November 2022, Virtual
21 November 2022, Hilton London Metropole
UK hotels are gearing up to take advantage of the ‘nascent recovery’ in the economy, which is fuelling the domestic business travel market, says David Churchill
Opening this December in the Merseyside town of Southport is Travelodge’s 12th new hotel in the UK this year, a 101-room property forming part of a redevelopment of the town’s former bus station, which includes a sports bar and grill opened by champion jockey Frankie Dettori and celebrity chef Marco Pierre White.
Travelodge is following this with two more new hotels in January – at Crawley, near Gatwick, and at Manchester Piccadilly – as the budget chain continues its relentless expansion.
Not to be outdone, in October rival Premier Inn opened three new budget hotels – at Fleet in Hampshire, Stirling city centre and Monument in the City of London – with two due to open this month (November) at Trowbridge in Wiltshire and Wrexham in Wales. Early next year it plans to open a hotel at St Pancras in London.
But it is not just budget chains that are helping accelerate the pace of new hotel development around the UK in the next few months. Intercontinental Hotel Group is opening one of its boutique Hotel Indigo properties at Brighton in the new year along with a new Holiday Inn at the Watford Junction rail interlink in Hertfordshire.
GROWING CONFIDENCEThe list goes on: Starwood, for example, will next year open its second Aloft-branded hotel in the UK in Liverpool, while De Vere is opening four of its business-oriented Village Urban Resorts – in Aberdeen, Edinburgh, Glasgow and Portsmouth.
This surge in hotel openings – particularly outside London – reflects a growing confidence that the UK hotels market, which was badly hit by the 2008 financial crisis and recession, is now on a recovery track. Yet it also demonstrates that increased demand for accommodation in the major provincial cities is being fuelled by growth in the domestic business travel market as the UK economy shows signs of a much-awaited revival.
“We are seeing a strengthening in the UK market that is being driven by demand,” says Margaret Bowler, HRG’s director of global hotel relations. “We anticipate demand to continue along with rate growth next year.”
Occupancy rates in the regions, for example, are now running at about 71 per cent – a level last seen before the 2008 financial crisis and recession – according to data from accountancy firm Pricewaterhouse Coopers (PWC). Moreover, with occupancy levels at around 81 -82 per cent for London hotels, PWC also points out that “London is technically full five-and-a-half nights a week and looks likely to remain so.”
CAUTIOUS OPTIMISMOther hotel industry observers are becoming equally cautious-but-optimistic. Consultancy firm BDO found that in August this year, the last month for which data is available, year-on-year hotel occupancy was up 5.4 per cent in London and 7.2 per cent in the provinces, despite the distortions caused by the 2012 Olympics. “It appears that hotels are among the early beneficiaries of the nascent economic recovery,” says BDO partner Robert Barnard.
But these figures are of more than just academic interest. In the autumn of last year, the GTMC launched a quarterly review of economic data and business travel activity to provide evidence of a firm link between the two. The aim is to provide hard data supporting the GTMC’s case when in talks with the government on issues affecting the business travel world (such as tax and airport capacity).
Currently the data, which demonstrates a six-month lag effect between increased business travel activity and economic growth, does not differentiate between domestic and international business travel. But the GTMC plans to provide new analysis shortly to highlight domestic business travel growth in comparison to international travel.
Meanwhile, the latest comprehensive GTMC data shows a 16 per cent increase in hotel transactions by GTMC members in the second quarter compared with the previous year. “It’s self evident that companies are on the move again as they realise they need to travel on business – and, naturally, hotels are going to benefit,” says GTMC chief executive Paul Wait.
Driving the UK’s economy at present are resurgent sectors such as construction and financial services, points out Steve Banks, director of account management at Capita Travel and Events. He also suggests that “while volume in the public sector has been vastly reduced, the business is still contributing to the market.
“But the days of end suppliers viewing the public sector as a volume-driven market are gone and some suppliers are still having to play catch up,” he says.
STRONG RESISTANCEIt is also becoming clear that even if the economic recovery continues to come through, hotels around the country may not reap the full benefit of strong demand. PWC says that hoteliers have reported “strong resistance from both corporate and leisure markets to passing on rising costs through [higher] room prices”.
It adds: “The procurement process and an emphasis on value for money and ROI [return on investment] on events means this is particularly true for the public sector and corporate buyers.” This continued focus by travel buyers on rates is having the consequence of helping to reshape the hotel sector in the UK by encouraging more budget hotels to be opened, especially in the regions.
According to data from researchers AM:PM Hotel Database, another 20,000 rooms and almost 200 hotels will open between the last quarter of this year and the end of 2014. But more than half of the new rooms coming on stream will be in budget properties, making the low-cost sector easily the fastest-growing among UK hotels as travellers hunt for value.
At Gatwick, for example, all the new rooms scheduled to open over the next year will be budget – including, next March, the opening of a 245-room Bloc Hotel adjacent to Gatwick’s South Terminal. Bloc is one of the new-generation of ‘stylish budgets’ – well-designed but small rooms, with hi-tech equipment and luxuries such as Egyptian-cotton sheets. Rooms will start at £89.
The budget sector’s increasing grip on the UK market was highlighted by latest figures from the British Hotel Guest Survey showing that Premier Inn and Travelodge were now – for the first time – the top two UK hotel brands in both the business and leisure travel sectors.
But the growth of the budgets is not the whole story. The data on new hotel openings over the next year indicate that a quarter of rooms becoming available in the UK – about 5,000 in total – will be in the business-oriented three- or four-star sectors.
Moreover, virtually all the new hotels will be branded properties from the major global hotel chains, such as Intercontinental Hotels Group (Hotel Indigo, Crowne Plaza), Hilton (Doubletree, Garden Inn) and Marriott (Autograph, Courtyard). Driving the new hotel openings in the UK is not just economic recovery, but also a structural shift in the way hotels are owned and operated. A decade ago, for example, most branded hotels in the UK were owned and operated by the hotel company itself.
Now, the strategy is ‘asset-lite’, with hotel chains focusing on developing the brand and operating standards, leaving the ‘bricks and mortar’ hotels to be owned by external investors. It is a strategy which has made IHG the world’s biggest hotel group in terms of number of rooms – yet it only actually owns a handful of the 4,600 or so hotels carrying its 11 brand identities.
Although only about four in every ten UK hotels at present are branded, the power of the companies behind the brands gives such properties a competitive edge over independent operators in the increasingly crowded mid-market sector.
For travel buyers, the appeal of the brands is considerable: it is in the interests of the hotel owner as well as brand operator to ensure the hotels are kept up to date with regular refurbishments, are ‘technology friendly’ – providing, for example, free wifi – and can offer system-wide corporate deals across a number of brands, not just in the UK but internationally as well.
GLOBAL EFFECTSWhile branding and increased supply is helping to support increased business travel activity, there still exist some worries over whether this revival could yet prove another false dawn. The still-fragile UK recovery could yet be blown off course by external events – such as a renewed eurozone crisis or war in the Middle East. The oil price remains at a historically high level and remains vulnerable to disruptions in supply. Since travelling by car is still the most frequent means of travelling on business, a hike in fuel prices would inevitably hit domestic business travel.
But the smart money is backing an economic recovery boosting the UK market: almost £2 billion was spent in the first half of this year by investors acquiring hotel assets, compared to just £500 million in the same period of 2012. More significantly, some 70 per cent of the investment was made in buying provincial hotels ready for the upturn that appears to have arrived.
REGIONAL ROUND-UPThe impact of the emerging economic recovery is being felt in the UK’s major provincial cities, where surveys show that Birmingham, Manchester, Glasgow and Edinburgh are leading the way with the numbers of new hotel rooms planned for the next three years, followed by Newcastle and Liverpool.
The confidence being shown by hotel investors and brand owners is not surprising, argues Liz Hall, PWC’s head of research for the hospitality sector. “These are key cities where, if there is to be any market improvement because of the economic recovery, you would expect to see it there,” she says.
Budget hotels are driving the room expansion in provincial cities: Newcastle has another 264 rooms set to come on stream over the next 18 months or so with the opening of budget hotels under the Hampton by Hilton and Tune brands. This is in addition to the dozen hotels already opened or announced since 2011.
In Scotland, there is a marked contrast between the three major cities in hotel terms. Glasgow’s focus as a conference destination means that more than half of its 8,000 or so hotel rooms are in the budget and three-star sectors and the city, at present, has just three five-star hotels; this is in sharp contrast to Edinburgh, with eight. However, this reflects Edinburgh’s greater tourism appeal, boosted by its various annual festivals.
Aberdeen, Scotland’s ‘oil capital’, has seen a mini-boom this year as a result of renewed activity in the North Sea market and the higher oil price, with both occupancy and average room rates sharply ahead.
But London, not surprisingly, remains the strongest hotel market in the UK, reflected in the estimated 4 per cent increase in room supply over the next year – twice the growth rate for the regions.
While central London is one of the key sub-markets for growth , there are more rooms in the pipeline next year due to open to the east of the capital. The City of London alone will see 760 new rooms added, according to data from AM:PM Hotel Database, although most development is further to the east, including fashionable Hoxton and Shoreditch.