HASTINGS, BEXHILL & 1066 COUNTRY HOTEL & GUEST ACCOMMODATION FUTURES

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1 HASTINGS, BEXHILL & 1066 COUNTRY HOTEL & GUEST ACCOMMODATION FUTURES Final Report Prepared for: Sea Space

2 CONTENTS EXECUTIVE SUMMARY... i 1. INTRODUCTION Background to the Study Objectives of the Study Study Methodology THE UK HOTEL SECTOR National Demand Trends National Supply Trends Trends in UK Seaside Resort Hotel Development HASTINGS, BEXHILL & 1066 COUNTRY HOTEL AND GUESTHOUSE SUPPLY Current Supply Recent Changes in Hotel Supply Planned Development of Existing Hotels Potential New Hotels Summary of Key Points CURRENT DEMAND Occupancy Achieved Room Rates Patterns of Demand Key Markets Market Trends Denied and Lost Business Future Prospects Summary of Key Points THE POTENTIAL FOR GROWTH The Strategic Vision Future Market Prospects FUTURE HOTEL & GUEST ACCOMMODATION DEVELOPMENT OPPORTUNITIES Hastings Bexhill Battle and Surrounding Area Rye and Surrounding Area Other Hotel and Accommodation Products THE HOTEL DEVELOPER PERSPECTIVE Hotel Developer Requirements The Nature of Hotel Investment Hotel Developer Interest in Hastings, Bexhill & 1066 Country Barriers to Investment Site Assessments THE POLICY CONTEXT The Big Picture Local Policy and Development Priorities Hotel Sector Planning Policy Guidance Future Policy Direction...88 Hotel Solutions

3 9. MOVING FORWARD Positive Planning to Support Hotel Development Hotel Investment Marketing Incentivising New Hotel Development Supporting Existing Hotels and Guesthouses Developing the Market...95 APPENDICES 1 - Hotels Interviewed 2 - Hastings, Bexhill & 1066 Country Supply of Hotels and Guesthouses 3 - Hastings & Bexhill Company Survey 4 - Extract from DCLG Good Practice Guide on Planning for Tourism 5 - Developer Consultations 6 - Developer & Operator Contact Details Lynn Thomason Andrew Keeling Hotel Solutions Hotel Solutions Deleanor House Mill Field House High Street Mill Fields Coleby Bassingham Lincoln Lincoln LN5 0AG LN5 9NP t t e. hotel@tourismsolutions.co.uk e. ackeeling@btinternet.com Hotel Solutions

4 EXECUTIVE SUMMARY Introduction The Hastings, Bexhill and 1066 Country 1 Hotel and Guesthouse Futures Study has been commissioned by Sea Space. On behalf of the Hastings & Bexhill Economic Alliance, through Tourism South East to provide a robust evidence base of the current and potential future demand and development potential for hotel and guesthouse accommodation in Hastings, Bexhill, Battle, Rye and surrounding rural areas. The study findings will be used to: Identify the potential opportunities and requirements for securing new hotel development in these locations; Gauge the likely impact of new hotel development on existing hotels and guesthouses; Assess the threat of further losses of hotel and guest accommodation in the area; Establish the potential and requirements for retaining, upgrading, repositioning and developing existing hotels and guesthouses; Provide an evidence base to inform the new planning policies for hotels and guesthouses that will be included in the Local Development Frameworks for the two local authority areas both in terms of policy formulation and site allocation; Provide information to assist in determining hotel development and change of use applications; Feed into hotel investment marketing activity for the area. 1 For the purposes of this study defined as Hastings Borough and Rother District Country is a marketing brand used to promote these two local authority areas together with Pevensey and Herstmonceux in Wealden District. These parts of Wealden have not been included in the study. Hotel Solutions i

5 The Study has involved the following modules of research: a review of national hotel performance and development trends, with a particular focus on hotel development trends in UK seaside resorts; an audit of the existing supply of hotel and guest accommodation and assessment of recent and planned future changes to the area s serviced accommodation supply in terms of closures and planned hotel developments; interviews with managers and owners of hotels and guesthouses across the area to assess recent and current hotel performance levels and trends; a review of relevant policy documents and research reports; consultations with key officers in Sea Space, Hastings Borough Council, Rother District Council and 1066 Enterprise; an assessment of factors that could influence future demand for hotel and guest accommodation, including the impact on demand of planned major regeneration projects; consultations with a sample of hotel developers to assess their interest in developing in Hastings, Bexhill, Rye and 1066 Country; a review of potential hotel development sites in Hastings, Bexhill and Rye; a telephone survey of companies in Hastings and Bexhill. Hotel Solutions ii

6 Trends in the UK Hotel Market The UK hotel industry has steadily recovered in the last 3 years following a difficult trading period between 2001 and 2003 due to the impact of major events and crises, including the Foot & Mouth epidemic, 9/11, the Iraq War and the SARS scare. Provincial hotel performance has been more stable than for the UK as a whole, the latter being affected by London hotel performance, which has been more significantly influenced by international events. Provincial hotel occupancies have been relatively stable over the past 5 years with average annual room occupancies running at around 70-71%. Achieved room rates grew only slightly between 2001 and 2003 but have risen sharply in the last 3 years to reach a record high of in Both established and new hotel brands have continued to expand in the UK. The budget hotel sector has grown strongly, with continued expansion by Premier Travel Inn, Travelodge and Express by Holiday Inn, and the emergence of new budget hotel brands. In the 3/4 star market small boutique and town house hotel chains, such as Hotel du Vin and Malmaison have rapidly expanded. The development of large branded 3 and 4 star hotels has been focused primarily in major city centres. Recent years have seen something of a renaissance in hotel development and investment in UK seaside resorts. Key trends have been the development of boutique and budget hotels. Hotels have also been developed on caravan parks, holiday villages and theme parks and are proposed linked to conference centres and waterparks. Adult only hotel resorts have also developed in some resort locations. Hotel Solutions iii

7 Current and Planned Hotel Supply Our research has identified a total of 79 hotels and guesthouses 2 in 1066 Country with a total of 1,145 letting bedrooms. Supply has reduced significantly in Hastings and Bexhill over many years, with further guesthouses in the process of closing down or wanting to exit the market in both locations. Quality appears to be low generally in Hastings, with many hotels and guesthouses having received little or no investment for some considerable time and few owners currently contemplating upgrading and refurbishment. There have, however, been some signs of new investment recently with the opening of the Zanzibar and the investment that is being made in the White Rock Hotel. The resort has also seen recent budget hotel development with the conversion of the Cinque Ports Hotel to a Travelodge. The supply is very limited in Bexhill and continues to reduce here, with the impending closure of at least two guesthouses. There has been some recent investment, however, most notably in the Cooden Beach Hotel. The stock of accommodation in the Battle area comprises mainly rurally located hotels. There are few hotels and guesthouses in Battle itself. Standards are not particularly high, although there are some signs of investment beginning to take place in hotels here. Quality appears to be good in Rye, with investment happening in existing hotels here, most notably the refurbishment of the George. A number of hotel projects have been mooted in Hastings, Bexhill and Rye. Some are at a fairly advanced stage in terms of planning permission and feasibility studies. Others are longer term, and in some cases more aspirational, proposals for new hotels. 2 Our analysis of current supply includes all inspected and non-inspected hotels and guesthouses with 5 bedrooms or more. Smaller guesthouses and B&Bs have not been included. Hotel Solutions iv

8 Current Hotel Demand The hotel and guesthouse market across 1066 Country is primarily leisure driven and seasonal. The corporate market is weak and there is very little residential conference business. 3 star hotel occupancies are low by national standards at an average annual room occupancy of around 55% in The lack of corporate and residential conference demand limits the occupancies that 3 star hotels can achieve to around 60%. Only one hotel is achieving a significantly higher occupancy than this. Budget hotel occupancies are high in Hastings (an average annual room occupancy of 76% in 2006) as they attract a good mix of demand from the business, contractor, leisure and visiting friends and relatives markets. Average annual room occupancies are low for guesthouses, typically around 40%. Occupancies are very low (down to 20-30%) for some of the lower quality 3 star/diamond guesthouses located away from the seafront. Weekend occupancies are stronger than weekday occupancies across 1066 Country. They are generally high in the summer months, with many hotels and guesthouses regularly denying business at weekends at this time of year, particularly on Saturday nights. Weekend denials are particularly high in Rye. Weekday occupancies are generally low other than for budget hotels, in the peak summer months and for one or two hotels and guesthouses that are trading well in the corporate or contractors markets. Achieved room rates 3 are very low (around 45-50) for 3 star hotels in Hastings and Bexhill, and lower still for 2 star hotels. This appears to be primarily to do with the quality of the hotels in the resorts and the markets that some of them are catering for, particularly in terms of coach holiday and contractor business. There is evidence that people are prepared to pay higher prices for better quality hotel accommodation here, however. 3 The net amount of rooms revenue that hotels achieve per room after deduction of VAT, discounts, commission charges, breakfast and any other meals included in the room price. Hotel Solutions v

9 Achieved room rates are high ( ) for some country house hotels in the Battle area and generally for 3 star hotels in Rye, primarily due to the high prices that they command for their rooms at weekends. Prices charged by Hastings guesthouses are low (typically B&B for a double en-suite room). The Zanzibar has shown that there is a market for quality guest accommodation in Hastings that people will pay higher prices for. The corporate market is weak across 1066 Country and largely static. Companies in Hastings do not generally use the hotels in the resort as they do not offer the quality that they require or in some cases because hotels outside Hastings are more conveniently located for their offices. Residential conference demand is limited although a few country house hotels and 3 star hotels in Rye have had some success recently in attracting small residential conferences out of London. There is some evidence that companies in Hastings tend to use hotels further afield for residential conferences and meetings as the hotels in Hastings, Bexhill and Battle are not sufficiently large or of an adequate standard to meet their requirements. Such demand is not significant, however. Hastings does not currently attract association conferences in the way that other seaside resorts do, although has previously hosted the Green Party conference. This appears to be due to the lack of a suitable conference venue in the resort, the limitations of the accommodation offer in terms of quality and total capacity, and the location and accessibility of Hastings by road. The De La Warr Pavilion is frustrated in its desire to develop conference business due to the lack of a suitable hotel in Bexhill. The potential conference business that its management has identified is not significant however. The leisure break market is strong across 1066 Country apart from in Bexhill. It is particularly strong in Rye. Good quality hotels and guesthouses and those that have upgraded and/or are using Internet marketing effectively have seen a growth in leisure break business. This market appears to be declining for the lower standard guesthouses in Hastings however. Hotel Solutions vi

10 The contractors market is strong in Hastings for budget and 2 star hotels and guesthouses. The Travelodge appears to have taken much of this business from the guesthouses in Hastings through the very low rates that Travelodge is offering currently. Occupancies have dropped sharply for the lower grade guesthouses located away from the seafront. A number of these are currently looking to exit the market. Coach holidays are a key market for the two largest hotels in Hastings. This is very low-rated business that at least one of the hotels is seeking to reduce as it focuses on attracting higher paying markets. The visiting friends and relatives market is the main driver of business for hotels and guesthouses in Bexhill. Other markets for accommodation here are limited and appear to be declining. A number of guesthouses in the resort are in the process of exiting the market currently. Future Market Prospects Our research suggests the following future prospects for the hotel and guest accommodation market in Hastings, Bexhill and 1066 Country: o Some, albeit relatively slow, growth in corporate demand as new companies and organisations are attracted to the planned office developments and the area s economy is regenerated. o Growth in demand from the contractors market for budget-priced hotel and guest accommodation given the number of major construction projects that are planned in Hastings. o Some (although limited) potential possibly to attract association meetings to the newly renovated Marina Pavilion in St Leonard s and the White Rock Theatre in Hastings. o Potential for country house hotels and good quality 3 star hotels to attract residential conferences from the London area. This is unlikely to become a significant market for hotels in 1066 Country however. Hotel Solutions vii

11 o Good prospects for growth in leisure break business for hotels and guesthouses in Hastings, Battle and Rye give further improvement and development of the accommodation, leisure and cultural offers in these locations and effective marketing. The potential to develop leisure break business in Bexhill appears to be limited however. o Scope for growth in overseas tourist demand given the anticipated growth in inbound tourism in the UK. o A possible reduction in coach holiday business as the hotels that cater for this market seek to build business from other higher paying markets. o Slow growth in business from the weddings and functions and visiting friends and relatives markets as the area s population increases. Opportunities for Hotel and Guest Accommodation Development Our research suggests the following opportunities for hotel and guest accommodation development in 1066 Country: Hastings o Potential for existing hotels and guesthouses to upgrade. o Opportunities for the development of small and medium-sized boutique hotels and guest accommodation establishments as the seafront and resort infrastructure improves and the leisure and cultural offer and gay scene develop. Such businesses are most likely to be established through the conversion of existing hotels and guesthouses by new owners. New boutique hotels might also be developed through the conversion of suitable properties and possibly new-build developments on some of the key seafront sites, subject to a favourable deal for the hotel developer. o Potential for further budget hotel provision, most likely to be achieved through the extension of the Premier Travel Inn and/or Travelodge, and the possible development of the proposed Express by Holiday Inn. Hotel Solutions viii

12 Bexhill o Possible scope for a small boutique hotel with a good food offer if a local entrepreneur can be persuaded to develop here, probably as part of a mixed-use scheme. A prime seafront location and favourable land deal would be needed. o Premier Travel Inn have identified a requirements for a 50-bedroom budget hotel and restaurant in Bexhill. Battle and Surrounding Area o Potential for the hotels and inns in Battle to upgrade; o Scope for the country house hotels in the Battle area to upgrade and possibly expand. Rye and Surrounding Area o Potential for the development of small boutique hotels and good quality pub accommodation. o Scope for existing hotels and guesthouses to upgrade. Other Hotel and Accommodation Products o New country house hotels in the rural areas, given suitable properties for conversion. o Hotels on golf courses. o An adult only hotel, given a suitable property for conversion. o Hotels on some of the area s major caravan parks e.g. Coombe Haven. o Good quality pub accommodation. o A youth hostel possibly in Hastings (subject to further investigation)- YHA has already expressed an interest in the Stade Development proposals. Hotel Solutions ix

13 Investment in the upgrading of existing hotels and guesthouses and the development of new boutique hotels and guest accommodation establishments is likely to be a long slow process in Hastings without some form of financial or other assistance. Hotel Developer Interest Key investment criteria adopted by hotel companies include: o Location achieving critical mass and geographic spread is important to all national hotel brands, which target primary locations first (larger regional cities) then move on to secondary and tertiary locations when they can be better supported by the group. o Site requirements include strategic locations with good access, visibility to passing traffic, a strong business base close by, leisure drivers to fill the rooms at weekends, site areas of acres, land values that reflect hotel economics, an attractive environment, a minimum population of ,000, city centre and out of town sites, the need for associated development where land values are high, and redevelopment sites where opportunities are limited and competition for sites strong. o Development costs are critical to control for hotel viability, but have been driven upwards resulting in a move to larger hotels, the need to tailor the hotel to the site, and the development of associated uses. o Viability is a function of development cost, occupancy and achieved room rate. Performance targets will vary by product type. Typically occupancies of 70-75% are required, ARR targets of budget, for upper tier budget and new generation 3 star offers, and 80+ for 4 star hotels, with luxury 4/5 star and town house hotels looking to achieve Return on investment targets are in the range of 15-20%. In terms of understanding any interest expressed in 1066 Country by hotel companies, it is important to appreciate the nature of hotel investment and operation and the structures used for financing hotels. Some companies wholly own and manage their hotels themselves, but in other cases hotel buildings may be owned by an investor but leased, run under franchise or under management Hotel Solutions x

14 contract by a hotel chain. The levels of risk to the hotel chain vary considerably between these options. At the large 4 star end of the market particularly, where levels of capital investment and therefore risk are high, many more hotel companies will be willing to take a management contract or franchise than build and invest themselves. Over 30 hotel developers, operators and investors were contacted to test their interest in investing in 1066 Country. Of the 19 responses received, there was interest from only 7 companies. The bulk of the interest was either for budget hotel brands, or boutique offers. There was no interest from large 3 and 4 star branded hotel developers. Three of the 7 positive responses were from companies connected with the local area or wider region. Developers and operators saw more potential for leisure-driven and destination offers here and developments of a small scale (30-60 rooms). Hastings attracted most interest but there was also interest in Bexhill and Rye. A sea view, availability of parking and proximity to other demand drivers were key locational criteria. Budget operators also liked sites on main arterial routes. Development interest in Battle related to the extension of existing properties. Barriers to investment in 1066 Country include: a weak corporate base; poor access by road and rail; seasonality of trade; site values where residential was a competitor; a negative image and little knowledge of regeneration efforts and wins to date; poor positioning relative to stronger investment locations such as Brighton on the South Coast; the complexity of delivering mixed use schemes and in some cases planning. A number of developers felt there would need to be some sort of support for the development of a new hotel e.g. a favourable land deal. There is a range of sites available with potential for hotel development. Timescale to delivery, given surrounding or associated major development activity and the need for that development to both create the right environment and generate rooms demand is an issue with a number of the sites. Sites in Council or other public sector ownership or influence will generally be preferred by hotel operators/developers and present an opportunity for key public sector stakeholders to influence the development and the deal. Hotel Solutions xi

15 Future Policy Direction There is scope for policies relating to the development and retention of hotel accommodation in 1066 Country to be tightened up in the emerging Local Development Frameworks for Hastings and Rother. In doing so, the Councils in each case should draw upon policy advice in the emerging South East Plan, the DCLG Good Practice Guide on Planning for Tourism, and accommodation policy guidance issued by Tourism South East on retention, pub accommodation development, and attracting hotel investment. Policies relating to new hotel development could be more specific in terms of locational priority. In both Hastings and Bexhill, the priority should be to direct hotel development to the seafront, but also close to generators of demand and in locations supported by other destination facilities and motivators to visit. The need for budget hotels to locate on main arterial routes should also be recognised. Elsewhere in Rother, policies should allow for the development of new accommodation where suitable properties for conversion are identified, and on sites where rooms can be added to pubs, restaurants and golf courses. In both Hastings and Rother, policies should look to support extensions of existing hotels, subject to usual development principles. There is no clear evidence of the need to allocate sites specifically for hotel development. The planning issues on many of the mixed-use sites where hotels are proposed relate to enabling development to support or cross-subsidise hotel development and influencing schemes through Development Briefs and Masterplanning. There remains a need to protect hotel accommodation in key locations throughout 1066 Country; the pressure exerted by the housing market is likely to continue to push hotel operators to seek permission for change of use. In Hastings, the priority for retention is along the seafront (perhaps also taking in the Old Town); here policies should resist all loss. Outside this area, whilst policies should still resist change of use there could be scope for some managed loss, especially as new accommodation comes on stream. In Rother the accommodation offer is more dispersed making a generic rather than zoned policy more applicable. Hotel Solutions xii

16 The current informal procedures followed by both Hastings and Rother in dealing with change of use applications need to be tightened up and made more transparent, clearly explaining the criteria against which applications will be assessed and the evidence the applicant needs to present. This may or may not be in the form of an SPD, but should be documented. In other destinations, retention policies are centred on proof of marketing for sale and non-viability. Where lifestyle businesses are concerned, commercial viability arguments are more difficult to test, in which case proof of marketing for sale may be sufficient on its own. We recommend that both Councils review the good practice retention guidance issued by Tourism South East and decide which approach is most appropriate to their area and the resources and skills available to assess these applications. Moving Forward Positive planning for hotels will be a key plank in delivering the identified potential for new hotel development and the up-grading, extension, re-positioning and retention of existing stock. This requires a package of LDF policies and support procedures and routes to enabling development particularly through mixed-use schemes. Hotel investment marketing should be targeted at independent investors and property developers from the local area and wider region, including existing beacon hotel operators, investors from other South Coast resorts and gay and lesbian entrepreneurs. Operators of existing hotels in 1066 Country should also be targeted and encouraged to up-grade and re-position to face the challenge of new accommodation and the changing expectations of the market. There is also potential to tap into the networks of some of the beacon hotel investors and operators, particularly contacts in the City, the media and the arts, to help create a positive destination image and further investment interest. Bringing hotel development forwards in 1066 Country is likely to need some form of incentivising, bearing in mind the dependence of the destination on the leisure market, the seasonality of trade and the levels of perceived risk associated with potential investments. This might include a mixture of favourable land deals, contributions to infrastructure or remedial works associated with sites and enabling development to cross-subsidise the hotel development in both mixeduse schemes and the re-positioning of existing offers. The availability of grant aid Hotel Solutions xiii

17 has the ability to make a significant difference in accelerating the process of upgrading existing stock, particularly if it is at a level that can enable a step change in quality to be achieved. Supporting existing hotels and guesthouses in upgrading their facilities, raising their service standards and the quality of their food offer, and improving their marketing will be critical to the future success and development of the hotel and guest accommodation sector in Hastings, Bexhill and 1066 Country. An initial step will be to share the findings of this study with the owners and managers of existing hotels and guesthouses through the circulation of a summary report and possibly a presentation to them. Business support and training measures should also be considered. The improvement and development of the hotel and guest accommodation sector in Hastings, Bexhill and 1066 Country will depend very much on the development of the area s accommodation market. Key requirements in this respect will be: o The attraction of new companies and organisations that will generate new corporate demand for accommodation; o The development of the leisure tourism offer, particularly in Hastings; o Effective marketing of the area for leisure breaks, particularly in terms of boosting off-peak periods; o Further investigation of the potential to attract association conferences to Hastings. Hotel Solutions xiv

18 1. INTRODUCTION 1.1 Background to the Study Sea Space is the company set up to deliver an extensive 10-year business plan to regenerate Hastings and Bexhill through a series of large capital investment projects. It sees hotels as having an important role to play in supporting the regeneration strategy for the two resorts in terms of tourism development and servicing business visitors and companies, as they are attracted through new office and business development projects. The company is thus interested in attracting new hotel investment to the towns, both in terms of new hotel developments and the upgrading of existing hotels. At the same time Hastings Borough Council and Rother District Council are in the process of developing the new Local Development Frameworks for their areas. These will include policies relating to the development of new hotels and guesthouses and the retention of existing hotel and guest accommodation businesses. They may also include specific site allocations for new hotel development projects. Sea Space has thus commissioned Hotel Solutions through Tourism South East to undertake research to provide a robust evidence base of the current and potential future demand for hotel and guesthouse accommodation in Hastings, Bexhill, Battle, Rye and surrounding parts of 1066 Country in Rother District. The study findings will be used to: Identify the potential opportunities and requirements for securing new hotel development in these locations; Gauge the likely impact of new hotel development on existing hotels and guesthouses; Assess the threat of further losses of hotel and guest accommodation in the area; Establish the potential and requirements for retaining, upgrading, repositioning and developing existing hotels and guesthouses; Hotel Solutions 1

19 Provide an evidence base to inform the new planning policies for hotels and guesthouses that will be included in the Local Development Frameworks for the two local authority areas both in terms of policy formulation and site allocation; Provide information to assist in determining hotel development and change of use applications; Feed into hotel investment marketing activity for the area. 1.2 Objectives of the Study The objectives of the study are as follows: To assess current hotel and guesthouse demand and performance relative to supply and identify gaps in current provision by type and standard of accommodation; To evaluate potential hotel sites against hotel developer requirements; To identify the types of hotel operator that might be prepared to invest in the area and gauge hotel developer interest in Hastings and Bexhill; To assess the threat of further losses of hotel and guest accommodation stock and the potential to retain, upgrade, reposition and develop existing hotels and guesthouses. Hotel Solutions 2

20 1.3 Study Methodology The study methodology has involved the following modules of research: An initial commissioning meeting with the client group to set the scene for the study, agree the objectives, and gather relevant documentation and contacts. A review of national hotel performance and development trends, with a particular focus on trends in hotel development in UK seaside resorts. Stakeholder consultations with the relevant officers of Sea Space, Hastings Borough Council and Rother District Council (Tourism, Planning, Development Control and Economic Development), 1066 Enterprise and White Rock Theatre. A review of relevant policy and research documents including the Sea Space Regeneration Plan; the Hastings & Bexhill Seafront Strategy; the current Hastings and Rother Local Plans; initial LDF drafts and consultation papers; Investment opportunities in Bexhill-on-Sea; the emerging South East Plan and RES; the Department for Communities and Local Government s Good Practice Guide on Planning for Tourism; and the Destination Management Strategy for 1066 Country. An audit of the existing supply of hotels and guesthouses, assessing provision by standard, size, location and the representation of national hotel brands. This has included both assessed and non-assessed establishments and identifies recent changes in supply in terms of new openings, extensions and upgradings, and closures. The audit has been based on information provided by 1066 Country Marketing crosschecked with Tourism South East s known accommodation stock records and our own Internet searches and site visits to the area. Where discrepancies have been identified establishments have been contacted by telephone to check information. A review of planned and proposed new hotels. A survey of companies in Hastings and Bexhill to establish their current and potential future requirements for hotel accommodation and satisfaction with the existing hotels in the area. Hotel Solutions 3

21 Interviews with the managers and owners of existing hotels and guesthouses to gather information on current, recent and projected future performance in terms of occupancy, achieved room rate, market mix, market trends and denied business. A total of 37 establishments were interviewed (listed at Appendix 1. The only major hotels that declined to take part in the research programme were the Chatsworth in Hastings, Flackley Ash at Peasmarsh, Rye Lodge in Rye and Leeford Place near Battle. Telephone consultations with a sample of hotel developers and operators to establish their interest in the area; site requirements; view of the market; obstacles faced; and view of the planning framework, both in terms of policy and process. Site visits to assess potential sites for new hotel development. These modules of research have then been drawn together into a series of conclusions and recommendations regarding: Current hotel and guesthouse performance; Whether existing hotels and guesthouses meet market needs in terms of quality, capacity and type; The market potential for new hotel development; Hotel developer interest in the area; Specific sites that could be of interest to hotel developers; The need and potential to retain existing hotels and guesthouses; Recommendations in terms of LDF policy content and site allocations; Requirements for encouraging new hotel development and supporting the development of existing hotels and guesthouses. Hotel Solutions 4

22 2. THE UK HOTEL SECTOR 2.1 National Demand Trends Other than in seaside resorts and rural locations, demand for hotels is principally driven by business tourism, with leisure tourism filling rooms at weekends and during holiday periods often at discounted rates. The peaks and troughs of the economy together with events in the national and international tourism marketplace therefore impact directly on the hotel sector. At the end of 2000, the UK hotel industry found itself on a 20 year high, with average annual room occupancies for chain hotels stable at 73% since , and achieved room rates 2 steadily increasing year on year saw some dramatic events affecting tourism and the economy worldwide, in the form of 9/11 and the Foot and Mouth epidemic. During 2002 the market remained nervous and performance of the hotel industry fragile, with the UK economy, its place in the global economy, and the drop in the numbers of high spending overseas visitors being key factors. As a result occupancies and achieved room rates dropped back The war on Iraq in 2003 provided a setback to recovery, particularly in London, which is more susceptible to international events. The downturn in the financial services sector has also hit the capital and other financial centres badly in With weakening corporate demand the UK hotel market became markedly more competitive and rate aggressive. Occupancies and achieved room rates dropped back as a result. The UK hotel industry has recovered well in the last 3 years, however, with a steady improvement in occupancy and strong growth in achieved room rates. Since 2003 achieved room rates for UK 3/4 star chain hotels have increased by 17.5% to reach a record level of in Provincial hotels generally operate at slightly lower occupancy and considerably reduced achieved room rates to the UK average, the latter being inflated by the inclusion of London. At an overall level, provincial hotel occupancies have been more stable over the past 5 years. Achieved room rates were stable between 2001 and 2003 at around 62, but have increased strongly in 2004 and further still in 2005 and 2006, reaching a record high of in Source: TRI Hotstats UK Chain Hotels Market Review 2 The net amount of rooms income that hotels achieve room let, after deduction of VAT, breakfast, discounts and commission charges Hotel Solutions 5

23 UK Hotel Performance Year Occupancy % Achieved Room Rate UK London UK London Comparative Hotel Performance by Location Occupancy Occupancy % Provincial hotels UK London Comparative Performance by Location Average Room Rate Average Room Rate Provincial hotels UK London Source: TRI HotStats UK Chain Hotels Market Review Hotel Solutions 6

24 The UK hotel market tends to be cyclical in nature with periods of strong hotel performance often followed by a dip in the market. The UK hotel sector is currently in an upward cycle. It remains to be seen how long this will last. Continued growth in both occupancy and achieved room rate is currently projected for 2007 and 2008, however. 2.2 National Supply Trends The last three years have seen a great deal of activity in the ownership, management and development of UK hotels. A key trend has been the move by many UK hotel companies to sell off their hotel property assets to property and investment companies and then lease them back, or manage them under contract for the new owners in sale-and-leaseback and saleand-management contract deals. UK hotel operators have also disposed of non-core hotels, or sold hotels in order to return capital to shareholders. All of this has resulted in significant hotel property sales activity and changes in the ownership of hotels. Some of the key deals have been as follows: 2004 The Hotel du Vin chain of boutique hotels was acquired by Malmaison owner MWB. Whitbread purchased Premier Lodge, the UK s third largest budget hotel chain and merged it with its Travel Inn estate to form Premier Travel Inn, now the UK s largest budget hotel operator. Dawnay Shore Hotels, the hotel group established by Dawnay, Day and Shore, acquired the Paramount Hotel Group, and subsequently purchased 3 hotels from Hanover International to operate under the Paramount brand. The company then purchased a further three hotels from the Furlong Group to form a signature group of hotels within the Paramount chain. Dawnay Shore is currently attracting takeover interest from several large hotel groups including Thistle, Piccadilly Hotels, the Alternative Hotel Group and private equity house Permira Whitbread sold its UK Marriott Hotels arm to Marriott International in order to concentrate on the development of Premier Travel Inn. As part of its strategy to focus on branding, franchising and managing hotels, Intercontinental Hotels Group (IHG) sold most of its UK hotel portfolio (73 hotels) to the UK-based LRG consortium on a sale-and-management contract basis. IHG signed a franchise agreement with Queens Moat Houses for 16 Moat House hotels to be operated under the Holiday Inn and Crowne Plaza brands. Hotel Solutions 7

25 Hilton Group sold 11 of its UK hotels to Stardon, a joint venture between Starwood Capital and Chardon Hotels. Stardon subsequently signed a franchise agreement with IHG to operate 5 of the hotels under the Holiday Inn brand. A further 15 UK Hilton hotels were then sold to The Managed Hotels Unit Trust in a sale-andmanagement contract deal. Property company Jefferson Hotels acquired 9 Moat House hotels from Queens Moat Houses and rebranded them as Park Inns through a deal with Rezidor SAS. Morethanhotels, the owner and operator of 9 Express by Holiday Inn hotels in the UK, acquired the Foremost Hotels group and its 3 Express by Holiday Inns, together with the lease for the Express by Holiday Inn Bradford City from Gallagher Developments. BDL Hotels sold its entire portfolio of Express by Holiday Inns to Somerston Hotels, another Express by Holiday Inn franchisee Luxury hotel group Von Essen Hotels purchased the four strong Luxury Family Hotels chain. Travelodge, the UK s second largest budget hotel chain, was acquired by Dubai International Capital from private equity firm Permira; Permira subsequently re-entered the UK hotel market by acquiring the six-strong 4 star Principal Hotels group from the Royal Bank of Scotland. The firm then sold the group to Alternative Asset Investment Management later in the year. The Alternative Hotel Group acquired De Vere Hotels. Whitbread acquired seven Holiday Inns from LRG and rebranded them as Premier Travel Inns. London & Edinburgh Swallow Group, which includes Swallow Hotels was sold to Flodrive Group after going into administration in mid-september. Flodrive has subsequently sold 13 of the hotels to REIT Asset Management to be operated by Crerar Hotels. 6 hotels have also been purchased by Brook Hotels. Piccadilly Hotels, a joint venture partnership between Iranian entrepreneur Robert Tchenguiz s R20 investment company and property investor aaim, purchased the 4 star Menzies Hotels chain from Nikko Principal Investments for 180m. Macdonald Hotels has sold 24 of its UK hotels to Moorfield. Macdonald will continue to manage the hotels under a short-term management agreement but will have to bid against two other international hotel companies for the long-term management contracts. Leeds-based Qhotels acquired the 12 strong 4 star Marston Hotels group to give it a total of 21 hotels. Hotel Solutions 8

26 2007 Property investment and management company Land Securities has acquired 30 Ibis and Novotel hotels from Accor in a sale and leaseback deal worth 439m. InterContinental Hotels Group (IHG) has announced its intention to sell its remaining 25 hotels to raise money for joint ventures in new investments. The budget or limited service hotel sector continues to see the fastest rate of expansion in the UK, with a continuing trend towards differentiation in the sector. There are now 5 visible tiers of budget provision, ranging from hostels (St Christopher Inns, Globetrotter Inns, Euro Hostels and Smart City Hostels) and super economy brands (Formule 1, Easyhotel and Etap), to budget brands like Travelodge, Premier Travel Inn, Sleep Inn and Days Inn and upper-tier budget brands such as Express by Holiday Inn, Ramada Encore and Tulip Inn. At the upper end of the spectrum budget boutiques that combine high design with limited service, such as Dakota, Big Sleep, Yotel, Nite Nite and Hoxton Urban Lodges are starting to develop. New product development by the key national and international brand operators in the UK is summarised in the table overleaf. The active players to watch include: The continued expansion of the main budget brands (Premier Travel Inn, Travelodge and Express by Holiday Inn). The expansion of new budget hotel brands such as Days Inn and Sleep Inn, and upper-tier budget brands, including Tulip Inn and Ramada Encore. BDL Management has recently announced that it will launch a new hotel group (Ramcore Hotels) to develop around 40 Ramada Encore hotels in the UK over the next 7 years. New entrants to the budget sector include: Easyhotel (part of the Easyjet Group), which opened its first in London in 2005; French hotel group Accor s Etap budget brand, which opened its first UK hotel in Birmingham in 2005; the recently launched Yotel budget boutique brand that is looking for sites in the UK; the Dakota budget boutique brand founded by Ken McCulloch of Malmaison fame, which opened its first hotel in Nottingham in 2004; the new boutique budget concept Nite Nite which opened its first hotel in Birmingham in 2006; the Big Sleep budget boutique brand that has recently announced expansion plans with a new hotel under development in Cheltenham to add to the existing Cardiff Big Sleep; Hoxton Urban Lodges that opened their first hotel in London in 2006; and Sleeperz which is working with Network Rail to develop budget hotels at city centre rail stations. Hilton has also announced plans to bring its Hampton by Hilton budget brand to the UK. Hotel Solutions 9

27 Continued development of the boutique and town house hotel sector, with further expansion by Malmaison, Hotel du Vin, Alias and Myhotel and the development of newly established boutique hotel companies such as Apex, Bespoke, Abode, Niche, Finesse, Le Monde and Milsoms, together with the development of one-off boutique hotels by independent hoteliers. A number of 4 star operators are also active, including Macdonald, Park Plaza, Marston, Marriott, City Inns, Ramada and Radisson SAS, all of whom are seeking to expand their UK representation. There is also the possible development of Cendant s Wingate 4 star brand in the UK. There could be renewed activity in terms of the development of golf hotels and resorts. Macdonald has recently opened new golf resort in Peebles in Scotland and Whitchurch in Shropshire, while De Vere has opened a new golf resort in Scotland. There will be further openings in the 3 star market from operators such as Jury s Inn, Village (part of the De Vere Group), Novotel, Park Inn, Courtyard by Marriott, Future Inns and Holiday Inn. Village has particularly ambitious expansion plans, with a target of opening 5 new hotels per year by 2009/10. Marriott International has plans to develop a further 50 Courtyard by Marriott hotels in Europe, including the UK. Aston Hotels is a newly established 3 star operator that is looking to expand across the UK. Entrepreneur Duncan Bannatyne has opened a new hotel in Durham as the first of 5 planned Bannatyne Hotels. Hilton is also planning to bring its mid-market Hilton Garden Inn brand to the UK. Leisure operators look likely to continue to diversify into hotels, with for example the development of hotels at theme parks (e.g. Alton Towers, Drayton Manor, Chessington and Blackpool Pleasure Beach), football stadia (e.g. the De Vere Whites hotel at Bolton s Reebok stadium) and racecourses (e.g. the Express by Holiday Inn at Chester Racecourse). There could be further development in the serviced apartment sector with the expansion of new serviced apartment operators The Chambers, Base2Stay, BridgeStreet Worldwide and Club Quarters. The UK may also begin to see the development of suite hotels, such as the US Country Inns & Suites, Residence Inn and Staybridge Suites brands. Other niche hotel products, including adult only hotels (Warner s Just for Adults), family hotels (Luxury Family Hotels) and luxury hostels (Smart City Hostels) may also develop further. Hotel Solutions 10

28 Minimising risk is key to hotel investment decision-making, and there is understandably a lot more interest in budget and limited service development than in full service 4 star development the former represent investments of 2-4 million, the latter million. Whether companies expand by owning and developing their properties or via lease, joint venture and/or management contract also affects the pace of development. The availability of affordable sites is also becoming a major issue for budget hotel operators, especially in London and the South East where hotels are unable to compete for sites with residential developments. Recent, current and planned hotel development by UK hotel companies is summarised in the table overleaf. Hotel Solutions 11

29 UK HOTEL DEVELOPMENT ACTIVITY HOTEL COMPANY ABODE (Boutique) ALIAS (Boutique) APEX (Boutique) ASTON (3 star) BANNATYNE (3 star) BASE2STAY (Boutique Serviced Apartments) BESPOKE (Boutique) BEWLEY S (3 star) BIG SLEEP (Boutique Budget) BONNINGTON (4/5 star) CAMPANILE (Budget) CITY INN (4 Star) COLUMBUS (5 Star) COURTYARD BY MARRIOTT (3 Star) HOTEL OPENINGS Glasgow Exeter Canterbury Devon Chester Manchester Brighton Dundee London London Edinburgh Dumfries Sheffield Neath Leeds Glasgow Leicester London - Westminster London Slough St Austell Durham Cheltenham Exeter Northampton Manchester Brooklands, Surrey London Gatwick Hotel Solutions 12

30 HOTEL COMPANY CROWNE PLAZA (4 Star) DAKOTA (Boutique Budget) DAYS HOTELS (Upper-Tier Budget) DAYS INN (Budget) DE VERE (4/5 star) EASYHOTEL (Budget) ETAP (Budget) EURO HOSTELS (Hostels) Marlow Dundee Derby Telford Belfast Ruislip Nottingham Glasgow Edinburgh Farnborough Birmingham Derby Manchester Luton Sedgemoor Haverhill Winchester Warwick Nuneaton Gretna Green Birmingham Clacton-on-Sea Leicester Stansted Loch Lomond (Golf Resort) London Birmingham Glasgow Leeds Southampton Sheffield Cardiff Bradford Newcastle Hotel Solutions 13