Budget and budget chic hotels sitting pretty

Piers Brown By Piers Brown
Uploaded 16 November 2014

Hosted by Nick van Marken, Global Head - Advisory, Travel, Hospitality and Leisure and what a difference 12 months makes. This time last year, the IMF had just declared an end to the Eurozone crisis, and investment activity was beginning to rise. 2014 has seen performance pick up in the majority of regions across the world and a return to liquidity. UK recovery is still on track with 3.0% year on year growth but is proving to be the archetypal 'goldilocks economy' - not too hot and not too cold. Growth is relatively strong and the IMF forecast the UK economy will outstrip the rest of the developed world this year, but inflation remains subdued and the economy faces strengthening headwinds most notably weak growth in the euro zone.
Nevertheless, strong investor appetite for deals and a robust pipeline means optimism abounds for domestic and overseas hotel investors. No hotel investment sector is experiencing more growth than the budget to midscale category, with examples of substantial forward funding yields. Osprey Equity Partners, the private equity investment manager, recently sold its 189 bedroom Hub by Premier Inn hotel on Brick Lane in east London to an undisclosed UK institutional fund for £34.7m.The price reflects a net initial yield of circa 4.25%.The sale being pre-let to Whitbread on a 30-year, index-linked lease, to be operated as Whitbread's new high-tech 'Hub' hotel brand.
With budget hotel yields the highest within the hotel sector and the biggest projected pipeline around the world, I took my seat and listened in to 'The only way is budget' panel session to discover more of what sector leaders had to say. Moderated by Deloitte's Simon Oaten, Partner, Travel, Hospitality and Leisure, panelists were: Navneet Bali, CEO, MEININGER Hotels; Carlton C Elvin, Chief Development Officer, Europe, Marriott International and The Ritz Carlton Hotel Company; Peter Gowers, CEO, Travelodge and Simon Jones, Marketing and Strategy Director, Premier Inn.

Following brief introductions, Peter explained that continued globalisation has meant people travel more and Travelodge guests demand more - a clean room, decent shower and comfortable bed is the bare minimum. "We refer to a trend known as 'tapas tourism' where people are dipping in and out (of places, accommodation, food and beverage, experience offerings etc..), the 'all you can eat' value offer is less popular these days." Simon Jones said Premier Inn's offering remains simple, achieving good occupancy midweek and at weekends. Location and value remains the focus and guests have a simple set of needs (identical to Travelodge above) including a hot breakfast."Budget hotels have a more efficient model, and we deliver strong results" he said.

Moving to Carlton and Marriott's new Moxy brand, Simon Oaten asked "if budget hotels are a recessionary phenomenon?"

Carlton felt people's definition of value within hotel accommodation is changing. "They see the budget sector as safe and secure, and the shift is where the guest is looking to combine value and style, not value v style. Moxy mixes passion with excitement" said Carlton. Moxy's first hotel recently opened in Milan, and Carlton said "we already have eleven locations signed with five more close to signing which is sixteen in two years. Our future pipeline is based on where our owners and guests want to be."

Prompting more discussion on market positioning, product types and growth, Navneet Bali, CEO MEININGER Hotels outlined their focus on targeting groups, hotel, and multibed guests in their hostels, "which is a larger market and we have higher occupancy" he said. Looking to the future, all panellists agreed there was still space for lots of growth and differentiated offerings, Simon Jones said "Premier Inn was continuing to grow market share at the detriment of the independent hotel sector." Peter Gowers, made an interesting point as to how broad the sector has become and "where does budget stop?" (within a customer's mind). "It's only budget if you've got more money. I like referring to Travelodge as being in the low-cost hotel sector, not budget. There's plenty of room for differentiation in style, design, buzz but you must remember who you are targeting."

The session was brought to a close with a focus on competitve threats from disruptive accommodation options and OTA's (online travel agents).

Navneet was enthusiastic towards these social, sharing options and said "MEININGER has not seen any negative affect on occupancy or room rate from Airbnb, and we share too (referring to hostel offering). Peter took a more pragmatic approach saying he was keen to "look at Airbnb's customer needs and adapt into the Travelodge offering. We took on the bed and breakfast and won and have been resilient to Airbnb."

"Airbnb is a good business model but I can see more regulation like health and safety, food hygiene, VAT and tax" said Simon. "It's a colossal threat across Marriott brands - the experiential traveller, not so much affecting the budget hotel. We're looking to improve digital and mobile commerce."

The final word was left for Peter Gowers who said Travelodge would never out-invest OTA's like Booking.com , "it's simple, our property capital expenditure cycle is one year in seven, it's much shorter for technology - one in one."

Navneet Bali, CEO, MEININGER Hotels is a speaker at the inaugural Hostel and Budget Traveller 2014 conference.

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