Why ROI in East Africa often mispriced

INTERNATIONAL REPORT – Hotel investors entering East Africa sometimes encounter return gaps that are not immediately explained by weak demand or operational inefficiencies. These gaps often emerge because investment assumptions are calibrated to market conditions that are larger, deeper, or more predictable than most East African cities can realistically sustain.

Observations from hospitality analytics and advisory firms such as STR Global and JLL Hotels & Hospitality Group suggest that hotel demand patterns in many emerging markets differ from those in established gateway cities. In parts of East Africa, demand is often influenced by conference activity, institutional travel, diplomatic events, and seasonal leisure flows rather than by a broad base of continuous corporate demand. When financial models assume steady absorption throughout the year, even well-operated assets can struggle to meet projected returns.

Kenya’s hotel sector illustrates this dynamic. National statistics indicate that hotel room occupancy has averaged roughly 40% to 42% over the past two decades, suggesting that peak periods account for a disproportionate share of annual room nights while extended shoulder periods require careful revenue management.

This does not necessarily indicate weak markets, but rather a gap between investor expectations and the demand patterns these markets can sustain.

Demand patterns in many East African cities are concentrated rather than continuous. When hotels are scaled and staffed for consistent year-round performance, operating margins can come under pressure during slower demand periods.

Emmanuel Nsabimana

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Familiar investment pattern

Across several East African cities, a recurring investment pattern involves full-service hotels developed to capture year-round corporate and conference demand. On paper, the model appears sound: a modern asset, international-standard meeting space, and an assumed baseline of weekday business travel supplemented by periodic large events.

In practice, performance can diverge from projections. In cities such as Nairobi and Kigali, hotel demand often intensifies around conferences, diplomatic activity, and institutional travel cycles. Leisure destinations such as Mombasa or tourism gateways like Arusha also experience pronounced seasonal travel flows. Industry observations compiled by firms including STR Global show that such markets can experience strong peak occupancy but more moderate baseline demand during off-peak periods.

Kigali illustrates how event-driven demand shapes hotel performance in emerging markets. In 2024, Rwanda hosted 115 international meetings attracting more than 52,000 delegates, reinforcing the city’s role as a regional MICE destination. Because these events occur during specific periods of the year, hotel demand can spike during conference cycles but soften between them.

This does not imply that such investments are flawed. Rather, demand patterns in many East African cities are concentrated rather than continuous. When hotels are scaled and staffed for consistent year-round performance, operating margins can come under pressure during slower demand periods.

Assumption driving most ROI mispricing

The most common source of ROI mispricing in East African hotel investments is not a lack of demand but an overestimation of its depth and consistency.

Developments with moderate room counts, flexible meeting space, and efficient service offerings often demonstrate greater resilience in smaller markets than large full-service formats designed for deeper demand pools.

Emmanuel Nsabimana

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Investors often recognize that markets are smaller, yet still model performance as if demand behaves with the stability of larger international cities.

In reality, many urban markets across the region rely on specific travel segments such as government activity, NGO and development sector travel, conferences, and seasonal tourism. Travel purpose data reinforces this pattern. In Uganda, business and conference travel accounts for nearly half of international visits, highlighting the importance of institutional and project-based travel in shaping hotel demand cycles.

As a result, demand tends to produce spikes rather than a stable baseline. When hotel scale, staffing, and fixed costs are structured around assumed average occupancy instead of peak-driven cycles, margins can compress during off-peak periods. Full-service formats can perform well in markets with sustained conference and corporate demand, but in cities where demand is episodic, they often require greater operational flexibility to maintain strong financial performance.

Adjusting investment approach

Correcting ROI mispricing in East Africa does not require avoiding the region; it requires adjusting how investments are structured and evaluated.

First, product scale matters. Developments with moderate room counts, flexible meeting space, and efficient service offerings often demonstrate greater resilience in smaller markets than large full-service formats designed for deeper demand pools. Aligning physical scale with realistic demand depth reduces exposure during slower periods.

When investment assumptions reflect the episodic and segment-driven nature of demand in many East African cities, hotel assets deliver stable and defensible long-term returns.

Emmanuel Nsabimana

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Second, operating models should be designed around demand concentration rather than averages. Staffing structures, service offerings, and cost management frameworks that can adapt to event-driven demand cycles often protect margins more effectively than rigid operating models. In many emerging markets, operational discipline frequently outweighs brand prestige in determining long-term financial performance.

Third, capital structures must reflect potential cash-flow variability. Conservative leverage, longer investment horizons, and yield-focused return expectations are often better suited to markets where demand cycles fluctuate throughout the year.

Finally, underwriting discipline remains critical. Stress-testing performance assumptions against scenarios such as extended off-peak periods or delayed event calendars provides a more realistic view of cash-flow resilience. Investors who anchor feasibility studies to achievable average daily rates and realistic occupancy floors, rather than peak performance periods, are better positioned to manage volatility.

Opportunity for investors

Tourism and business travel across East Africa have expanded steadily over the past decade, particularly in countries such as Kenya, Rwanda, Tanzania, and Uganda. Tanzania provides a clear example of this growth: international tourist arrivals increased by more than 24% in 2023, reflecting strong demand for safari and coastal destinations even as hotel performance remains shaped by seasonal travel patterns.

The region continues to offer hospitality investment opportunities, especially in urban and gateway tourism markets. However, these opportunities reward investors who align development scale, operating models, and financial structures with the region’s demand patterns. The challenge is rarely a lack of demand; it is understanding how that demand materializes over time.

For investors evaluating hospitality opportunities in East Africa, the key lesson is straightforward: underperformance is often the result of mispriced expectations rather than flawed markets. When investment assumptions reflect the episodic and segment-driven nature of demand in many East African cities, hotel assets deliver stable and defensible long-term returns.

Contributed by Emmanuel Nsabimana, The Boonies Africa, Rwanda

The views and opinions expressed in this content do not necessarily reflect the opinions of Hotel Investment Today by Northstar or Northstar Travel Group and its affiliated companies.