverse markets in Asia, North America and Europe. Her
experience includes financial roles held at lodging and commercial real estate
companies in Washington D.C and New York, as well as a current position at the
leading hospitality advisory firm in sub-Saharan Africa, W Hospitality Group.