17 SQM and UPGRADING WITHOUT LIMITATIONS? Does Budget Still Have a Future Or Are We Facing Uniformity in the Middle?

ID 34661 - EN Licensed for www.gbi.ag

Magazine / Columns / Management / Operations CONTENT SYNDICATION PROGRAM

17 SQM AND UPGRADING WITHOUT LIMITATIONS? Does budget still have a future or are we facing uniformity in the middle?

Motel One is driving the budget trends: „One Lounge“ in Basel.

Wiesbaden (February 17, 2017). Classic budget hotels upgrade their hardware, room sizes partially change and even the gastronomic offer is topped up. In turn, the 4-star hotel industry downsizes due to continuously rising property prices. Will there soon only be uniformity left in the middle? Motel One‘s most recent announcement, that is to equip their new budget hotels with granite flooring, with exclusive designer furniture, tissues and safes, started a sensitive discussion on the German market. The managers of Berlin‘s project developer GBI AG witness it themselves: „The hotel industry leveled off in the 3-star-minus to 4-star-plus area with a net room surface space of 22 to 24 sqm,“ says Chris-Norman Sauer, Head of Development. Brands of the so-called budget hotel industry, he continues, are in the middle of expanding their room sizes from what used to be 14 to 16 sqm up to 19 sqm – which nowadays rather corresponds to the economy category. In addition, public areas are designed more welcoming and thought through and more in tune with the locations. „Five years ago we still had the rule of thumb that, in a budget hotel, a maximum of 30 sqm gross floor area per room would be calculated. With 4-star hotels it was around 50 sqm –

Magazine / Columns / Management / Operations CONTENT SYNDICATION PROGRAM

partially way beyond that. This clear difference in surface space is hal- ved due to a growth in surface space with the new generation of budget hotels and, at the same time, the pressure to cut costs in the 4-star class. Holiday Inn Express and other modern budget hotels have, owing to bigger rooms and more generous public areas, a gross floor area usage of 35 sqm per room, sometimes even more than that,“ the GBI developer says. Hence, 4-star hotels would not only reduce their room sizes but also their fitness area and would intro- duce multifunctional rooms instead of conference rooms. With almost 22 sqm, the rooms of the first Premier Inn in the Frank- Reiner Nittka, GBI: furt Europe district, that GBI built, is bigger than in their home country Budget hotels grow in surface space, 4-star Great Britain. According to GBI chairman Reiner Nittka, this is becau- hotels are shrinking. se the property was originally planned as a GBI smartment building. „In the new Premier Inn Hotels in Germany, the rooms will have 19 sqm,“ he knows. Equipped with a kitchen for the restaurant and with high quality, spacious public areas, the Premier Inn defines itself as a „Premium Economy“ brand. The guest does not pay per square meter any more „Budget is not out. But budget is changing and is more and more becoming a serious compe- titor for the 3- to 4-star hotel industry,“ Chris-Norman Sauer explains. The customer does not care much any more about the hotel classification. „Even with business customers, there is less and less focus on status. These days, the guest is looking for a hotel experience, variety and for surprise. He or she seeks for local connection and authenticity. That is what he or she pays for – not for the square meter of hotel surface space any more,“ he says and refers to Motel One‘s current and generous investments into public areas as well as into the expansion of the F&B product range, for instance through the introduction of the gin menu with 40 different types a couple of months ago. According to Ursula Schel- le-Mueller, Chief Marketing Officer of the Motel One group, even with the next generation of Motel One, the average room size of 16 sqm would not change. Ho- wever, the Motel One Upper West, which opens in Berlin in March with 580 rooms, does experience a product Motel One room: Room size will not increase. refinement, also with regard

Magazine / Columns / Management / Operations CONTENT SYNDICATION PROGRAM

to its rooms. Among other items, the rooms will host an armchair of the manufacturer Freifrau and round desks, a smartTV, a safe as well as local art. There will also be further developments at the lobby-lounge-bar. Considering all these upgrades, Mo- tel One has now decided to leave out the word „low“ in their brand subtitle „Low Budget Design“ in the future – after all, they have not admitted to ‚economy‘ as of yet. The group has however moved away from the 2-star classification Ruby Hotels markets its brand as lean luxury.

by now. „On the one hand, we have too much of this, on the other hand not enough,“ reasoned Schelle-Mueller three weeks ago in front of a group of journalists in Mu- nich. „For example, we do not have a second dustbin in the room that was requested.“ Another path, different from Motel One‘s, was chosen by the young brand Ruby, but at the end of the day they, too, will have to compete with the further developed budget hotels. „Compared to design budget hotels, that render budget hotels chic so to speak, we slim down luxury hotels,“ Ruby CEO Michael Struck explains. Hereby, the luxury in the room is focused on the basics such as the quality of sleep, with high-class, 2.10 m beds, a special sound in- sulation and excellent light dimming features (seen from Ruby‘s target group). While a classic 4-star hotel has a total surface space usage of about 40 sqm gross floor area per room, Ruby uses about 30 sqm gross floor area per room, in the new Mu- nich hotel it is about 31.6 sqm, for instance. The room size for bathrooms starts with 16 sqm at Ruby‘s and are prizeotel: brightly coloured budget design 18 sqm on average. According to Struck, the RevPAR in and technology trendsetter. both Ruby hotels in Vienna established itself in a 4-star

Magazine / Columns / Management / Operations CONTENT SYNDICATION PROGRAM

area. With entry level prices, however, one stays under the magic 100 euro-mark. This alone already shows the balancing act between budget and midscale. Too much capital on the market pushes upgrades „Motel One pushes the market further,“ Marco Nussbaum, CEO at prizeotel, is convinced, „but technologically, we are still the best.“ For Nussbaum it is clear: „The ‚Geiz-ist-geil‘ menta- lity (stinginess is sexy) is over.“ This is also why prizeotel is currently investing in public areas. The room size of 16 sqm won‘t really be changed with prizeotel either. „Unless,“ Nussbaum says, „we are talking about a conversion.“ Wherever you look at the budget hotel industry, everywhere investments go into lobbies, food concepts, beds and also safes, Nussbaum says. This is also owing to the fact that there is a lot of capital in the market. On top, properties and equipment are getting more and more expen- sive yet better locations are expected. All of this will reflect in the pricing of the budget hotel industry. Motel One, for instance, starts these days already with 79 euros in some locations and not with 59 euros anymore, for exhibitions and events there is a surcharge of 20 to a maximum of 100 euros, depending on the significance. Nevertheless, Motel One stays moderate with these prices, even during exhibitions. Other yield-driven brands like ibis hotels already ask more than 100 euros on slightly increased de- mand; during exhibitions, rates can go up to 300 to 400 euros. Considering the ongoing upgrades on the market, Nussbaum however is convinced: Whoever continues to cut costs as an operator instead of investing, will disappear from the market. ibis designs room sizes more flexible Yet, even ibis has not stayed closed up to the trend towards refinement in recent times either. In almost all hotels, the group already came up with a new design, new F&B concepts and better beds. Eike Alexander Kraft, Corporate Communi- cations Central Europe, identifies the room size of ibis budget with currently about 14 sqm, of ibis with about 16 sqm and of ibis Styles with about 17 sqm. „Gene- rally, the room products and sizes at the ibis family are going to be designed more flexible. This helps us to better react to the different pro- jects and needs of the res- pective micro markets,“ he ibis styles gives more freedom to design than other brands.

Magazine / Columns / Management / Operations CONTENT SYNDICATION PROGRAM

says. In the Asian region, for instance, the room size is 30 sqm. A radical change to these specifications is currently not planned. However, Kraft says, ibis has recently upgraded the public areas. „In the design concept AVAN- ZI, which was developed by the French design studio Archange and which is being implemen- ted step by step in all ibis hotels, the lobby plays a central role. Warm colors and decoration elements made from wood, paired with upholstered furniture and big shelves, add to one‘s wellbeing. And to always stay ‚up-to-date‘, the reception offers large screens with current in- formation regarding one‘s stay. Also in the ibis family, more freedom of scope is planned for the future in order to guarantee a better adjustment to the local market.“ Super 8: 130 items for breakfast An expansion of Super 8 rooms with currently 18 sqm is not planned either, according to Wyndham spokesperson Haley Borishoff. „Bigger rooms would increase the construction costs and therefore the prices,“ she explained. „Travelers in the budget area are very price conscious and we would like to keep our rates competitive.“ Super 8 is still very young in Germany and the public areas are designed according to the latest standards of the industry and brand which is why there are currently no changes planned. However, Super 8 has – as recently the German exclusive-franchisee Michael Bungardt of GS- Star proudly reported – in Germany 130 (!) items on the breakfast buffet. And for their coffee shops, a cooperation with Dallmayr is planned. The Premier Inn is going to bring along their own coffee shop – Costa Coffee – from England everywhere they go. B&B stays consistent And where are, for example, the Marriott brand Moxy or B&B Hotels positioned today? Mar- kus Lehnert, Vice President International Development at Marriott: „We see Moxy partially overlap with the budget area, but not solidly rooted in the budget area.“ The room size of 17.5 sqm is supposed to stay. „We don‘t need more,“ says Lehnert. The room design would be somewhat adap- ted as per schedule – currently in the style of the public areas. The basic idea should yet be maintained: „Moxy‘s public areas work well, we will link the tried-and-true with regio- nal designs in order to main- tain freedom of scope.“ Moxy, currently present in B&B Hotel Stuttgart-Vahingen: top brand for price-conscious travellers.

Magazine / Columns / Management / Operations CONTENT SYNDICATION PROGRAM

Germany with three properties, will now slowly start to face every day competition and hence render their concept to the open benchmark. Max C. Luscher, CEO of B&B Hotels Germany, sees himself as perfectly-equipped with his still strictly standardized product within all the other revamped products: „Budget is not out but has never been so ‚in‘ like today,“ he explains. „We see that lots of hotel chains do upgrades and leave the budget area. We don‘t do this, we are and we stay the most standardized brand product in the market entry segment.“ A blow to Motel One‘s design upgrades. B&B rooms have a gross floor area of about 28 sqm and a net surface space of 15-17 sqm. „We don‘t plan to change the size. We offer a high quality product,“ says Luscher. However, the quality of the bed has just been adjusted and an upgrade of the breakfast buffet is planned. „But everything as a budget product,“ the manager emphasizes. „The final and cheap price that we can offer our guests, is always a distinctive criterion in case of doubt.“ The imminent uniformity in the middle again creates space for new opportunities at the lower end. Hence, the Buddy concept from Munich, for example, hits the gap: Their rooms measure between 10 and 12 sqm. The gross floor area for a classic Buddy identifies CEO Johannes Eckelmann with 20 sqm. The man, who created the Cocoon Hotels in Munich as a budget brand, is busy with bringing in fascinating numbers with the super-budget-format Buddy in Munich‘s prime location (Sonnenstrasse, 200m away from the luxury hotel Der Koenigshof): Over 90% occupancy with a RevPar of almost 100 euros. Other concepts, which will set the German market even further in motion according to the GBI managers, are Hoxton (boutique hotels with rooms starting from about 18 sqm), The Student Hotel (a mix of hotel and student homes), Zoku (loft-like serviced apartments), Premiere Clas- se (budget by Louvre), 7 Days Inn (budget by Plateno) and Yotel (who change from capsule hotels in the UK to differentiated budget high-tech products in the rest of the world). / Susanne Stauss

© HospitalityInside GmbH. This content is protected by copyright. Publishing this content or parts of it in print or digital media requires prior written permission of HospitalityInside GmbH. The protection of the content is an essential part of our editorial business model. We therefore ask you to respect our conditions. Any unauthorized use will be liable to legal action, especially the assertion of injunctive relief and claims for damages. If you would like to publish an article on your website, please find the current conditions at www.hospitalityInside.com under the heading „Content Syndication“. German law applies under exclusion of the UN Convention on Contracts for the International Sale of Goods.

6 / 6