• Supply and demand grow in tandem for UK budget segment

The UK budget hotel sector stepped-up its pace of revpar growth in the first quarter of this year, according to TRI Hospitality research, to 9.2% from the 8.8% achieved in the full year in 2007.

And this strong performance is helping to drive supply growth which TRI forecasts will be six times faster than for the hotel sector as a whole.

There were 93,191 rooms classified as budget in the UK at the end of 2007. (The definition budget encompasses easyHotel to Ramada Encore and Etap to Express).

TRI forecasts that the bedroom count will rise to 126,000 in 2012 and 149,000 in 2017. This will take the share of branded budget to 19.0% of total hotel bedrooms by 2017, against 30.6% for branded full-service and 50.4% for unbranded. The shares at the end of 2007 were 13.2% for branded budget, 28.3% for branded full-service and 58.5% for unbranded.

During 2007, the overall supply of budget bedrooms increased by 8.7%. TRI said that there were no signs of a saturated market in spite of the rapid growth and that demand was growing in line with supply.

One of the appeals of budget hotels to investors in the current climate is the sense that travellers will trade down and budget brands will benefit. The first Orbitz for Business and Business Traveller Magazine survey published this month found that 79% of business travellers and corporate travel managers surveyed stated that they were under pressure to trim travel expenses.

But rather than cut out the trips altogether, the emphasis was on spending less during the travel. Some 60% of respondents said they expected to undertake as much travel as before.

The latest major UK entrant to the budget hotels market is Hilton with its Hampton Inn product. It announced a development alliance with HLH Property, a joint venture between London & Hanover Developments and Heritage Group Developments, that will see 30 new Hamptons comprising 4,000 rooms in the next five years.

The partners behind HLH have a previously developed both Park Inn and Sleep Inn brands. The HLH website lists 10 hotel development sites across the UK.

The HLH deal follows alliances with Shiva and Somerston in the UK, a duo that will add 40 new hotels of various Hilton brands. According to Simon Vincent, area president of Hilton UK & Ireland, the HLH sites "do not generally compete with the many other locations where we are in negotiations with other developers and franchisees".

Phil Cordell, senior vice president of brand management for Hampton, flew into the UK to speak at the World Economy and Budget Hotels Congress when the latest Hampton deal was unveiled. He said: "We expect our success in the US to filter through internationally."

Not surprisingly, Cordell emphasised that budget hotels need a global presence alongside a local market relevance. The new Hilton buzz words were "focused service" and "value-wise", although Cordell was prepared to deal with the more widely accepted terminology of midscale without food and beverage.

In the midscale without f&b space in the US, Hampton competes with Marriott's Fairfield and Holiday Inn Express. In the segment above, upscale, there is Residence Inn, Hilton Garden Inn and Courtyard by Marriott. Hilton core brand is upper upscale, alongside Marriott and Sheraton.

In the same week, Hilton announced a deal to develop 25 new hotels in Turkey. The agreement with Kosifler Group is to roll-out 3,500 rooms, mostly under the Garden Inn badge and all of which Hilton will manage.

Further East, Hilton says it wants to add 300 hotels in Asia over the next decade, upping its current count of 47. India is the initial focus with the joint venture with DLF.

In Turkey, Hilton will face a stiff challenge from InterContinental which yesterday announced the signing of its first Express in the country. The deal with ORA Istanbul Real Estate, which also includes a Crowne Plaza, means IHG will have 11 hotels in the country.

A major challenge for Hilton and other listed Anglo-Saxon companies such as Marriott and IHG, is persuading developers to accept management contracts rather than leases.

Some aggressive international players, notably Accor, are prepared to accept leases, albeit with a preference for making them turnover-based. Some other smaller players, such as Travelodge in the UK, are prepared to stick with full repairing and insuring institutional leases.

This week Travelodge announced it was adding seven hotels in the UK worth £69.9m. The properties include the conversion of two Swallow Hotels, in Scarborough and Edinburgh. The remaining £34.9m will be spent on five new hotels.

Another emerging rival for Hilton is easyHotel. At the conference CEO Lawrence Alexander revealed that the company was working on a number of new business models.

The latest is an incarnation for the resort market. The first is to be in Larnaka, Cyprus, opening in February next year in what was an apart-hotel. The 56 rooms will be larger than the 10 sq m and below ones at easyHotel's urban locations.

This week easyHotel announced a deal with Eclipse Hotel Group to roll out 10 hotels in the UK over the next four years. Eclipse already operates the easyHotel Luton franchise and has started development on a second property at Heathrow due to open in October.

Other new budget hotel concepts are also emerging. This month Citizen M opened at Schiphol Airport in Amsterdam. The 230 rooms, each of 14 sq m, have been created with the Industrial Flexible Demountable design concept meaning they have been created and assembled offsite.

A second Citizen M is already under construction and will open later this year in the centre of Amsterdam and it is targeting 20 properties in the first phase of its roll out.

Also set to give the big brands some added competition is the reinvention of the consortium business model. This week Innfutures was formally launched as a hotel manager and consultancy.

The company is a subsidiary of Interchange and Consort Hotels, the parent of hotel consortium Best Western's British wing and Beacon Purchasing, the UK's largest hospitality procurement business.

The concept is to offer the owners of individual hotel assets a one-stop shop in terms of consortium membership, access to £140m of purchasing power and to hotel management: thus getting brand, procurement and management in one package.

The hotel management is available from four separate companies: Aristel Hotels, Bravara Management, Compass Hotels and Eclipse Hotels. Together these four companies provide coverage of the entire UK.

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