Five challenges faced by the serviced apartment sector in Africa

George Sell By George Sell
Uploaded 03 November 2015

Abi Adisa, CEO of Amara Suites, looks at the biggest obstacles facing the industry in Africa.

• Not enough recognition of the serviced apartment sector
Due to the fact that the serviced apartment sector is classified under the hospitality industry - which, in Africa, is still largely dominated by hotels - serviced apartments are often swept under the carpet or mistakenly thought to be hotels. Fortunately, there are a slew of emerging market economies around the world in which serviced apartments experienced a similar journey from obscurity to being a real market force, and this is what we're beginning to see in Africa.

• Levies and fees imposed on property owners and renters by the government
In Nigeria and around Africa, the government imposes a wide array of taxes and fees on property owners and renters, including land levies, consumption taxes, sanitation tax, radio license and more. In order to offset the associated costs, serviced apartment companies must increase room rates, which then affects sales and occupancy rates. As more international investors and clients enter the African market place, some governments are making an attempt to reduce this limiting force on businesses, recognizing the negative impact it has on both the local economy and foreigners' ease of doing business.

• General perception of the region
Nigeria is a relatively stable democracy, especially in the African context, having just completed a landmark democratic transfer of power in the March 2015 presidential elections. However, a combination of bad press, some stability/security risks (Boko Haram, Ebola, militancy, kidnapping, etc.) and the global marketplace's tendency to view Africa as a monolith creates a negative impression for prospective investors and clients. Those who do come to Nigeria or elsewhere in Africa - either for business or pleasure - usually spend barely enough time to experience the cultural offerings of the countries they visit, often preferring to remain sheltered behind closed doors. Going forward, it will be crucial for African countries to each assert the merits and large up-sides of their respective economies.

• Construction/operational costs
There are substantial property and operational risks associated with the hospitality industry - everything from fluctuations in energy costs to the costs of handling health and safety issues that arise unpredictably. Furthermore, the current economic slump has resulted in a hike in the cost of a lot of construction materials that are essential for real estate firms and hospitality businesses. The most successful businesses become those that are able to effectively leverage assets and deploy strategies such as vendor-financing in order to get around these costs.

• Technical know-how
The African region has a limited pool of technical expertise and industry talent. As a result, most governments and companies end up enlisting the help of consultants and experts, which results in an increase in operational costs that necessitates a rate-hike. Globalisation has meant increased competency and best-practice in the African marketplace, but there is still a long road ahead.

Even with the short-term challenges listed here and the market volatility that we're currently experiencing, the long-term story for the African hospitality industry and serviced apartment sector is very positive. Clients are staying longer, regional travel is increasing thanks to the opening up of borders, governance standards are improving around the continent, and the emerging middle class in countries like Nigeria will continue to fuel growth for years to come.

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