Why Invest in Budget Hotels?

In times of economic slowdown, there is a huge and publicly-recognised opportunity for budget hotels to capitalise upon the opportunity and take business from prime hotel brands as businesses both large and small seek to scale down their costs and downsize their hotel spend.

In the budget hotel sector, however, the primary competition is not so much the larger and more expensive brands such as Hilton, Holiday Inn, Ramada, Radisson etc., but the private sector bed-and-breakfast and private hotel sector which amazingly represents 80% of all UK hotels. Budget brands such as Premier Inn, Travelodge and easyHotel recognise this and are basing their growth strategies upon it.

The privately owned hotel/bed-and-breakfast sector is particularly vulnerable to branded budget hotel competition because it does not deliver a reliable experience and quality level across different hotels across the country, or even on the same street. Premier Inn, Travelodge and easyHotel have recognised this and their core growth strategy is to take market share from the private hotel sector by offering a value proposition with a known and reliable quality and level of service at the end of the guest’s journey. The uncertainty is removed and a consistent value proposition delivered.

Budget hotels also offer the investor a low price point per room. Some buy-to-let hotel rooms are available at £1 million plus but UK budget hotel rooms are available to invest in from around £60,000. Low-cost hotel rooms can offer the same yield or better as premium hotel brands that could cost the investor between four and ten times as much as a budget hotel room.

Reselling budget hotel rooms could also be quicker and easier than the already proven resell market for larger hotel rooms due to their lower price point. If purchasing a hotel room off-plan, then the off-plan period is often much shorter for a budget hotel (at around one year) than for a resort-based hotel room or premium brand (that could be between two years and five years away) meaning the investor gets income and capital growth sooner.

Lower cost, budget hotel rooms also permit the investor to diversify across more schemes than they would have been able to do if purchasing more expensive rooms (unless the investor purchased larger hotel rooms through syndicates to divide up the cost between several investors).

Investing in budget hotels, therefore, allows the investor to benefit through both income and capital growth from the potential economic slowdown, possible recession even, the credit crunch effects and even inflation itself as all hotel rates rise over the next few years.

 

 

Online Articles

Newspaper Coverage

There has been substantial coverage in the Financial Times recently, of the budget hotel sector strength in the face of the economic uncertainty currently being encountered.

Budget hotel boom

“Whitbread has emerged as a haven in the choppy waters of the leisure sector, thanks to penny pinching executives and holidaymakers, writes Pan Kwan Yuk. The group, which has been cannily selling off pubs and health clubs to focus on its Premier Inn budget hotels over the past years, has seen a boom as business travellers trade down to cheaper hotel accommodation.”

http://www.ft.com/cms/s/0/ad1213b0-69a2-11dd-91bd-0000779fd18c.html

Big beasts of budget hotels surprise with talks of deal

“The reservations desks of Whitbread and Travelodge, the big beasts of the UK budget hotels market, have been in overdrive as travellers trade down in this prolonged slump.”

http://www.ft.com/cms/s/0/0b1f0fae-f46d-11dc-aaad-0000779fd2ac.html

Hotels look to a boom without frills

“The beauty of budget hotels is predictability. An advance booking costing around £30 buys a night in a small, clean room and a high degree of anonymity. In contrast, a stay in an unfamiliar guesthouse may expose guests to: a) chintz b) a large dog barking madly behind a flimsy door c) a proprietor who regales them with descriptions of his hernia operation while serving the full English breakfast. As one guesthouse owner grudgingly puts it: “Budget hotels aren’t great, but they are consistent.”

http://www.ft.com/cms/s/0/7b401de2-5349-11dd-8dd2-000077b07658.html

Bleak house

“It is my guess that the “McDonald’s Effect” is fuelling demand for budget hotels. Your stay, like your burger, may not be marvellous. But you know what you are going to get. This has helped budget hotels push into the territory occupied by small, family-run guesthouses, where the key customer is the commercial traveller, and where standards vary wildly.”

http://www.ft.com/cms/s/0/09d142ae-f8ba-11d9-8fc8-00000e2511c8.html