Close to home
The development pipeline for the likes of Premier Inn and Travelodge is testament to the UK’s burgeoning hotel sector, writes Catherine Chetwynd
Despite the uncertainty caused by the political and economic environment, there is still a substantial development pipeline in the UK, especially in the major cities.
“Whereas recent years have seen branded budget hotels lead the charge, there is now a greater pipeline of full service and boutique properties. And although the sector is becoming more branded, some interesting smaller boutique hotels are being established as well,” says consultant to the hotel industry Melvin Gold.
Edinburgh, London, Brighton, York and Birmingham are the top five most attractive cities in Knight Frank’s UK Hotel Development Index 2019, a major factor in the 2.9% expansion in supply forecast for 2019, with some 19,300 rooms opening. Of these, 34% were slated for the capital.
Edinburgh secured the top ranking position in the report. Despite significant hotel supply coming on stream in Edinburgh during 2018 and 2019, and with a continued strong pipeline of properties, the city outperformed the index, profiting from growth in its total occupied room nights and rooms revenue, and benefiting from strong economic and tourism fundamentals.
However, it is important to factor in the volume of pipeline that continues to enter the market, as this is likely to result in a short-term downturn in trading performance while it is absorbed.
Budget hotels in particular set up shop in small towns and cities, as well as several establishments in larger urban areas. Premier Inn leads the way, providing 20% of supply during the first seven months of 2019. Travelodge follows with 9%.
Whitbread-owned Premier Inn now counts over 800 hotels in its UK portfolio, and is gearing up to open another 37 in 2020, one-third of which will be in seaside towns and cities.
The group has also diversified by adding Premier Plus rooms at around 20 city centre hotels and a number of standalone super-budget ZIP hotels and tech-focused hub by Premier Inn hotels.
Meanwhile, Travelodge opened 17 hotels in the UK, including the seventh Travelodge Plus, the group’s ‘budget chic’ hotels with new look standard rooms; SuperRooms, with Lavazza coffee machines, irons and ironing boards, USB power outlets and a more comfortable desk and chair – mini-chiller cabinets follow; and redesigned restaurants.
SuperRooms feature in more than 50 UK hotels. Travelodge started a modernisation programme more than five years ago and has invested more than £150million in improved quality and greater choice.
Meanwhile, brands such as Moxy, Hampton by Hilton and Holiday Inn Express have also enjoyed respectable growth, each adding between 500 and 620 new rooms in 2018, the Knight Frank report states.
“Although economic and political uncertainty slowed the transaction flow, it has created opportunities for inward investors, including new brands,” says Gold.
There are a number of examples. Having acquired The Randolph in Oxford, Graduate Hotels will enter the market, and in the same deal, investor Adventurous Journeys (AJ) Capital Partners bought Rusacks in St. Andrews from Macdonald Hotels.
And Hong Kong and Canadian investor Great Century recently acquired the Fairmont Hotel St. Andrews. “The transaction market is quieter but still active,” says Gold.
Bespoke Hotels is adding three properties to its portfolio. It took over management of Dalmunzie Castle in Glenshee, Scotland, and Hotel Brooklyn opens in Manchester in February with 189 rooms; it plans to be ‘Manchester’s most accessible hotel’.
The third property is The Telegraph Hotel, occupying the former Coventry Evening Telegraph building after a £20million refit with 88 bedrooms, a 160-seat meeting room, restaurant and three bars, and bursting on to the scene in 2021.
In Scotland, the Malmaison Edinburgh City launched in December, with the group’s growth plans including properties in Manchester, York and Bournemouth.
The purchase of a site at West George Street, Glasgow, signals the arrival of BLOC Hotels in the city, and a £120million redevelopment will produce a seven-storey smart hotel and retail space.
The planned 25-storey BLOC Grand Central in Birmingham is on the site of a vacant office block; and the company is launching apart-rooms for longer stays at its existing property in Birmingham’s Jewellery Quarter.
The group is also planning to expand its hotel at Gatwick Airport South Terminal, adding 231 rooms to the existing 245 for 2021. Other BLOC properties are destined for London, Brighton, Birmingham, Bristol, Manchester and Edinburgh.
Outside the UK, plans for growth embrace five cities and the appointment of Dominic Mayes as Property Director flags the company’s expansive intent.
Owned or franchised properties make up the easyHotels development pipeline. On the list are Chester, Cardiff, Oxford, Blackpool, Cambridge, Derby and Bristol, the latter subject to planning consent.
The self-styled ‘super budget’ group also plans to open further properties outside the UK, including in Dublin, Paris CDG Airport, Malaga and Tel Aviv.
“The hotel markets have remained challenging in the second half of the financial year, particularly in the UK, where we are seeing dampened consumer confidence,” wrote Chief Executive Guy Parsons in the year-end company report.
“Our owned hotels have continued to outperform the market but we have not been immune to the weaker regional hotel market and trading across our franchised portfolio has continued to be subdued,” he stated.
“While we don’t foresee any improvement to the trading environment in the medium term… we believe the current economic uncertainties will present attractive investment opportunities to continue to expand our development pipeline.”
Jason Carruthers, Managing Director of Jurys Inn and Leonardo Hotels UK & Ireland believes both the sector and the government must shape up as Brexit poses difficult questions: “I think it is the responsibility of everyone, especially the business community, to ensure that those charged with accountability for negotiating the UK’s exit and subsequent transition on January 31 and beyond are fully aware of the implications. But this also includes us.
“Whatever the outcome, we will remain focused on delivering our plans for the business. We have a strong portfolio of hotels that are well positioned and supported by very talented people. We have looked at and tailored every touch point for our customers, which is being reflected in the high occupancy we are seeing across the group,” says Carruthers.
This year sees the opening of Edwardian Hotels’ The Londoner in Leicester Square after a £300million investment to create 350 rooms, two screening rooms, six restaurants and bars, meeting spaces, gym and spa.
The group has also relaunched its Manchester property as The Edwardian Manchester, a Radisson Collection Hotel, after a £12million refurbishment.
“We have supported our workers who are EU nationals to ensure that they feel a level of stability with us, and we are investing significantly in the training and development of our teams. This is most notable through our strategic ten-year partnership with Imperial College London Business School to create the leaders of tomorrow,” says Edwardian Hotels’ Commercial Development Director, Iype Abraham.
But buyers are driving rates: “Given the slowdown in trading, it is unsurprising that corporate buyers are negotiating hard with hotels,” says Melvin Gold. “But hotels have little ground to give in an environment where costs are rising, especially payroll costs. Hoteliers and corporate buyers will need to balance this reality carefully.”
And Edwardian’s attitude reflects this, according to Abraham: “We have embraced dynamic rates and continuous sourcing analysis, allowing travellers more choice and flexibility,” he says.
“As an innovative business, we are aware that there is no ‘one size fits all’ approach to distribution channels and as our brand evolves, we continue to review and amend these.”
In 2018, the sector looked resilient. STR data shows RevPAR growth of 3.1% in London and 1.5% in regional UK and this has helped fuel the strong pipeline of hotels under construction in 2019, reflecting the confidence developers and investors continue to have in the sector.
As at the end of July 2019, 10,000 rooms were under construction and expected to open during the second half of 2019, plus an additional 1,000 rooms from hotels currently closed and undergoing extensive refurbishment are due to reopen, the Knight Frank report states.
London accounted for 38% of the development pipeline of hotels, either under construction or under renovation and that were due to open by the end of 2019, equating to some 4,000 new hotel rooms.
PwC’s forecast for 2020 is less ebullient but also ends on a cautiously positive note, taking account of the effects of the US-China trade war, the risk of a no-deal Brexit, the threat of a sharp Eurozone slowdown and debt default risks in emerging economies.
These factors deterred investors, who sought safer areas for their money. “There has also been increasing talk around the inversion of the yield curve (often cited as a predictor of recessions),” the forecast stated.
“Assuming a Brexit deal is achieved, our revised forecasts for UK GDP expect the economy to continue to grow, but at a slower pace than seen recently, averaging around 1% in 2019 and 2020, below its long-term trend rate of 2%, and with risks skewed to the downside.”
Frasers Hospitality CEO EMEA, Guus Bakker, is more optimistic: “With the UK’s expected exit from the EU in 2020, this will hopefully come with an element of much-needed clarity and a better defined outlook for the industry, employees and customers.”