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MARCH 2015 PROLIFERATION OF SERVICED APARTMENTS NAIROBI, KENYA Tim Smith, MRICS Managing Partner – Cape Town Thuku Kimani Consultant – Trianum Hospitality www.hvs.com HVS Cape Town | Century City, Cape Town, South Africa This market snapshot is part of a series of articles that HVS produces on key hotel sectors across Africa. This article provides an overview of the serviced apartment segment of lodging in Nairobi, which HVS has been actively examining since 2011. In the article we will define the three broad categories in key zones of Nairobi, analyse the pricing and supply, highlight the key trends and delve into the outlook for this lodging segment. Nairobi has a more developed serviced apartment market than 100 10% Averag R RevPAR (€ 90% €)80 Occupan PAR ( 80% Rev te and60 70% e Ra 60% verag40 A 50% 20 2 12 months 12months o 12months to 40% Februa Februay February Source: STRG 201 201 20 12 other African cities and may prove to be an interesting model Source: HVS upon which the development of the sector in other cities is based. Introduction of the Types of Serviced Apartments in Nairobi HVS research in the more developed markets of the USA and Europe has shown that ‘Serviced Apartments are a hybrid of two different asset classes: the residential apartment sector and the hotel market. Their aim is to fill the void between a short hotel stay and longer-term rental accommodation. This has led to varied products such as branded residences, corporate housing and aparthotels.’ The local Nairobi market, however, has seen its development with varied product offerings, as defined below, in the form of studios to four-bedroom units. NORFOLK TOWERS ‐ 3BR LIVING & DINING ROOM Fully furnished and serviced apartment complexes This is a product that facilitates a residential-like accommodation with typical stays of 30 days or more. These apartment units are usually furnished, with a fully equipped kitchen, bedroom, living and working area with Wi-Fi Internet access; they function as regular apartments in that almost no services are provided. There are also common area complex amenities in the form of swimming pools, gyms, steam rooms and saunas and an occasional restaurant that may be leased out. The services provided include a day reception and housekeeping services which may be on alternate days to weekly. These complexes are popular with corporates and expatriates who have relocated and are looking for flexible accommodation which offers a ‘home away from home’ for the duration of their stay. Source: HVS Furnished but not serviced apartment complexes This product is the most residential-like, with typically the longest stays. The units are furnished with an equipped kitchen, bedroom and living area. They may also have common area amenities in the form of swimming pools, gyms, steam rooms and saunas, though services such as housekeeping and a manned reception would not be available. The complexes often have an on-site caretaker and utilities are often exclusive of monthly rates/rents. These complexes target the same relocating corporates and expatriates as the serviced complexes, but are also gaining ground with local corporates. PROLIFERATION OF SERVICED APARTMENTS – NAIROBI, KENYA | PAGE 2 Hotel apartments or Aparthotels Aparthotels most resemble the hotel product compared to the other two types of products. They are often called extended stay hotels, but what differentiates them from hotels is their kitchenette or kitchen and slightly more spacious rooms, although unlike hotels fewer services are provided. They often carry hotel licenses as cited in the ‘Hotels and Restaurants Act’ under the laws of Kenya: ‘As commenced on 1st February 1972 as an act of parliament to make provision for licensing of hotels, hotel managers, and restaurants; for the imposition of levy for training persons to be employed in hotels and restaurants; and for matters incidental to and connected with the foregoing.’ The apartment unit products themselves are similar to the other two products. The key differentiation in aparthotels is in the services and amenities offered; you frequently find 24-hour lobby receptions, daily housekeeping services, laundry services, self-managed on-premise restaurants and amenities in the form of swimming pools, gyms, health clubs and steam rooms/saunas. The complexes target a mix of daily stays to monthly stays as reflected in rates charged to guests. The complexes also target the relocating corporate, but those seeking to stay for an extended period of time in hotel-like accommodation. FEDHA HURLINGHAM‐ DINING ROOM & HALLWAY NELSON’S COURT – ONE‐BEDROOM Source: HVS Introduction to the Key Market Zones in Nairobi Our three-year research has facilitated us to clearly define the CHART 1: KEY MARKET ZONES Nairobi market into seven zones that show 1) proximity to the Zone Location of Zone commercial demand generators translating into guests/residents Zone 1 Westlands having proximity to the work place, and/or 2) have shown a pattern Zone 2 Kilimani of clustering identifying the area as a zone. Chart 1 defines the zones Zone 3 Upper Hill‐Milimani as identified by HVS research and analysis of the Nairobi market. Zone 4 Valley Arcade‐Lavington Zone 5 CBD Zone 6 Kileleshwa Zone 7 Gigiri‐Runda‐Muthaiga‐Kasarani Source: HVS & Trianum Hospitality PROLIFERATION OF SERVICED APARTMENTS – NAIROBI, KENYA | PAGE 3 Supply and Pricing Trends in Nairobi Supply Trends Our analysis began by looking at the supply trends in CHART 2: NUMBER OF COMPLEXES the seven zones, examining the trends in changes in 2011 2012 2013 2014 number of units and number of complexes as Westlands 19242630 highlighted in Chart 2 and 3. Kilimani 17 18 19 23 Upper Hill‐Milimani 7 9 11 12 In the seven zones it is evident that the most popular Valley Arcade‐Lavington 9912 zone for serviced apartment complexes is in CBD 3 3 3 3 Westlands, followed by Kilimani. However, the Kileleshwa 446 highest growth has been found in Upper Hill zone at Gigiri‐Runda‐Muthaiga‐Kasarani 223 Total 46697489 a 20% compound annual rate. The total number of Average 12101113 apartment complexes in the market has seen Source: HVS & Trianum Hospitality tremendous growth since 2011, at a 25% compound annual rate; however, the average number of complexes in each zone has remained fairly stable, showing slow growth since 2011. CHART 3: NUMBER OF UNITS Given the large number of complexes in Westlands and Kilimani, the same follows in total number of 2011 2012 2013 2014 Westlands 528 647 771 1,042 units, as both zones retain the popularity for Kilimani 518 537 625 679 concentration of units in Nairobi. We note; Upper Hill‐Milimani 156 244 305 347 however, that the growth rate in Westlands has Valley Arcade‐Lavington 272 272 359 been significantly higher at a 16% compound CBD 260 260 260 253 annual change owing to larger complexes being Kileleshwa 103 103 212 introduced into the market. Gigiri-Runda- Gigiri‐Runda‐Muthaiga‐Kasarani 63 63 67 Total 1,462 2,126 2,399 2,959 Muthaiga-Kasarani remains the lowest in Average 366 304 343 423 concentration of units. The total number of units Source: HVS & Trianum Hospitality in Nairobi has seen 26% compound annual growth; the average number of units per zone has similarly increased throughout the period, with the exception of CBD, as demand continues to move to the suburbs. Pricing Trends We have found in our research that complexes CHART 4: MONTHLY RATE – STUDIOS (US$) typically charge monthly rates in US dollars, 2011 2012 2013 2014 with the exception of furnished but not serviced Westlands 1,067 930 1,401 1,292 complexes which typically charge rates in Kilimani 1,316 1,156 1,527 1,342 Kenyan shillings. For illustration and analysis, Upper Hill‐Milimani 1,910 we have examined pricing trends in the Valley Arcade‐Lavington 1,089 1,102 1,056 predominant unit types of studio, one-bedroom, CBD 1,333 729 768 727 Kileleshwa 1,322 1,365 1,833 two-bedroom, three-bedroom and four- Gigiri‐Runda‐Muthaiga‐Kasarani bedroom in the seven zones of Nairobi over four Average 1,239 1,045 1,233 1,360 years. We note that our findings are limited to Source: HVS the researched properties in the seven zone markets. Studios are the third most popular offering in complexes in the seven zones and a notable number of new additions are focusing on combining studios and one-bedroom units to meet demand. Examining the seven zones, the Upper Hill zone has the highest monthly rates in the market, and the most popular zones of Westlands and Kilimani are lower owing to pricing PROLIFERATION OF SERVICED APARTMENTS – NAIROBI, KENYA | PAGE 4 pressure from increased supply. The overall pricing in all zones has remained fairly stable with a compound annual growth rate of 3%. One-bedroom units are the most popular unit CHART 5: MONTHLY RATE – ONE‐BEDROOM UNIT (US$) types in the Nairobi market (marginally ahead 2011 2012 2013 2014 of two-bedroom) with all the zones exhibiting Westlands 1,162 1,236 1,550 1,827 at least one complex with one-bedroom units. Kilimani 1,891 1,627 2,123 1,907 Upper Hill‐Milimani 2,389 2,389 1,667 1,877 The highest rates in 2014 were found in Valley Arcade‐Lavington 1,378 1,410 1,452 Kileleshwa and the lowest in CBD. The two CBD 1,500 1,047 1,106 1,048 most popular zones of Westlands and Kilimani Kileleshwa 1,689 1,741 2,144 have witnessed price fluctuations owing to Gigiri‐Runda‐Muthaiga‐Kasarani 2,500 2,500 1,350 growing demand and additions to supply. The Average 1,736 1,695 1,728 1,658 overall pricing trend has seen a 2% compound Source: HVS annual decrease in the period researched.