Announcements last week from Travelodge and Qbic Hotels have indicated that having 40 winks in the office has been elevated from a guilty pleasure to a business plan, as both groups are looking to renovate commercial property.
The idea of utilising empty office space had been gaining in popularity prior to the downturn with brands such as Nite Nite, which used the pod concept to make the most of limited space. And the news came as Yotel opened its largest hotel so far, based on pods, with a 669-room hotel in New York.
The hotel's rooms are around twice the size of those in the existing Yotels and the hotel includes two bars, a restaurant, gym, events and meeting space and an outdoor terrace, making it closer to a traditional hotel. News of the Yotel's opening was followed three days later by a consortium comprising IFA HR, Kuwait Real Estate Company and United Investments Portugal closing a financing and acquisition deal valued at $315m for the property.
The site was acquired from Related Company, the project's developer. The financing, worth $240m, was led by Atrium Holding Company with co-funding by Centerbridge Partners. Talal Jassim Al-Bahar, vice chairman and CEO of IFA HR, said: "This is the second funding transaction we have closed in the last six months. Securing these deals – both with foreign lenders – goes to show that despite tough market conditions, the right project in the right location with the right sponsor will attract the necessary capital."
Yotel New York was the group's fourth property, and the first city centre location, joining hotels at London's Heathrow and Gatwick airports, and Amsterdam's Schiphol. The group has been slow to expand following its initial openings, but is now planning to use the New York site as a showcase of what it can do in big cities, with Asia, the rest of Europe and the Middle East all being targeted. The brand is not abandoning its airport hotels, however, where occupancy tops 100%, with reports of a site at JFK.
The latest pod hotel concept to announce plans to expand utilising commercial property is Qbic Hotels, which was launched in Amsterdam in 2007. Aimed at both the leisure and business traveller, Qbic uses a build-in construction method based on an all-in-one furniture pod and lounge. The company says it can get its design into an existing empty building within three months of construction starting and by making use of existing infrastructure and amenities, can transform a property at "a fraction" of the cost of a traditional new-build hotel and provide a sustainable use for existing redundant building stock. The typical Qbic Hotel is 100 to 120 rooms.
Paul Janmaat, managing partner at Qbic Hotels, told Hotel Analyst that the group was looking towards a target of 15 to 20 sites in the UK, Netherlands, Germany and Belgium, over five years.
Janmaat said that the group had planned to open in Maastricht and Antwerp following its Amsterdam opening "but we were surprised by the press attention and the number of people who wanted to licence and franchise the brand". Qbic had been in talks with Golden Tulip to take on the concept and roll it out, before the company collapsed.
Now Qbic is looking to the UK, having found backing from an unnamed UK fund, due to be announced in the next few weeks, and is planning to open 10 hotels, actively looking for empty commercial buildings in London, Bristol, Birmingham and Glasgow, targeting cities with more than half a million people. Once the initial 10 sites are found, Qbic Hotels intends to expand further and move its focus to Manchester, Liverpool, Leeds and Edinburgh.
The group will look at leasing properties, taking the UK estate to a "comfort level" of three or four sites before looking at licensing or franchising.
Janmaat said that around 40% of the current empty commercial space was unlikely to be filled, adding: "Up to 15% of all office buildings in the UK are empty and in some cities even more are empty, and this situation is unlikely to change in the near future owing to the current economic environment.
"Our hotel concept is an effective solution for building owners who are looking for uses for their existing empty commercial property. We believe that there is a significant market for high-quality low cost hotels in the UK, and we are now actively searching for properties at the right locations in a number of regions, as we wish to expand as soon as possible."
With rates starting at Eu69.00, but elements of design from Philippe Starck, the group, which describes itself as "low cost design hotels" is targeting a similar market to that of Dutch counterpart Citizen M. Yotel operates at a slightly higher price point, starting at $149 (plus tax), but looking for the same design-conscious traveller.
With less of a focus on design, but an eye for office renovation for the short-stay price-oriented customer, Travelodge has announced that the latest move in its rapid expansion plan would see it develop ‘Metro' small hotels, in "prestigious" locations and in office blocks across the UK, with 20 to 40 rooms.
The group said it would allow the chain to open properties near to existing Travelodge locations where larger development sites were either not available or had "unrealistic" price expectations. In addition to enabling the budget hotelier to open in suburban locations where larger sites may not be deemed desirable by local authorities and development land is at a premium.
Properties that will be considered under this new scheme include : floors in office buildings, business parks, pubs, old cinemas / theatres, snooker halls, listed buildings, retail outlets and derelict buildings.
Travelodge has trialled smaller sites in two ventures, with a 43-room hotel in Edinburgh and the conversion of 52 Innkeeper's Lodge's, the majority of which were under 42 rooms. The group will also be keeping staffing costs small, with the Metro sites being run by existing managers of nearby larger Travelodge hotels.
Guy Parsons, CEO, said: "The ‘Metro' model will also allow us to expand in our top performing locations where there are few 60-plus room sites available. Downsizing our hotel building requirements will open hundreds of development opportunities for us. This will enable us to expand quickly and meet the growing demands from consumers who want low cost and good quality accommodation in prime locations."
This new building approach will run alongside Travelodge's existing growth strategy to expand to 1,100 hotels and 100,000 rooms by 2025, with the brand looking to open 100 ‘Metro' Travelodges by 2020.
HA Perspective: The recovery from the 1990s recession saw a welter of speculation about converting offices to hotels. Most of it came to nothing as the challenges are generally too great. Most office buildings simply cost too much to convert.
The new hotel concepts certainly make it easier to convert office buildings and other commercial property but the hurdle to make a conversion work remains high.
So-called budget hotels, which are mostly in the economy segment in the UK and for most of Europe outside of France, are reaching a point of maturity that is comparable to the low cost airlines they are so readily associated with.
The pioneer of the low cost airline model, US-based Southwest Airlines, is increasingly coming under fire from consumers for no longer being the cheapest option. Rival airlines have wised-up and are now much more competitive on price.
For budget hotels the battle is likewise about more than price. In fact, location has always mattered the most. If the new pod hotels and smaller-sized budget hotels can squeeze into spots where guests really want them, then they will have another way to inflict pain on the existing hotel stock.