…foreign exchange ‘wahala’, building input costs fingered
…High interest rates discourage borrowing
As the value of the Naira keeps waning against major currencies and commercial banks tighten their interest rate for long term lending to 27.5 percent, the Nigerian hospitality industry is at the risk of losing investments or experiencing delay in investments expected to deliver over 7,000 pipeline rooms.
According to the 2025 edition of the annual African Hotel Development Pipeline Report, Nigeria ranked third in Africa’s pipeline hotel projects this year with 7,320 rooms, behind Egypt and Morocco, which ranked first and second respectively in the report.
The report, which is a definitive study of international hospitality development projects in Africa, compiled by W Hospitality Group, a Lagos-based outfit, also revealed that the Nigerian hospitality industry has one of the lowest percentages of ratio of rooms “on site”, implying less projects under development.
The above is obvious considering that the gap between Egypt, the leader and Nigeria is far too wide; 33,926 rooms in the pipeline against 7,320 rooms.
However, with 7,320 rooms, the Nigerian hospitality industry has the most hotel rooms in the pipeline in Sub-Saharan Africa, and potential hotels, especially international brands, but the fear of abandoning the projects looms with the present economic reality, which scares investors from furthering the projects in the pipeline.
BusinessDay Sunday’s investigation revealed that in Lagos alone, there are over 10 hotel projects, mostly international brands, in the pipeline that are either abandoned or work ongoing at a slower pace.
Starwood’s Luxury Collection brand under construction at Ikoyi Crescent, which the developer said was nearing completion since 2012, seems abandoned, the 250-room Hilton Lagos Airport Hotel has not gone beyond the groundbreaking level since early 2000 when the promoter initiated it, Four Points By Sheraton Ikeja is also abandoned.
Industry sources also regret the conversion of two pipeline projects in Victoria Island to real estate, as the new owners handed over proposed hotel projects to a real estate developer to convert to luxury apartments.
In Port Harcourt and Abuja, many projects being developed under the Protea Hotel Group, were abandoned or converted to real estate as the project design did not meet Marriott International, which acquired Protea.
Some are still eyesore today, while a Movenpick, Hyatt and some proposed Marriott brands are half way abandoned due to the paucity of funds.
Work resumed at the abandoned Enyimba Hotel in Aba recently, in a partnership agreement between the Abia State Government and the Radisson Hotel Group.
Sadly, this is coming after over 40 years of abandonment of the then 80 percent completed project, which rot over decades of neglect.
There are similar projects in Makurdi, Jos, Kaduna, Calabar, among other cities.
Read also: Hope rises for Enyimba Hotel after 46 years of abandonment
The number of abandoned projects, according to some experts, is more with 100-room hotels and above, while small hotel projects are easily completed.
“You need all the legal works, sustainable funding, matching designs, project management, rigorous training for new workforce, signing and maintaining management or franchise agreements, among others to pull off a big hotel.
“But small hotels thrive because owners need small funds, and borrow less from banks, they can easily sell off property if paucity of fund persists.
“So, you will see more of such hotels opening every day because standard, quality and security are not priorities,” Modupe Fadaka, a hotel owner explained.
Some hospitality experts noted that the harsh economic reality reflects the slow pace of getting hotel projects started in the country, as well as accounts to the reason only 30 percent of hotel pipeline projects open on schedule in the last seven years, leaving the industry with more abandoned projects.
“Most of the hotels planned between 2020 to 2025 have not opened because of paucity of funds. Some hotel developers are no longer mindful of opening on schedule again because there is no money,” Mark Oduh, a hotelier said.
The above, according to him, is the reason many hotel projects in Lagos and Abuja, and a bit in Port Harcourt are being delayed by two or more years.
Bode Alatise, a hotel owner representative in a foreign branded hotel in Lagos explained that many developers are having issues with the banks and other institutional lenders, which are now insisting on review of the loan agreements because of the economic realities and new Central Bank policies.
“Our attempt to kick-start a mid-market Radisson brand in Abuja has stalled by funding. The bank has refused to lend more unless we review the agreement for the initial loan in 2019,” Alatise lamented.
“We are being asked to agree on the current value of dollars for a loan that was given in naira, when the exchange was less than N300 for $1”.
Many developers who cannot service such loans or meet the stiffer conditions by the commercial banks are abandoning their projects like Alatise’s boss.
Read also: Why Nigeria is struggling to attract five-star hotels
In response, many foreign brands are reviewing their franchise and branding deals if project developments linger unnecessarily.
But Fabio Marilos, an international hospitality developer, advised that pipeline projects can be delivered if developers change their funding models, especially from the usual lenders. “African developers need local investors who understand their economic realities and who also understand that hospitality is a long term business,” Marilos, said at the African Hotel Investment Forum in Cape Town this year.
For Rahman Hassan, a hotel expert, Nigerian investors need to pull their funds together in a consortium to ensure sustainable funding. This would ensure delivery of the projects on time, and offer the investing partners opportunity to share the risk and profits.
If you want to build 100 rooms, but have capacity for 50 rooms, look for another investor or more with the same capacity or less to fund a 100-room hotel. Get the lawyers to do solid legal work, share the risk and profit,” Hassan said.
For Uche Ogbu, former sales director at Federal Palace Hotel Lagos, the multiply funding model is the secret of the industry boom in East Africa and Nigeria should learn from them.
“It is better to have a stake in a large farm than to own the large farm alone because you risk losing everything instead of sharing the risk with other investors. It must not be a five-star, but whatever level an investor can comfortably complete on schedule. Abandoned projects tie investments down and erode wealth faster than inflation,” he said.
Trevor Wards, CEO, W Hospitality, always advocates that credible partners and sustained funding are necessary in delivering hotel projects on schedule, but experts noted that there are credible consortiums with huge investment capacities, which most developers bypass.
The experts also warned that as long as the economic hardship persists, inflation still soaring, exchange rate rising and Naira still falling freely, many hotel projects will remain abandoned in years to come.
