SURREY HOTEL FUTURES

Transcription

1 SURREY HOTEL FUTURES An Assessment of Market Growth and Development Potential Final Report September 2004 Prepared for South East, Surrey County Council, Guildford Borough Council, Waverley Borough Council, Runnymede Borough Council, Woking District Council and Woking Chambers. by R E S E A R C H & D E V E L O P M E N T C O N S U L T A N C Y

2 CONTENTS EXECUTIVE SUMMARY i-x 1. INTRODUCTION 1.1 Background to the Study Study Objectives and Outputs Work Programme and Methodology THE UK HOTEL SECTOR 2.1 National Demand Trends National Supply Trends 6 3. SURREY HOTEL SUPPLY 3.1 Current Hotel Supply Changes in Hotel Supply Planned Development by Existing Hotels SURREY HOTEL DEMAND 4.1 Introduction Summary of Key findings Large 4 Star Hotels North Surrey Surrey Gatwick 3 / 4 Star Hotels Country House Hotels/ Country Club Resorts Star Hotels Budget Hotels Star/ Diamond-Rated/ Lower Grade Hotels Other Issues from our Hotel Interviews HOTEL DEVELOPER INTEREST AND POTENTIAL 5.1 Developer Requirements The Nature of Hotel Investment Hotel Developer and Operator Interest in Surrey Obstacles to Investment Site Assessments POLICY CONTEXT 6.1 The Big Picture Local Policy and Development Priorities. 68

3 _ 7. FUTURE HOTEL DEVELOPMENT OPPORTUNITIES 7.1 Future Market Prospects Market Opportunities by Type of Hotel Market Opportunities by Location Matching Market Potential, Developer Interest, Site Availability and 80 Strategic Objectives 8. MOVING FORWARD 8.1 Introduction Tackling the Obstacles to Development A Pro-Active Approach to Securing Investment Making Intelligent Progress The Route Map and Delivery Package 88 APPENDICES 1 SURREY HOTEL SUPPLY JULY SURREY HOTEL SUPPLY BY LOCATION AND STANDARD JULY SURREY SUPPLY OF RESIDENTIAL CONFERENCE CENTRES 4 - HOTELS INTERVIEWED 5 - SURREY HOTEL PERFORMANCE HOTEL DEVELOPERS AND OPERATORS EXPRESSING INTEREST IN SURREY Solutions ACK Deleanor House Mill Field House High Street Mill Fields Coleby Bassingham Lincoln Lincoln LN5 0AG LN5 9NP t t e. lynnthomason@tourismsolutions.co.uk e. acktourism@btinternet.com _Final Report September 2004

4 _ EXECUTIVE SUMMARY The Study Brief The principal objective of this study was to identify the potential for new hotel accommodation across Surrey, with a particular focus upon Guildford, Woking, Egham/Staines/Chertsey, Farnham/Godalming and Horley/Gatwick. The study outputs will be used to generate a better understanding of the hotel development potential and site requirements, to guide Local Authorities in plan preparation and to feed into regional spatial planning guidance. A market-led approach has been fundamental to the work programme, which has involved an assessment of factors that could influence future hotel demand; a review of hotel performance and development nationally; interviews with hotel managers across Surrey; an analysis of existing hotel stock and planned development; a survey of hotel developers to establish their potential interest in Surrey locations; and a review of existing and potential hotel development sites. The study has not included any primary market research e.g. into the hotel requirements of Surrey companies. Trends in the UK Hotel Market External events including the Foot & Mouth crisis and September 11 in 2001, and the Iraq War and SARS scare in 2003, have made the past 3 years a difficult trading period for the UK hotel industry. Average UK hotel occupancy levels dropped in 2001 and 2002, although have grown in 2003 to 73%. Average room rates have steadily fallen as hotels have cut rates or switched their business mix to lower paying market segments to maintain occupancy. Provincial hotels have been far less affected than London hotels. Provincial hotel occupancies have been stable, and average room rates have grown slightly, although fell back in The overall outlook for the UK hotel industry is positive for the next 3 years, with growth forecast in terms of occupancy and average room rates has shown clear signs of recovery particularly in London; further increases in occupancy and rate are expected in 2004 and 2005, with forecasters predicting a peak in the current growth cycle in Despite the difficult trading conditions, both established and new hotel brands have continued to expand in the UK. The budget hotel sector (which tends to be more resilient in times of economic downturn) has grown strongly. In the 3/4 star market small boutique and town house hotel chains have rapidly expanded. A further trend has been diversification by leisure operators into hotels at attractions, racecourses, football stadia, and golf courses. A number of national and regional pub operators and breweries are also expanding their rooms offer into quality products with strong food offerings. Significant new hotel development of all styles and standards is due to come on stream across the country in 2004 and i _Final Report September 2004

5 _ Current and Planned Hotel Supply in Surrey Our research has identified a total of 107 hotels in Surrey, with 5,429 bedrooms. In terms of standard, the Surrey hotel supply is dominated by 3 and 4 star, and to a lesser extent branded budget hotels, which collectively account for over 80% of hotel rooms in the county. Surrey has very few 2 star hotels. The county has a number of noninspected 2/3 star equivalent hotels and diamond-rated and lower grade non-inspected hotels in locations such as Guildford, Woking, Chertsey, Godalming, Horley, Shepperton, Camberley, Cobham and Epsom. These are largely small establishments, however, and account for only 14% of hotel rooms in the county. Surrey has one of the few 5 star hotels outside London (Pennyhill Park), plus a good supply of country house hotels. There are currently no town house or boutique hotels in the county, other than the Angel Posting House in Guildford. In terms of location, the Surrey hotel supply is fairly evenly spread across the county. Reigate & Banstead Borough has the largest hotel supply (accounting for over a fifth of all hotel rooms in the county), due to the Gatwick hotels located at Horley. Guildford Borough has the next largest hotel supply. Woking and Epsom & Ewell Borough s have smaller hotel supplies, and Tandridge has no hotels at all. 17 national and international hotel brands are represented in the county. Those not represented include 4 star operators Crowne Plaza, Radisson SAS and Marriott; 3 star operators Village, Novotel and Jury s; budget operators Express by Holiday Inn, Ibis and Campanile and emerging brands Tulip Inn, Days Inn and Ramada Encore; and boutique and town house operators such as Malmaison, Alias, Hotel du Vin and Eton Town House. Recent hotel developments in Surrey include 3 new hotel openings (322 rooms two budget hotels and one 4 star hotel), plus 7 bedroom extensions (175 rooms). 5 hotels have also closed over the past 3 years, primarily for residential development. A number of existing hotels have undergone major refurbishments and additions of facilities such as conference, function and leisure facilities (19 schemes in the past 3 years). Our research also identified a further 18 planned developments by existing hotels refurbishments, additional bedrooms and new facilities. A number of existing hotels have also had schemes for extension refused. ii _Final Report September 2004

6 _ Current and Future Hotel Demand in Surrey Hotel occupancy in Surrey hotels varies by location and standard of hotel. 3 and 4 star occupancies are generally just below the national level, other than around Gatwick where hotels enjoy high occupancy levels (albeit at low rates) due to the strength of demand for pre-flight stays by outbound holiday makers. Country club hotels also perform at higher levels due to their ability to attract a good mix of business and leisure markets. Budget hotel occupancies are very high across the county. Some, but not all, lower grade hotels are achieving very low occupancies. Our estimates of average annual room occupancies for Surrey hotels for the past 3 years, based on our research, are summarised below: Surrey Hotels Average Annual Room Occupancy Type/ Standard of Hotel Average Annual Room Occupancy % UK average 3/4 star chain hotels Large 4 Star North Surrey Surrey Gatwick 3/4 Star n/a n/a Country House Hotels/ Country Club Resorts Star Budget Star/ Lower Grade 5 n/a Source: Solutions/ ACK Notes: 1. Based on projected figures supplied by hotels 2. Source: TRI Consulting Hotstats UK Chain Hotels Market Review. NB Comparative national statistics are not available for non-chain operated hotels or budget hotels 3. Sample included Hilton Cobham, Runnymede, Holiday Inn Woking, Shepperton Moat House 4. Sample included Pennyhill Park, Woodlands Park, Nutfield Priory, Lythe Hill, Foxhills and Great Fosters 5. Based on a small sample of 9 2 star and lower grade hotels. Occupancy levels varied significantly between hotels at this end of the market. In terms of occupancy trends, the weaker economic climate, 9/11, the Iraq war and SARS have all caused 3 and 4 star hotel occupancies to drop back in 2002 and New hotel openings in 2001 in Woking and Staines have affected local occupancy performance in these areas. 3/4 star occupancies have begun to recover in Budget hotel occupancies have increased steadily over the past 3 years. Patterns of demand show very high weekday occupancies, particularly on Tuesdays and Wednesdays, with high Saturday night occupancies, but weaker Fridays and Sundays. Budget hotel occupancies are high throughout the week, although drop to some extent on Sundays. iii _Final Report September 2004

7 _ Achieved room rates 1 are generally very high for Surrey hotels, and above national averages. They are particularly high for country house hotels and resorts, but lower for 3/4 star hotels around Gatwick and some of the lower grade hotels in the county. Achieved room rates have fallen in 2002 and 2003, other than in the budget sector where they have steadily increased. Rates are improving in 2004 as the corporate market strengthens. On the basis of our research, our estimates of achieved room rates for Surrey hotels over the past 3 years are summarised below. Surrey Hotels Average Annual Achieved Room Rates Type/ Standard of Hotel Average Annual Achieved Room Rate UK average 3/4 star chain hotels Large 4 Star North Surrey Surrey Gatwick 3/4 Star n/a n/a Country House Hotels/ Country Club Resorts 4 3 Star Budget n/a n/a Star/ Lower Grade 5 n/a n/a Source: Solutions/ ACK Notes: 1. Based on projected figures supplied by hotels 2. Source: TRI Consulting Hotstats UK Chain Hotels Market Review 3. Sample included Hilton Cobham, Runnymede, Holiday Inn Woking, Shepperton Moat House 4. Sample included Pennyhill Park, Woodlands Park, Nutfield Priory, Lythe Hill, Foxhills and Great Fosters 5. Based on a small sample of 9 2 star and lower grade hotels. Occupancy levels varied significantly between hotels at this end of the market. 1 The net amount that hotels receive for their rooms after deduction of VAT, breakfast (if included), discounts and agents commission. iv _Final Report September 2004

8 _ Market mix is biased towards business demand, which typically accounts for 60-70% of total rooms business for most Surrey hotels. Gatwick hotels, country house hotels and resorts and some budget hotels have a stronger leisure element in their market mix. Corporate demand is not highly localised and there is a lot of movement between different parts of the county. Key leisure markets are short breaks and weddings. Key attractions for leisure breaks include Legoland, Thorpe Park and Chessington; Wisley, Hampton Court and National Trust properties; and major events such as Wimbledon, Guilfest, golf championships (Wentworth, Sunningdale), and racing at Kempton and Sandown. Most hotels regularly deny corporate business because they are fully booked on Tuesdays and Wednesdays, and to a lesser extent on Mondays and Thursdays. Budget hotels regularly deny business across the week. Weekend denials are less common other than for budget hotels, country house hotels and resorts. Levels of denials reduced in 2002 and 2003, but are increasing in Hotel Developer Interest and Potential Key investment criteria adopted by hotel companies include: o Location achieving critical mass and geographic spread is important to all national hotel brands, which target primary locations first (larger regional cities) then move on to secondary and tertiary locations when they can be better supported by the group. o Site requirements include strategic locations with good access, visibility to passing traffic, a strong business base close by, site areas of acres, land values that reflect hotel economics, an attractive environment, a minimum population of ,000, city centre and out of town sites, the need for associated development where land values are high, and redevelopment sites where opportunities are limited and competition for sites strong. o Development costs are critical to control for hotel viability, but have been driven upwards resulting in a move to larger hotels, the need to tailor the hotel to the site, and the development of associated uses. o Viability is a function of development cost, occupancy and achieved room rate, and performance targets will vary by product type. Typically occupancies of 70-75% are required, ARR targets of budget, 70+ for 4 star hotels, and 100+ for luxury 4/5 star and town house hotels, with return on investment ranges of 15-20%. In terms of developer interest, there is a continued high level of interest in developing hotels across Surrey. This reflects not only current demand conditions but also a pent up aspiration to develop in the county that has been constrained by a number of obstacles. There was interest from developers across the spectrum of provision, from luxury and 4 star providers through to 3 star and budget offers, and also interest from some niche operators such as boutique brands, as well as pub operators and breweries. This is indicative of the strength and maturity of the hotel market in Surrey. v _Final Report September 2004

9 _ All the locations tested produced interest from one or more developers/operators, with budget hotel interest, upper tier budget, and 3 star being the most widespread, and boutique/luxury hotel interest principally focusing on Guildford. The main obstacles to investment related to the availability and deliverability of sites; competition for these sites and the associated values these uses can offer; and the difficulty of achieving planning permission, for both new development and extensions, including Green Belt restrictions. In addition, few Local Plans have sites allocated for hotel development, certainly not on a dedicated (hotel-only) basis, and Local Authorities are also under pressure to achieve best price for their own land. Problems of recruiting hotel staff, and the difficulty of gathering sites and market information from Local Authorities were additional barriers to investment. The pressure for land is likely to increase due to the requirements placed on Local Authorities in Regional Planning Guidance to deliver housing allocations. Over 40 sites and locations have been assessed in terms of their match to developer requirements; there are a number of very strong sites that would eagerly be taken up if they could be delivered. In many cases they may not be easy to deliver and may need some form of intervention to enable them to come on stream for hotel use. The intense pressure for sites means that developers will be willing to consider brown field sites and conversions, including office conversions, and participate in mixed development schemes with minimal ground floor presence, as well as green field/cleared sites for stand alone new build hotels. Policy Context The cancellation of PPG21 has left a policy void in terms of national planning guidance for hotels. Regional Planning Guidance and PPG reviews need to take the needs of the sector into account, and to pass this requirement on to Local Authorities, to ensure hotel needs are addressed in the preparation of Local Development Frameworks. In terms of local priorities, in the context of the South East Plan, Guildford, Woking and Reigate/Redhill are to be growth hubs and the focus of economic growth as well as investment in transport infrastructure and connectivity. Camberley, Staines and Epsom are second tier/major all-purpose centres as identified in the Surrey Structure Plan. As the focus of growth, it is reasonable to assume that these locations will require additional hotel accommodation to serve their business needs. vi _Final Report September 2004

10 _ Future Hotel Development Opportunities Future market prospects are positive, nationally and sub-regionally, with signs of growth in 2004 forecast to continue through to Prospects for corporate growth are good, with a number of major infrastructure and local development schemes (M25 widening, T5 at Heathrow, the Gatwick Diamond, Guildford and Woking Station redevelopments, Chertsey s Revitalisation programme) likely to stimulate additional market growth. A lack of site availability is currently constraining growth in the market. Levels of denials particularly in the budget sector indicate that if sites can be delivered, this demand could be satisfied and would likely continue to grow. Given the projected recovery in the Surrey hotel market and the anticipated further growth in the Surrey economy, our research suggests the following possible market opportunities for further hotel development in the county (both in terms of new hotels and the expansion of existing hotels) in the next 5 years, barring further international crises: o 4 star hotel development in Guildford (possibly a luxury hotel or boutique/ town house hotel), Surrey s Thames (Staines/Chertsey/Sunbury-on- Thames/Weybridge/Cobham) and possibly Reigate/Redhill and Woking. o 3 star potential in Surrey s Thames, Redhill, Woking, and possibly Camberley/Frimley and Leatherhead. o A country club resort in north Surrey and possibly country house hotel development in suitable locations. o Budget hotel development across the county, particularly in Guildford, Woking, Camberley/Frimley, Runnymede/Spelthorne/Elmbridge, Farnham, Redhill/Reigate and Horley, including upper tier budget hotel potential. o A boutique or town house hotel in Guildford. o Quality pub hotel accommodation in smaller towns and the rural area. The table overleaf summarises the findings of our research in terms of the market potential for new hotel development in the county over the next 3-4 years; the interest expressed by hotel developers in each part of the county; and our assessment of the strongest hotel sites (where sites have been put forward for assessment) in terms of developer requirements. The market potential identified is in most cases dependant on the anticipated further growth in the Surrey economy and assumes no further international crises. Where market potential is identified in a location for more than one standard of hotel this does not necessarily indicate potential for more than one new hotel e.g. a location may have potential for either a 3 star or an upper-tier budget hotel, but probably not both. Similarly, where market potential is identified in a number of nearby locations, this does not necessarily indicate potential for new hotels in all of these places. For example, there is unlikely to be potential for a new 4 star hotel in Chertsey, Staines, Egham, Addlestone, Cobham, Woking and Weybridge a new 4 star hotel in one of these locations would serve all of them and is likely to limit the potential for a new hotel in the other locations. Matching Market Potential and Developer Interest in Surrey Location 4 star 3/4 Budget Upper Country Strategic Strongest Sites de star Tier Club Priority luxe Budget Resorts/ Country House Hotels vii _Final Report September 2004

11 _ WEST SURREY Camberley Market Potential Developer Interest Farnham Market Potential Developer Interest Godalming Market Potential Developer Interest CENTRAL SURREY Guildford Market Potential Developer Interest Woking Market Potential Developer Interest NORTH WEST SURREY Staines/Egham Market Potential Developer Interest Chertsey Market Potential Developer Interest Addlestone Market Potential Developer Interest Weybride/Esher Market Potential Developer Interest Cobham Market Potential Developer Interest + 1 1? ? Blackwater South Street Station Farnham Rd Ladymead Fire Station London Rd Station West Byfleet Golf Club Gasworks White Hall Lane Virginia Water station Barn Brook Farm Thorpe Park Compass House RBC land adjacent to pool Runnymede Centre Aviator Park Addlestone station Brooklands San Domeneco Location NORTH EAST SURREY Leatherhead Market Potential Developer Interest 4 star de luxe 3/4 star? Budget? Upper Tier Budget? Country Club Resorts/ Country House Hotels Strategic Priority Strongest Sites viii _Final Report September 2004

12 _ Epsom Market Potential Developer Interest? + + Racecourse Dorking Market Potential Developer Interest? Reigate Market Potential Developer Interest Redhill Market Potential Developer Interest EAST SURREY Horley Market Potential Developer Interest Caterham Market Potential Developer Interest Godstone Market Potential???? Developer Interest OTHER Urban Fringe/ Rural Area Market Potential Developer Interest Other Locations Market Potential Developer Interest + + +?? +?? + Tylers Green Chessington Sandown Park Lingfield Kempton Park Wentworth Notes: 1. The potential for 4 star hotel development in Guildford might also be met through a boutique or town house hotel + denotes market potential denotes developer interest? denotes likely potential but unable to evidence without further research indicates Growth Hub status indicates All Purpose Centre status In addition to the above opportunities, there could also be potential for the development of good quality accommodation onto (or within) pubs in many parts of the county, particularly in the rural areas and the county s smaller towns, such as Oxted and Godalming. The Way Forward The Surrey Strategy recognises the need to reflect and respond to the dynamic nature of tourism, the changing policy context, and emerging Government priorities. This study should be a part of this process, informing action and enabling the hotel sector to flourish. Ultimately, the hotel sector has an important part to play in the development of the County s leisure tourism, but also acts as a fundamental component of Surrey s business infrastructure, and as such is integral to supporting future economic growth. ix _Final Report September 2004

13 _ The research has shown market potential for new hotel development across Surrey in the next 5 years, and strong interest from hotel companies in taking this forward. However, given the difficulties currently being experienced in securing sites, together with the pressure on land from the changing policy and development context in the South East, a number of issues will need to be addressed to make this development happen. Key areas for action will be: o Tackling the obstacles to development o A pro-active approach to securing investment o Making intelligent progress o Establishing a route map and delivery package. The commissioning group now needs to decide how to use this report, and build upon the opportunity to publicise its findings amongst key decision-makers and a wider audience. x _Final Report September 2004

14 1. INTRODUCTION 1.1 BACKGROUND TO THE STUDY During the ETC bidding rounds for 2000/2001, South East (then Southern Tourist Board) was successful in securing funding for a series of tourism sector shortage studies. The work programme was scheduled to run over 3 years, with the initial emphasis on the hotel sector. Solutions was commissioned to undertake a region-wide (Southern) hotel sector shortage study during 2001, the principal objective of which was to identify where gaps in hotel supply existed, relative to demand, with a view to stimulating new hotel development. This report, published in July 2001, was circulated to all local authorities in the Southern region. In continuation of this work programme, South East is taking forward the recommendations of the regional study as well as building up research on the Kent, Sussex s and Surrey areas which were not covered by the original STB study. This is being achieved by working in partnership with interested District, County and Unitary authorities, to undertake detailed local and sub-regional studies, with TSE making a funding contribution to these studies. In 2002, 2003 and 2004, studies have been undertaken in Hampshire, Havant, Gosport, Wycombe, Andover and East Kent, with a study for Sevenoaks currently in preparation. The approach adopted in these hotel sector shortage studies has been held up as an example of good practice by SEERA in their Regional Spatial Planning Strategy for, Destination South East, in terms of the importance of market research in policy development, and fostering co-operative and integrated working across local authorities. Surrey County Council, in partnership with Guildford, Runnymede, Waverley and Woking, has come forward as part of the programme of hotel sector shortage studies for 2004/ STUDY OBJECTIVES AND OUTPUTS The principal objective of the study was: To identify the potential for new hotel development across Surrey, with a particular focus upon Guildford, Woking, Egham/Staines/Chertsey, Farnham/Godalming and Surrey Gatwick. It is the intention that the study outputs will be used to: Generate a better understanding of the potential for hotel development in Surrey Provide influence for Local Planning Authorities when renewing planning advice Highlight the site requirements of developers and how this relates to current site provision. Input into the sub-regional tourism strategy It is also hoped that this study will be used as a starting point for a dialogue with planners and that the outputs can be fed into the regional spatial planning guidance. Key elements of research to be addressed in the study as articulated in the Brief include: 1 _Final Report September 2004

15 an analysis of hotel trends and characteristics of demand, including market mix and patterns of business; the identification of gaps in provision, relative to demand, by category of hotel; an assessment of trends in hotel development and an appraisal of sites currently identified for hotel development; the identification of new/potential sites for future hotel development in the geographic areas specified. 1.3 WORK PROGRAMME AND METHODOLOGY The work programme has involved a mix of site visits, face-to-face consultations, telephone interviews and desk research, with key components including: A review of trends in the UK hotel market nationally, in terms of both demand and supply; An analysis of existing hotel stock, focusing on those of 2 star standard and above, in terms of location, size, standard, price and ownership; Consultations with key stakeholders at Surrey and in the partner local authorities, including, Economic and Planning Officers; Interviews with local hoteliers to gather performance-related data on occupancy, achieved room rate, market mix, levels of denials, market trends (broken down by market segment) and key factors driving this. Development plans and obstacles to development or expansion were also examined; Interviews with local site owners and developers to identify their development requirements, obstacles to development, experiences with the planning system, and requirements for Local Authority support; Hotel developer testing to establish demand for suitable sites in Surrey and the target areas identified, as well as their wider requirements and how this relates to current local plans and site availability; The identification and review of sites for hotel development through consultations with local authorities and the private sector, as well as the policy and strategy review. Other potential locations for site search or specific sites were also identified during site visits, taking on board the requirements of developers and the overall policy context. These modules of research have then been drawn together into a series of recommendations identifying the potential for future hotel development and the next steps in making this happen. The study method is summarised in the flowchart overleaf. The study has not included any primary market research e.g. a survey of Surrey companies to assess their hotel requirements and satisfaction with the county s current hotel stock. 2 _Final Report September 2004

16 Surrey Hotel Futures Study Methodology INCEPTION MEETING - KEY ISSUES AREA & POLICY CONTEXT NATIONAL HOTEL PERFORMANCE REVIEW NATIONAL HOTEL DEVELOPMENT REVIEW LOCAL HOTEL PERFORMANCE - HOTEL MANAGER INTERVIEWS HOTEL STOCK ANALYSIS DEVELOPER SURVEY SITES REVIEW/ IDENTIFICATIO N RECOMMENDATIONS MARKET POTENTIAL PRODUCT DEVELOPMENT OPPORTUNITIES IMPLEMENTATION : : 3 _Final Report September 2004

17 2. THE UK HOTEL SECTOR 2.1. NATIONAL DEMAND TRENDS has been a difficult period for the UK hotel industry. Demand for hotels is principally driven by business tourism, with leisure tourism filling rooms at weekends and during holiday periods often at discounted rates. The peaks and troughs of the economy together with events in the national and international tourism marketplace therefore impact directly on the hotel sector. At the end of 2000, the UK hotel industry found itself on a 20 year high, with average annual room occupancies stable at 73% since 1996, London occupancies exceeding 80% since , and achieved room rates steadily increasing year on year however saw some dramatic events affecting tourism and the economy worldwide, in the form of 9/11 and the Foot and Mouth epidemic. During 2002 the market remained nervous and performance of the hotel industry fragile, with the UK economy, its place in the global economy, and the drop in the numbers of high spending overseas visitors being the key factors. As a result occupancies dropped back from a high of 74% to just over 72% in Achieved room rates dropped back slightly from to brought another shock to the system with the war on Iraq, which provided a setback to recovery, particularly in London, which is more susceptible to international events. The downturn in the financial services sector has also hit the capital and other financial centres badly in With weakening corporate demand the UK hotel market became markedly more competitive and rate aggressive. Occupancies held up well (increasing to just over 73%), but at the expense of rate as hotels cut their corporate rates and switched their business mix to lower paying market segments in an effort to maintain occupancy levels. Average room rates dropped back further in 2003 as a result to just under 67. Provincial hotels generally operate at slightly lower occupancy and considerably reduced achieved room rates to the UK average, the latter being inflated by the inclusion of London. At an overall level, provincial hotel occupancies have been more stable over the past 4 years, and achieved room rates have grown slightly, although have fallen back in The overall outlook for the industry barring any major national or international catastrophes is for a gradual climb out of the sluggish performance of the past 2 years, with growth evident in the last quarter of 2003 and the first half of As at May 2004 UK average room occupancy levels were 3.3 percentage points higher than at the same point in 2003, while achieved room rates had increased by 4.6%. The London market has recovered particularly well so far in 2004, with strong occupancy and rate growth. Further rises are expected in 2004 and 2005 in both London and provincial hotel performance, with both of the two leading UK hotel consultancy firms (Pannell Kerr Forster and TRI Hospitality Consulting) predicting that the current growth cycle will not peak until UK Hotel Performance Source: TRI Hotstats UK Chain Hotels Market Review 4 _Final Report September 2004

18 Year Occupancy % Achieved Room Rate UK London UK London * 2005* 2006* Source: TRI United Kingdom Hotel Industry/HotStats (*forecast) Comparative Hotel Performance by Location Occupancy % Average Room Rate Provincial hotels UK London Source: TRI United Kingdom Hotel Industry/HotStats 5 _Final Report September 2004

19 TRI forecasts for provincial hotel performance for the next 3 years are as follows: Provincial Hotel Performance Forecasts Occupancy % Average Room Rate Source: TRI Hospitality Consulting 2.2 NATIONAL SUPPLY TRENDS The downturn in the economy has had an impact on the financial performance of many UK hotel companies. Recently published results from major hotel groups such as Intercontinental Hotel Group, Marriott, Hilton and Le Meridien show some hefty drops in profit. However, despite the difficult trading conditions of the last 3 years, both established and new hotel brands have continued to expand in the UK. The budget sector (which is more resilient than the quality hotel market at a time of economic downturn, and is affected less by the drop in international tourism) has continued to expand. Travel Inn opened 12 new sites in 2003, Travelodge 4, Premier Lodge 10, Express by Holiday Inn 7, Campanile 3 and Days Inn/Hotel 5. At least 48 new budget hotels are due to open across the UK in Premier Lodge have recently been acquired by the Spirit Pub Group, although the new owners have recently put the hotel chain on the market. The trend towards differentiation of hotel product looks likely to continue. One example in the budget sector is the Dakota super-budget launched by Ken McCulloch (founder of Malmaison). Rooms will cost 79, with limited service but with coin-operated larders. The first unit opened in Spring 2004 in Nottingham. Ramada Encore is another emerging uppertier budget brand. In the 3/4 star market, small boutique and town house hotel chains such as Hotel du Vin, Alias, Myhotel and Malmaison are rapidly expanding, aiming at the more discerning guest with a distinctive, stylish offer. 6 _Final Report September 2004

20 At the upper end of the market, the brand owner of Holiday Inn (InterContinental Hotel Group) demerged from parent company Six Continents in May Full service hotels continue to be under pressure, with Hilton and Marriott both seeing sales and profits down, and Le Meridien in financial crisis. The very top end of the market has been most badly hit by the drop in the market and by encroachment from boutique hotels. Another trend in recent years has been the diversification of leisure operators into hotels, with for example the development of hotels at theme parks (e.g. Alton Towers and Blackpool Pleasure Beach), football stadia (e.g. the De Vere Whites hotel at Bolton s Reebok stadium) and racecourses (e.g. the Express by Holiday Inn at Chester Racecourse). New development by the key national and international hotel brand operators in the UK in 2003 and 2004 is summarised in the table overleaf. Hotel development trends to watch in the next 2-3 years include: The continued expansion of the main budget brands, although the future of Premier Lodge is uncertain; The expansion of new budget hotel brands, such as Days Inn, Etap and Park Inn, and upper-tier budget brands, including Dakota, Tulip Inn and Ramada Encore; The sector below budget is also showing signs of exciting growth, with the backpacker market stimulating growth in operations such as Globetrotter and St Christopher s; Continued development of the boutique and town house hotel sector, with further expansion by Malmaison, Alias, and Hotel du Vin, together with the development of one-off boutique hotels by independent hoteliers; The 4 star market is likely to see increased development activity in the next two years from operators such as Macdonald, Park Plaza and Radisson SAS, and the possible development of Cendant s Wingate 4 star brand in the UK; There could be renewed activity in terms of the development of golf hotels and resorts. Macdonald has recently opened a new golf resort in Peebles, and is currently building in Whitchurch in Shropshire. There will be further openings in the 3 star market from Jury s Inn, Village and potentially Novotel; There could be further development in the serviced apartment sector, and the UK may begin to see the development of suite hotels, such as the US Country Inns & Suites, Residence Inn and Staybridge Suites brands. Minimising risk is key to hotel investment decision-making, and in the current climate there is understandably a lot more interest in limited service development than in full service 4 star development the former represent investments of 2-4 million, the latter million. Whether companies expand by owning and developing their properties or via lease, joint venture and/or management contract also affects the pace of development. The availability of affordable sites is also becoming a major issue for budget hotel operators, especially in London and the South East where budget hotels are unable to compete for sites with residential developments. These issues will be more fully explored later in this report when we summarise hotel developer interest in Surrey. UK Hotel Brand Development Activity HOTEL COMPANY ALIAS NEW HOTELS opened in 2003 or under construction Manchester Brighton PROPOSALS, TARGETS & other activity 7 _Final Report September 2004

21 ASCOT GROUP Glasgow (SERVICED APARTMENTS) Manchester BEWLEY S CAMPANILE Leeds Glasgow Northampton Leicester CITY INN London Westminster Leeds Manchester Edinburgh London DAKOTA Nottingham (2004) Glasgow Aberdeen Edinburgh Newcastle Leeds SE England DAYS HOTEL/DAYS INN 6 new hotels in 2003: Dundee Derby Birmingham Telford Belfast Ruislip Sedgmoor (2004) Warwick (2004) Gretna Green (2004) Birmingham (2004) Clacton-on-Sea (2004) Haverhill (2005) Nuneaton (2005) Luton Manchester EXPRESS BY HOLIDAY INN 7 new hotels in 2003: Chester Portsmouth Nottingham Northampton London x2 Droitwich Swindon Openings in 2004: Preston Bedford Edinburgh Liverpool Airport Newport Hemel Hempstead Warrington Leicester Stevenage FUTURE INNS Cardiff (2004) Developing 6 four star hotels by 2006; targeting South Wales and South West GLOBETROTTER Edinburgh London Dublin GOLDEN TULIP/ TULIP INN HILTON Gateshead Tulip Inn (2004) Newcastle Portsmouth London Bristol Birmingham Edinburgh 8 _Final Report September 2004

22 HOTEL DU VIN Harrogate Chester Henley (2004?) York Cambridge Glasgow Guildford HYATT London Battersea (2008) IBIS JURYS INN Carlisle Milton Keynes Croydon Newcastle Glasgow 5 new openings in 2004: Dundee London x 2 Leeds Aberdeen Leeds (2004) London (2004) Dublin (2004) Heathrow (2004) Southampton (2005) MACDONALD Peebles (golf resort) Cardiff (2004) Whitchurch (Shropshire) MALMAISON London Oxford (2005) Belfast (2005) Bristol Southampton Guildford Cambridge MARRIOTT MYHOTEL NOVOTEL Leicester Brighton 2004 openings: Bristol Edinburgh London Excel PARK PLAZA Leeds Cardiff (2004) London (2005) PREMIER LODGE 10 new hotels in openings in 2004: Perth Heathrow Durham London x2 Norwich RADISSON EDWARDIAN London Syon Park (London) Manchester (2004) RADISSON SAS Glasgow Liverpool (2004) Liverpool (2004) Stansted (2004) RAMADA ENCORE ST CHRISTOPHER SLEEP INN Brighton Bath Leeds 2004 openings: London Swansea 9 _Final Report September 2004

23 TRAVEL INN 12 new openings in 2003 TRAVELODGE 4 openings in 2003: Cheltenham Perth Plymouth Royston 6 new openings in 2004: Blackburn Birmingham M6 Toll Manchester Oldham Wembley Southport 15 new openings in 2004: Wolverhampton Leamington Spa Cambridge London King s Cross Romford Barrow in Furness Bournemouth Leatherhead Leeds Bradford Airport Harrogate Harlow Leicester Livingston Margate Southend on Sea VILLAGE Maidstone (2004) South of England YOTEL Proposed budget hotel chain by founder of Yo! Sushi Source: The Guide to UK Hotel Brands 2003/ PKF UK Hotel Trends 2003/ 10 _Final Report September 2004

24 3. SURREY HOTEL SUPPLY 3.1 CURRENT HOTEL SUPPLY Our research has identified a total of 107 hotels 3 in Surrey with a total of 5,429 bedrooms. Full listings and analysis of these hotels by location and local authority area are given at Appendices 1 and 2. In addition to the county s hotel stock, the University of Surrey in Guildford has 1500 bedrooms (500 of which are en-suite) available for conferences during vacation periods. The county also has a good supply of residential conference and management training centres (listed at Appendix 3) Analysis by Standard and Size of Hotel Our analysis of the current Surrey hotel supply by standard of hotel provides the following breakdown: Surrey Hotel Supply by Standard July 2004 Standard Estabs Rooms % of Rooms Av. Size of Hotel (Rooms) 5 star star star star Budget Non-inspected 2/3 star/ Budget equivalent 4 Diamond Rated/ Lower Grade Non-inspected 3 Total Supply Source: Local authority visitor and accommodation guides and websites/ research The Surrey hotel supply is dominated by 3 and 4 star, and to a lesser extent branded budget hotels, which collectively account for over 80% of hotel rooms in the county. Surrey has very few 2 star hotels. The county has a number of non-inspected 2/3 star equivalent 3 hotels and diamond-rated and lower grade non-inspected hotels in locations such as Guildford, Woking, Chertsey, Godalming, Horley, Shepperton, Camberley, Cobham and Epsom. These are largely small establishments, however, and account for only 14% of hotel rooms in the county. While we have not undertaken an assessment of the quality of these establishments, we suspect that the standard of accommodation they provide is variable, and in some cases very low. 3 Includes star-rated, branded and budget hotels, and diamond-rated and lower grade serviced accommodation establishments trading as hotels. Our supply analysis does not include inns or management training centres, however. 4 Assessment based on rates charged 11 _Final Report September 2004

25 Surrey s current supply of 4 star hotels is as follows: Surrey 4 Star Hotels Hotel Location Rooms Holiday Inn 5 Guildford 167 Runnymede Egham 180 Foxhills Ottershaw 38 Holiday Inn Woking 161 Burford Bridge Dorking 57 Renaissance London Gatwick Horley 254 Thistle London Gatwick Horley 104 Holiday Inn Gatwick Airport Horley 210 Nutfield Priory Nutfield 60 Shepperton Moat House Shepperton 185 Hilton Cobham Cobham 158 Woodlands Park Stoke d Arberon 57 Oatlands Park Weybridge 132 Lythe Hill Haslemere 41 Surrey has one of the few UK 5 star hotels outside London Pennyhill Park. The county has a good supply of country house hotels and country club hotels/ resorts. It currently has no town house or boutique hotels, other than The Angel Posting House in Guildford. Surrey Country House Hotels/ Country Club Resorts Hotel Location Room Grading s Great Fosters Egham 53 3 Star Foxhills Ottershaw 38 4 Star Lythe Hill Haslemere 41 4 Star Langshott Manor Horley 22 3 Star Nutfield Priory Nutfield 60 4 Star Pennyhill Park Bagshot Star Woodlands Park Stoke d Arberon 57 4 Star 5 While the Holiday Inn was graded as 3 star when it was last inspected under the National Accommodation Scheme, in terms of its prices and market positioning we would assert that it is essentially trading as a 4 star hotel. Other nearby 4 star hotels (Hilton Cobham and Woking Holiday Inn) also identified this hotel as a direct competitor. We have thus included it as part of the county s 4 star hotel supply. 12 _Final Report September 2004

26 Surrey s current supply of budget hotels is as follows: Surrey Budget Hotels Hotel Location Rooms Travel Inn Guildford 87 Innkeeper s Lodge Godalming 16 Travel Inn Woking 34 Innkeeper s Lodge Woking 34 Travelodge Dorking 54 Travelodge 1 Leatherhead 96 Innkeeper s Lodge Redhill 37 Travel Inn Redhill 48 Premier Lodge Burgh Heath 78 Travelodge Staines 65 Innkeeper s Lodge Walton-on-Thames 32 Innkeeper s Lodge Frimley 43 Travel Inn Bagshot 38 Premier Lodge Cobham 48 Innkeeper s Lodge Weybridge 19 Premier Lodge Epsom 29 Travel Inn Epsom 58 Travel Inn Chessington 42 Notes 1. Opened May 2004 Three large budget hotels are located just outside the county at Gatwick the Travel Inn London Gatwick Airport, Premier Lodge Gatwick Airport and Travelodge Gatwick Airport. Aside from the county s 4 star country house hotels, 4 star properties are mainly large operations. Nine of them have more than 100 rooms, and of these 6 have over 150 rooms. 3 star hotels vary significantly in size from 15 to 152 rooms, but are generally a mixture of small and medium sized hotels. Budget hotels in the county most typically have bedrooms, although there are larger budget operations in Guildford, Leatherhead, Staines and Burgh Heath (Epsom South Premier Lodge), and smaller Innkeeper s Lodge budget hotels at Godalming and Weybridge. 13 _Final Report September 2004

27 Analysis by Location Our analysis of the current Surrey hotel supply by Borough Council gives the following breakdown: Surrey Hotel Supply by Borough Council Area July 2004 Borough Hotels Rooms % Rooms Supply Guildford Woking Runnymede Waverley Mole Valley Reigate & Banstead Spelthorne Surrey Heath Elmbridge Epsom & Ewell Tandridge Total Supply Source: Local authority visitor and accommodation guides and websites/ research The Surrey hotel supply is fairly evenly spread across the county. Reigate & Banstead Borough has the largest hotel supply (accounting for over a fifth of all hotel rooms in the county), due to the Gatwick hotels located at Horley. Guildford Borough has the next largest hotel supply. Woking and Epsom & Ewell Borough s have smaller hotel supplies, and Tandridge has no hotels at all. 14 _Final Report September 2004

28 The main concentrations of hotels in the county are in the following locations: Surrey Hotel Supply Main Locations July 2004 Borough Hotels Rooms % Rooms Supply Horley (Gatwick) Guildford Camberley/ Frimley Egham Farnham Shepperton Woking Cobham Dorking Staines Weybridge Charlwood/ Stanhill (Gatwick) Bagshot Epsom Source: Local authority visitor and accommodation guides and websites/ research Locations with what appear to be high numbers of potential corporate users that have limited hotel supplies currently are Reigate, Redhill, Caterham, Leatherhead and Chertsey 6. The county s larger 4/5 star hotels are located in the north western part of the county (Egham, Woking, Guildford, Weybridge, Shepperton, Cobham and Bagshot) and Horley. Country house hotels are broadly spread across the county. 3 star hotels are also spread across the county, with concentrations in Farnham and Guildford. Smaller 3 star properties are primarily in rural locations. Budget hotels are located in most of the main towns. The only towns without budget hotels are Farnham, Chertsey, Egham, Reigate and Caterham. 6 Research has not been undertaken to assess the hotel accommodation needs of companies in these locations. 15 _Final Report September 2004

29 Representation by Hotel Chains The table below summarises the representation of national and international hotel chains and consortia in the county: Surrey Hotel Supply Representation of Hotel Chains/ Consortia Hotel Chain/ Consortium Hotel/ Location Rooms 4 Star Holiday Inn Guildford Woking Gatwick Airport 538 Hilton Cobham 158 Renaissance (Marriott) Gatwick Airport 254 Thistle London Gatwick Airport 104 3/4 Star Macdonald 7 Moat House 3 Star Ramada Jarvis Best Western Bush, Farnham Burford Bridge, Dorking White Horse, Dorking Frimley Hall, Camberley Thames Lodge, Staines Shepperton Gatwick Airport Jarvis Guildford Ramada Guildford/ Leatherhead Ramada Jarvis Farnham Frensham Pond Bishop s Table, Farnham Country House Hotels Exclusive Pennyhill Park, Bagshot 123 Hand Picked Woodlands Park, Stoke d Arberon Nutfield Priory, Nutfield 117 Small Luxury Hotels Budget Travel Inn The Angel Posting House, Guildford Great Fosters, Egham Langshott Manor, Horley Guildford Woking Epsom Chessington Redhill Bagshot Travelodge Staines Leatherhead Dorking The Savill Court at Egham is also managed by Macdonald Hotels. 16 _Final Report September 2004