The only way is budget?

Budget hotels, like Middle Class consumer’s shopping at Aldi and Lidl, were thought to be a response to the recession. Naturally more people will stay at budget and their slightly more upmarket cousins, “budget chic” hotels if money is tighter.

But now we are, for the most part, out of the recession. President Obama’s State of the Union hardly mentioned deficits and debt. The IMF declared an end to the Eurozone crisis in 2013. The UK economy is expected to grow faster than the rest of Europe in 2015. And investment in the hotels sector is not just robust; it’s like investors are making up for several lost years with a hungry appetite for profitable asset-backed investments.

When it comes to hotels, the highest yields are coming from the budget to mid-scale category. Not luxury, surprisingly. For example, Osprey Equity Partners recently sold a 189 room Hub by Premier Inn hotel in London, on Brick Lane, to a UK equity fund for £34.7 million. The sale includes a 30-year index-based lease to Whitbread, who will re-brand it as their new high-tech ‘Hub’ brand. It will be a great attraction for Millennials who want to stay somewhere other than Airbnb apartments, friends houses, chains or youth hostels. For the new buyer, this means a net yield of 4.25%, which is higher than most hotels of a similar size in different categories. The bare minimum guests expect, in any category, is a clean room, comfortable bed and a decent shower.

The problem with this is we are witnessing a rise in ‘tapas tourism’, which is more experience-centric. Guests are more inclined to seek out something different, less likely to go for the ‘all you can eat’ value offer. At a panel about budget hotels, Carlton C Elvin, Chief Development Officer, Europe, Marriott International and The Ritz Carlton Hotel Company, said “the shift is where the guest is looking to combine value and style, not value v style.”

Marriott is therefore rolling out 16 ‘Moxy’ brand hotels in two years, the first of which opened in Milan. The Moxy is all about experience, fun, being different, hip and affordable as a new boutique brand. Marriott have made effective use of social media, images and copy to attract a younger crowd: “It’s just like home….. but with a bartender! ;)”

Navneet Bali, CEO, MEININGER Hotels, Peter Gowers, CEO, Travelodge and Simon Jones, Marketing and Strategy Director, Premier Inn were also on the panel, and all raised concerns about the potential threat of Airbnb. When it comes to affordable experiences, budget chic might be one of the best defences the industry has to take on Airbnb. At the same time, regulatory, tax and other concerns are being handled by numerous governments around the world and will likely force the sharing economy giant to act more like other hotel chains, which in turn will benefit the industry.

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