Travelodge continue to boost budget hotel construction sector

Travelodge’s plans for a £100 million investment in building 10 new hotels at UK cities that host major conferences is the latest boost for the growing budget hotel construction sector.

The budget hotel chain has 567 venues and is looking at sites from Bournemouth to Brighton and Liverpool in what Paul Harvey, managing director of property at Travelodge, describes as a “response to the growing events market.”

Other hotel operators are also expanding in the UK, such NH Hotel Group’s nhow, and work is booming.

Research published this summer by Knight Frank showed that 15,200 new hotel rooms opened in 2017. This was net growth of 2.4%, which will rise to 3.3% this year as a further 21,000 new rooms open.

Knight Frank’s head of hotels, healthcare and leisure Julian Evans, says: “The UK is currently experiencing an unprecedented level of development activity, with the staggering figure of over 5,200 new hotel rooms opening during the first six months of 2018 and a further 15,000 rooms forecast to open later this year.”

Onus on budget operators

While some luxury hotels are under construction such as the £1 billion conversion of the former US embassy in London into a Rosewood hotel by developer Qatari Diar (Glenigan Project ID 16118198) and the £500 million Peninsula Hotel in London (Glenigan Project 12069945), budget hotel operators are behind the latest boom.

Knight Frank’s annual UK Hotel Development Opportunities 2018 report said that 69% of all new build hotel stock and 65% of all hotel extensions are branded budget hotels, which will open 8,300 new rooms in 2018.

Glenigan’s market analysis shows that Whitbread, which owns Premier Inn, is among the industry’s top 25 construction clients after letting £226.1 million-worth of work over the 12 months to Q3 2018.

The onus is on smaller projects. Glenigan’s construction research shows that the average contract let by Whitbread is just £3.7 million and £6.1 million at Travelodge.

Some developers hold off

Despite the current boom, not all hotel operators are expanding. Glenigan’s construction market research shows limited recent activity from Intercontinental, the owner of the Holiday Inn brand. The uncertain economic outlook is likely to hamper hotel construction in the short term.

Glenigan economics director Allan Wilén says: “There are indications that the recent growth rate is becoming unsustainable and the rise in approvals could simply be for the next phase in the cycle of hotel upgrades.

“We believe that the boost from the weaker pound has run its course and anticipate a weakening in project starts after the recent rapid growth as investors and operators prove more cautious as UK consumer spending weakens and recent growth in tourism stalls.”

In Q3 2018, the underlying value of project starts in the hotel & leisure sector fell by 21% according to Glenigan’s construction market analysis, but the underlying prospects are more positive.

In the latest quarter, the underlying value of work given detailed planning permission rose by 69%. This recent increase has helped drive the pipeline of work with planning up by 39% over the past 12 months. Glenigan expects the recent lull to bottom out in the longer term.