Alternative finance, local authority deals, and working with stadia are among the ways hospitality development leaders are moving forward in spite of high construction costs.
During the panel session titled 'UK Hospitality Development: Trends, Challenges and Opportunities' at the Annual Hotel Conference in Manchester, Zain Kajani, director of family office JMK Group UK Ltd noted the relative ease in building a hotel ten to fifteen years ago compared to current conditions.
“Getting planning from councils was easier. Build costs were much cheaper. Now they’ve increased three-fold, Kajani says. Positively though, he notes, “One positive today is that the pool of lenders has increased with alternative finance. Now you can get alternative finance coming in a 70 or 80 per cent LTC which is really nice.”
Niall Kelly, head of business development – EMEA, Aimbridge Hospitality, said that given current economic conditions, his company is not engaging in many new developments but rather repositioning or taking over existing assets.
In contrast, Adela Cristea, vice president development UK, Ireland & Nordics, Radisson Hotel Group, said that the group had opened 90 hotels over the last four years, comprising 36 new builds and 54 conversions. The business had come from landowners with their own construction companies, family offices with land and money, and stadia.
“Stadia are obvious destinations for hotel development when there is a need to turn them into year-round destinations with MICE, conferences and F&B. These are people who have been thinking about and wanting to build a hotel for years and no crisis is going to change their minds,” she said.
With gestation periods getting longer - Timothy Walton, senior vice president Western Europe, international hotel development at Marriott International notes one Courtyard by Marriott in the UK took 12 years to open – and development plagued by many difficulties, Ed Fitch, head of hospitality UK&I at Cushman & Wakefield suggests simply buying assets.
Kajani says that in secondary and tertiary markets, valuations are unlikely to result in a profitable exit. “In any case, we like to put our own personal mark on the hotels. We’re a family business and we put our heart and soul into what we do. Also, in terms of cashflow, when you can spread the equity over the lifecycle of the build, it’s better than buying.”
Kelly at Aimbridge highlights the importance of brands and their ability to deliver business for owners: “We work for the owner and looking at the P&L is our sole focus. We’re rewarded for that, so we’ll run about four different P&Ls from four different brands for the same site to see which is the best and most profitable fit.”
Kajani added that a 10 to 20 percent investment by local authorities could make the difference between projects going ahead or not.
In July 2024, a 154-bedroom Radisson Blu hotel opened in the centre of Sheffield. Cristea noted the hotel is owned by Sheffield City Council, adding that the council was able to secure the prime city centre site and favourable borrowing rates.
Cristea described Radisson’s approach as creative and flexible; the company does its own feasibility studies and has a slim management structure able to make fast decisions. It had recently started to offer owners leasehold contracts with the option to franchise at a later date.
Walton said that Marriott had become more flexible too compared to five or six years ago. “It’s a very competitive world and we are all chasing the same real estate, so we need to become nimbler and owners are asking for an increased capital commitment from us,” he said.
The ability to take flexible approaches to projects is more important, and leaders said that combining extended stay and transient hotel accommodation in the same property is a powerful model, delivering P&L efficiencies.