Power struggle

The property market is generally considered to have had a dismal year in 2010. So it comes at some surprise that the hotel sector has experienced so much activity in recent months. While other divisions have witnessed a stop-start property affair, the hotel market has produced a continuous stream of sales and acquisitions.

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While other sectors have faced tough conditions, transactions for UK hoteliers have remained consistent. One reason behind this lies in the increase of the general public to forgo overseas holidays in favour of breaks in the UK. The much publicised ‘staycation’ has seen UK hotels taking increased bookings over the summer months.

In addition, the comparatively weak pound in the second quarter of the year increased tourist interest, making a holiday in the comparatively expensive UK a more affordable prospect for many countries. This has given the industry a shot in the arm that has ensured trade remains high and the hotel property market busy.

However, the economic downturn has taken its toll in some instances and numerous hotel groups and owners have had to make tough decisions over stock. Most significantly, has been Mitchell & Butlers’ sale of 52 of their Innkeeper’s Lodges – the majority of its hotel holdings – to focus more on its core pub and restaurant business. CBRE Hotels made the decision to shed six hotels it currently leases to the Hilton hotel group. Meanwhile other owners have not been so lucky, with the luxury Berners Hotel in London being put up for sale by the administrators of Berners BVI.

Leaders of the pack
Where independent hotel owners and over-stretched market players have floundered during the downturn, the big names have been there to pick up the pieces and make the acquisitions in the locations where the business has made sense.

Travelodge has been one of the strongest performers in the sector. While it’s PR and advertising division has been busy promoting the chain as modern and sleek operation, its acquisition team has been working in overdrive to get the best out of the market slump. The acquisition of the leaseholds of the properties sold by Mitchells & Butlers in July at the cost of £75m set the benchmark. A pricey investment, the move has added nearly 2,000 extra beds to the company’s roster across a range of smaller, scenic hotels. Travelodge also made a significant purchase of six new London hotels at a cost of £58m.

Rival Premier Inn has had an equally strong performance over the year. Its strategy during the downturn has focused on appealing to its regular clients, thus growing its business and hoping to capitalise on the influx of both tourists and staycationers. This has not prevented the group enjoying a steady stream of new acquisitions, primarily capitalising on properties in prime city locations to see maximum return.

Low and mighty
Despite the dominance of the big names and the economic situation, the industry is still expanding and diversifying at both ends of the market. Tune Hotels for example, who opened their first London hotel in August, are testing the waters with ultra budget hotels.

The group offers a room in the capital from a mere £35 per night, yet have additional charges for luxuries – such as a towel or having the room cleaned. It won’t be to everyone’s taste but is likely to prove popular with tourists on a budget or backpackers unwilling to contend with London’s mixed standard of youth hostels.

Charging £1 for use of a towel when other hotels provide them for free may not sound like the best strategy to win business. Yet there’s clearly a market for Tune’s style of hospitality. The group plans to have another 13 hotels operational by 2014 – giving a reasonable chance that more will be up and running in time for the tourist goldmine that will be the London Olympics 2012. With travellers coming from around the world for this with varying budgets, the likelihood of budget operations becoming more and more prevalent around London is almost guaranteed.

At the other end of the spectrum, the high end hoteliers have also seen somewhat of a bounce-back. The fluctuation of sterling prevalent in the middle part of the year saw the price of goods in the UK become attractive to the Russian and Middle Eastern elite market. While the likes of Harrods reaped the rewards of the rich and powerful coming on shopping trips, top end hotels have been falling over each other to offer top-end luxury.

Much over schedule and budget, The Savoy has back in contention. Located on The Strand, the luxurious hotel’s revamp is rumoured to have cost £118m. Its reopening on 10 October, just in time for the flood of rich overseas shoppers coming to London for the Christmas season, should see it fair well. Yet with rooms starting at a heady £350 per night and rising to £7,500 for the Royal Suite, the hotel will more likely be the haunt of the rich than your average backpacker.

New developments
Unlike other sectors hotel developers have not experienced the grinding halt that office or retail has seen. With times on the up, market conditions have improved enough for new hotel developments to go ahead.

Yet this hasn’t been without some compromise. An increasing number of new developments have required funding from overseas investors. Legoland Windsor, the building-block theme park has been one such example.

Park owner Merlin Entertainments Group has financed a new hotel development thanks to the help of Aprirose, an Asian investment facilitator who have found four businessmen based in East Africa ready to help put up the required £18.5m for the development. Merlin will then lease the hotel for 35 years.

The development is an example of the kind of undertaking British companies have had to take to get ahead in the rising hotel market. Merlin is currently experiencing a drop in revenue across its theme park empire, making such a large investment otherwise difficult. The hotel, opening in 2012, should help reverse this trend, unlocking new potential in the park.

Eyeing the prize
Of course, new developments and expanding chains are not just a case of seizing opportunity in the moment. Business travel is picking up and London as the world’s financial capital is once again the location of choice for businesses from the Middle and Far East to meet those from the United States and indeed around the world. This again offers hotel groups the opportunity to pick up corporate clients who can act as the backbone of their newfound success.

Yet it is the upcoming Olympics, which is undoubtedly the main prize. This once in a lifetime event will draw people from around the world to the UK. With its strong network of airports, ferry ports and railways, the hotel industry can expect a huge boost in 2012. Equally, the Scottish tourism industry can expect a boost when it hosts the 2014 Commonwealth Games in Glasgow.

However, an element of uncertainty remains due to the high tourism expectations that are expected by many groups. The 2008 Olympics Games in China, held at the height of the economic downturn, actually saw an overall reduction in tourism compared to the same period in 2007. With the world economy still in an uncertain position, tourism may not always meet expectations. As such, hotel groups will still need to fight for clients through offering more competitive deals. With this trend already on the rise, it’s evident that the hotel industry should prepare itself for a frenetic couple of years.