ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Demand Study On Behalf of Obidos Properties Limited
16 March 2012
CONTENTS
1. Executive Summary ...... 3
2. Background & Method of Approach ...... 5
3. Site Appraisal ...... 7
4. Proposed Development Scheme ...... 11
5. Local Hotel Market ...... 26
6. Envisaged Demand ...... 46
7. Conclusion ...... 56
APPENDICES
A. Glossary of Industry Terminology...... 61
B. London Hotel Market ...... 63
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Executive Summary
The subject property is situated in the London Borough of Islington on Finsbury Square, to the north of Finsbury Circus and Liverpool Street Station. It benefits from excellent visibility from Finsbury Square and City Road and is situated in close proximity to the City of London and popular areas such as Shoreditch High Street and Hoxton Square. There are numerous bars, eateries and entertainment facilities within immediate walking distance of the site. The proposed development and the Finsbury Square area is well served by road and rail. The site is a short distance from both London Underground and mainline stations as well as major roads linking to north, south, east and west London. The immediate area has a high density of office developments being located close to the boundary of the London Borough of Islington and to the City of London. There are numerous office buildings plus new developments ongoing around Finsbury Square and City Road. Immediately to the east of Finsbury Square is Broadgate which comprises 16 office buildings with approximately 4.4 million ft 2 of office space with occupiers including Henderson Global Investors, UBS, HBOS, Close Brothers, RBS and Deutsche Bank. The City of London also has numerous historic and cultural attractions which will attract leisure demand including St Paul’s Cathedral, Tower of London, Bank of England Museum, Museum of London, Leadenhall Market, The Monument, Barbican Arts Centre, Guildhall Art Gallery & London’s Roman Amphitheatre and Spitalfields Market. The proposed hotel is also located close to Shoreditch and Hoxton to the north which
3 has numerous modern art galleries, bars, restaurants and nightclubs available to the leisure guest. Page
From the floor plans and architects drawings provided by 5plus Architects, the hotel will be developed within the existing building plus extending the height to include three additional floors (new 8 th – 10 th floors). In total the proposed hotel will have a EXECUTIVESUMMARY basement, lower ground, ground and ten upper floors and extend to a Gross Internal Floor Area (GIA) of 14,356 m 2 and will provide 255 letting bedrooms, four flexible meeting rooms, two restaurants, bar and spa. We summarise the proposed accommodation as follows: Proposed Accommodation LEVEL FACILITIES Basement Plant, kitchen, stores, staff areas, disabled car parking spaces Lower Ground Business centre, spa, gym, pool, guest changing rooms, 6 bedrooms Ground Hotel lobby/ lounge, Hotel bar, Brasserie/Restaurant, 11 bedrooms Level 1 - 5 28 bedrooms per floor Level 6 28 bedrooms Level 7 25 bedrooms Level 8 25 bedrooms Level 9 13 bedrooms Level 10 7 bedrooms Source: 5plus Architects We understand that the hotel will be operated under the Montcalm hotel brand which operates in the upscale four to five star hotel market providing quality accommodation and service suitable for the business and leisure traveller.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Executive Summary
The client already owns and manages two other Montcalm hotels (located in the West End and also nearby on Chiswell Street) plus 17 other mid market hotels located in the West End and hence is a well established and experienced owner operator. There are several hotels now located within the City of London which the proposed hotel will compete with in terms bedroom supply. In addition, hotels located in the Borough of Islington and Hackney will also compete to some extent with the subject site. The City and City fringe is becoming an increasingly popular location for hotel developers and operators to benefit from the strong corporate business which tends to be higher rated than leisure business. There was only one hotel located in the City in 1999 and now there are approximately 15 hotels, showing the growing demand of the area. However, within the City of London, the majority of hotel developments are located towards Tower Hill and the Tower of London with other developments towards St Pauls and the western edge of the City. The hotels closest to the subject property are the new Montcalm Hotel The Brewery at Chiswell Street and the Apex London Wall. The nearest hotels in the Borough of Islington are predominantly located towards Islington and Kings Cross, although the Thistle Barbican, The Zetter and Holiday Express London City are the nearest to Finsbury Square. The hotels are a mixture of standards, ranging from branded budget operations, to mid scale and upscale hotels. In order to assess the demand profile of the local hotel market we have purchased a benchmark survey produced by STR Global, which provides the key performance indicators (KPIs) of a selection of hotels in the area including hotels in similar City fringe
4 locations. We have excluded hotels operating in the budget sector and those located further afield. The hotels we have included are: Crowne Plaza Hotel London The City, Page Malmaison London, Andaz Liverpool Street, Apex London Wall and The Threadneedles Hotel. A summary of their recent performance is as follows:
2006 2007 2008 2009 2010 2011 YTD JAN 11 YTD JAN 12 EXECUTIVESUMMARY ADR £188.09 £205.36 £208.10 £177.50 £189.44 £197.70 £190.14 £187.37 RevPAR £145.83 £162.36 £149.22 £134.35 £153.35 £160.31 £135.84 £129.94 Occupancy % 77.5 79.1 71.7 75.7 80.9 81.1 71.4 69.3 Source: STR Global We have also taken consideration of the proposed hotel supply planned in the vicinity including Islington, the City of London and Hackney and assessed how competitive they are likely to be to the proposed hotel by size, location and standard of operation. In assessing our demand profile we have estimated the market segmentation for the proposed hotel (proportion of rack rate, corporate, leisure and meeting business) taking consideration of the hotel’s proposed facilities, number of bedrooms, the performance of the benchmark survey, future hotels and other similar hotels we have been involved with in the vicinity where we have been provided with trading information, on a confidential basis. Following our research, we have estimated the following occupancy and ADR (average achieved daily rate) for the proposed hotel:
YEAR 1 YEAR 2 YEAR 3 YEAR 4 Occupancy 73.0% 77.0% 78.1% 79.5% Average Daily Room Rate (£) 171.5 185.4 194.1 199.0 Source: CBRE Hotels Estimates
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Background & Method of Approach
BACKGROUND Obidos Properties Limited has recently acquired the freehold interest of Royal London House, Finsbury Square, which is currently occupied as an office building. Our client proposes to submit a planning application to Islington Council in order to obtain planning permission to redevelop the existing building and convert it to a 255 bedroom, upscale hotel, operated under its Montcalm brand. CBRE Hotels have been retained by Obidos Properties Limited to provide an independent overview and demand study of the proposed hotel. The purpose of our report is to determine the current and future demand and supply dynamics of hotels within the area and the likely demand for the proposed hotel once the building is converted, open and ready for trading. CBRE Hotels offers a wide range of services to support hotel investors, lenders, owners and developers. Our well established and experienced team are able to provide independent consultancy, marketing and sales advice, including the provision of market and financial feasibility studies, strategic reviews and execution of high profile transactions. We are able to offer high level reviews of single assets and portfolios, monthly cash flow analysis, independent projections and strategic advice in terms of positioning within the market place, capital expenditure, management contracts and branding. Our advice is solutions-orientated helping our clients make the right decisions at every stage in the development and investment process.
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Scope of Works Page
CBRE Hotels is to appraise the demand for a hotel at the subject site and the wider area for an upscale, high quality, full service hotel, as well as to understand accommodation supply and demand dynamics for Islington and the nearby boroughs of the City of London and Hackney. On the basis of these findings the report will seek to assess the proposed occupancy levels and hence demand of the proposed development.
Our demand study will address the following topics: BACKGROUND& METHOD OFAPPROACH Site appraisal and locational analysis; Overview of the London hotel market; Detailed analysis of the wider Islington and City of London hotel markets to include number of hotels, location, brand affiliation, facilities of hotels in the area, classification (5-star to budget), state of repair etc; Assessment of the current customer profile; Demand analysis of the competitive hotel stock in the area; Understanding of the potential new supply; Commentary on the proposed hotel development and its ability to penetrate the market; Appraise the subject site and provide estimates of occupancy and Average Daily Rate (ADR) over a five year period.
Method of Approach Our method of approach in assessing demand for the proposed hotel at Royal London House included the following steps:-
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Background & Method of Approach
Inspection of the subject site and the immediate neighbourhood to assess its size and location in terms of competing hotels, visibility and accessibility.
Visit of the surrounding area to determine and assess the existing supply, location and standard of hotel accommodation and facilities.
Viewings of competing hotels and where possible speaking with hotel representatives to determine type of trade, customer mix and indicative rates.
Researching advertised rates for hotels in the immediate area. Analysis of information provided by STR Global on the historic hotel trading performance (occupancy and ADR) achieved in London and the direct competitive set.
Review of floor plans of the proposed 255 bedroom hotel. Once all our research was undertaken, we estimated future demand for an assumed competitive set of hotels and also more specifically for the proposed 255 bedroom hotel at Finsbury Square.
We attach as an appendix a Glossary of Industry Terminology to summarise the main hotel industry definitions used within our report.
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BACKGROUND& METHOD OFAPPROACH
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Site Appraisal
INTRODUCTION In the following section we present our comments and analysis regarding the proposed hotel development, including a location overview and SWOT analysis. We also provide details regarding general communications infrastructure in the Islington and City of London area.
SITE LOCATION
Overview The subject property is situated in the London Borough of Islington on Finsbury Square, to the north of Finsbury Circus and Liverpool Street Station. It benefits from excellent visibility from Finsbury Square and City Road and is situated in close proximity to the City of London and popular areas such as Shoreditch High Street and Hoxton Square. There are numerous bars, eateries and entertainment facilities within immediate walking distance of the site. Due to the City’s corporate nature and the large number of office buildings located in Finsbury Square and the surrounding area, these offices are likely to provide demand for the completed development. Royal London House is indicated by the blue marker on the map below.
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SITE APPRAISAL SITE
Source: Microsoft MapPoint
Finsbury Square Situated approximately 200m north of Moorgate and 400m south of Old Street, Finsbury Square houses numerous office buildings and some small shops and restaurants around its 1.7 acre green. It is situated north of Finsbury Circus and only a short distance from the City of London, which is widely regarded as Europe’s financial centre and home to numerous banks, financial institutions, insurance companies and consulting firms as well as numerous
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Site Appraisal
supporting industries. Finsbury Square forms part of the London Borough of Islington and the square is bordered by City Road. The London Borough of Islington borders the City of London to the north of Liverpool Street Station and houses numerous office buildings, particularly around Finsbury Square and its surrounding area. Parts of Islington have undergone significant regeneration in recent years, in particular City Road, which is home to numerous bars, restaurants and nightclubs.
Communications The proposed development and the Finsbury Square area is well served by road and rail. The site is a short distance from both London Underground and mainline stations as well as major roads linking to north, south, east and west London.
Road The site has good communications, with City Road (A501) adjacent to Finsbury Square, which leads to Old Street roundabout in the north and London Wall in the south. This roundabout is a major road junction north of the City of London which provides links to the A1 and A10, leading to major international train stations such as Kings Cross St Pancras and Euston as well as further out of London towards the national motorway network. In the following table we provide distance and travel times to key areas by road from the subject property.
8 Approximate Drive Times and Distances To/From Finsbury Square Page
KEY DESTINATION APPROXIMATE DISTANCE (MILES) APPROXIMATE DRIVE TIMES (MINS) Liverpool Street Railway Station 0.6 3
St Pancras Eurostar Station 2.5 9 APPRAISAL SITE London City Airport 7.7 21 Heathrow Airport 19.6 37 Gatwick Airport 32.3 58 Stansted Airport 35.4 47 Luton Airport 34.6 50 Source: CBRE Hotels Research The proposed hotel, based upon information provided, only includes car-parking facilities for disabled guests and therefore the increased traffic usage in the area will be kept to a minimum, with most guests arriving by public transport or taxi.
Rail and Underground Finsbury Square benefits from good access to both Underground and National Rail stations. The closest Underground stations are Moorgate (0.2 miles) and Old Street (0.4 miles), both of which are within easy walking distance. Moorgate is served by the Northern, Circle, Hammersmith and City and Metropolitan Lines. The Northern Line offers good links to parts of south, central and north London, as well as connections to the remainder of London’s Underground network via larger stations such as Bank and Kings Cross/St Pancras and direct access to a number of mainline and international railway stations including St Pancras International, Kings Cross, Euston and London Bridge.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Site Appraisal
The nearest National Rail station is London Liverpool Street which is 0.6 miles from the subject property. In addition to its various overland services (mainly towards the north eastern and eastern areas of London), Stansted Express services depart Liverpool Street for Stansted Airport every 15 minutes, with a journey time of approximately 45 minutes. London Liverpool Street also has a large tube station which is served by the Central, Hammersmith and City, Circle and Metropolitan lines. It hence provides excellent connections to the London Underground network. Shoreditch High Street railway station is located 0.6 miles from the property on Bethnal Green Road, near the junction with Shoreditch High Street in the Shoreditch district and forms part of the extended East London Line under the control of the London Overground division of Transport for London.
River The subject property is approximately one mile north of the river Thames, with a walking time of around 20 minutes. Regular boat services are offered on the river, mainly between Waterloo to the west and Canary Wharf, the O2 Arena and Greenwich to the east. In addition, river cruises function as a tourist attraction and can be caught from numerous piers in central London. The nearest piers to the subject site are at City Blackfriars and Tower Pier (by the Tower of London).
Air
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The closest airports to the subject site are London City and London Heathrow, at 7.7 miles
and 19.6 miles respectively. Page
London City is a regional airport which is served by a number of international carriers, such as British Airways, Lufthansa and Swiss Airlines. In addition, some regional airlines such as VLM and Cityjet (Air France) service London City, connecting the airport to destinations APPRAISAL SITE within the UK and continental Europe. Recently British Airways have introduced a daily “all business class” service between London City and New York. In 2011, the airport served a total of 3.0 million passengers, which represents an 8% increase over 2010 numbers of 2.8 million. The airport currently operates scheduled services to some 30 destinations. London Heathrow is Europe’s busiest airport. It is home to British Airways and offers services by some 89 airlines, has 450,000 aircraft movements on a yearly basis and offers direct connections to 176 destinations. The airport sees an average of 180,100 passengers arrive and depart each day, equating to 65.7m passengers in 2010. Terminal Two is currently undergoing a £1bn redevelopment programme and is expected to house Star Alliance Airlines when it re-opens in 2013, accommodating an additional 20 million passengers per annum.
SWOT ANALYSIS In the SWOT analysis below, we present our assessment of the relative strengths and weakness of, opportunities for and threats to the proposed Royal London House development, Finsbury Square.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Site Appraisal
SWOT ANALYSIS STRENGTHS WEAKNESSES Excellent visibility from Finsbury Square; Some office buildings surrounding Finsbury Square are still under Proximity to Old Street and Moorgate Underground stations; construction or are vacant; Large number of corporate occupiers on Finsbury Square The area is not a historical hotel location. providing a key target market for the proposed hotel; Close proximity to the City of London, with its numerous large corporations which are also potential customers for the new development; Good number of tourist and leisure attractions located nearby. OPPORTUNITIES THREATS Further development of nearby office buildings by large Double dip recession and limited capability of investors to raise corporations are likely to generate demand for the property; finance during the current economic climate could slow down the The development is likely to come on-line during a period of development of the area; economic recovery, which would be beneficial for its commercial Continued development of hotels in the City of London; viability; Other schemes in the area which have been granted planning Finsbury Square is not a major hotel destination and the subject permission for hotels which will increase competition. would be the first branded, sizeable hotel in the area.
CONCLUSION
10 From the research and analysis we have undertaken, we are of the opinion that the site is suitable for a hotel development, which is mainly due to its strong location within a well Page established square with excellent communication links. Moreover, its proximity to mainstream markets such as the City of London will enable the hotel to attract a very good
level of corporate customers. It is our understanding that the upscale Montcalm brand APPRAISAL SITE concept will fit in well with the local businesses and surroundings and that it would complement Finsbury Square’s current profile in a suitable manner, which is also proving to be the case at their sister hotel on Chiswell Street.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
INTRODUCTION In the following section we present our critique of the proposed 255 bedroom hotel (to operate within the upscale sector of London’s hotel market). In assessing the opportunity we have also taken into account the following: Location of the proposed hotel and the strengths and weaknesses of the site; The envisaged market positioning of the hotel, in terms of product and range of facilities; The current and projected future hotel environment within Islington and the surrounding area, the market positioning and target markets for the proposed hotel; Future regeneration and development proposals within the surrounding areas, including office, residential and hotel developments; The benefits this hotel will gain from its fit within Islington and the City of London and its culture, and the fact that it will complement this area of central London offering facilities for adjacent occupiers and visitors to the area.
PROPOSED SCHEME From the floor plans and architects drawings provided by 5plus Architects the hotel will be developed within the existing building plus extending the height to include three additional th th floors (new 8 – 10 floors). In total the proposed hotel will have a basement, lower 11
ground, ground and ten upper floors and extend to a Gross Internal Floor Area (GIA) of Page 2
14,356 m . The hotel scheme provided is as follows: The hotel will have frontage on to both Finsbury Square and Worship Street with the main hotel entrance and lobby accessed from Finsbury Square. The ground floor houses the main hotel lobby and reception area and also includes a lobby lounge and bar area (fronting Finsbury Square) plus a second brasserie/ PROPOSEDDEVELOPMENT SCHEME restaurant (fronting Worship Street) as well as 11 letting bedrooms. Located on the lower ground floor is a business centre comprising four meeting rooms which provide 200m 2 (NIA) of flexible space which can be used as four separate rooms or connected to provide two larger rooms or one large banqueting space. There is an ancillary furniture store and satellite kitchen. In addition, there is a spa and fitness centre including a gym, treatment rooms, steam room and sauna, aerobic studio, pool and male/female changing rooms. This floor also has six bedrooms fronting Finsbury Square. There is external access to the basement for deliveries from Worship Street. There are currently two ramps which provide access to the basement (at either end of the building fronting Worship Street). We understand that the western entrance will be blocked off and access to the basement will only be available from the access point on the eastern side of the building. Due to the restricted ceiling height of the ramp (circa two metres high) it is proposed that vehicles will unload their deliveries near the entrance and these will be transferred onto smaller electric vehicles to take the goods down to the basement area where there are various stores and access to the service lifts. The basement also houses the main kitchen (which will have a dumb waiter up to the satellite kitchen on the lower ground floor and the brasserie/restaurant on the ground floor) plus store rooms, staff changing rooms, boiler and plant rooms. There are also two disabled car parking spaces for hotel guests at basement level.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
Further guest bedrooms will be located on floors 1 – 10. The total number of bedrooms will be 255. There will be two service lifts serving all floors plus, four passenger lifts. We understand that if planning consent is successful, the proposed hotel is expected to open at the end of 2013. We have assumed for the purposes of our appraisal that the hotel will be open and ready for trade in January 2014. We highlight below a sample of the proposed floor plans to show the accommodation and facilities planned.
Proposed Lower Ground Floor
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PROPOSEDDEVELOPMENT SCHEME
Source: 5plus Architects
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
Proposed Ground Floor
13 Source: 5plus Architects Page
Proposed First to Fifth Floors PROPOSEDDEVELOPMENT SCHEME
Source: 5plus Architects
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
We summarise the proposed accommodation as follows:
Proposed Accommodation LEVEL FACILITIES Basement Plant, kitchen, stores, staff areas, disabled car parking spaces Lower Ground Business centre, spa, gym, pool, guest changing rooms, 6 bedrooms Ground Hotel lobby/ lounge, Hotel bar, Brasserie/Restaurant, 11 bedrooms Level 1 - 5 28 bedrooms per floor Level 6 28 bedrooms Level 7 25 bedrooms Level 8 25 bedrooms Level 9 13 bedrooms Level 10 7 bedrooms Source: 5plus Architects We have been provided by 5plus Architects with indicative plans for each bedroom type and average floor areas. Deluxe bedrooms range from 23 – 26 m 2 and suites are two deluxe rooms (one of 23m 2 and one of 26 m 2 that can be inter-connected). The suites therefore provide flexible space whereby if demand is lower for suites the rooms can be sold as two deluxe rooms. Rooms adapted with disabled facilities range from 24 – 49 m 2
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and junior suites range from 31 – 25 m . In our opinion, these room sizes are in line with 14
industry norms for an upscale hotel operation. Page
From the floor plans provided a breakdown of bedroom types and sizes are as follows:
Bedroom Breakdown BEDROOM TYPE NUMBER AVERAGE FLOOR AREA (SQM) Deluxe 163 23 – 26 PROPOSEDDEVELOPMENT SCHEME Room with disabled facilities 24 24 – 39 Suite (two deluxe inter-connecting) 24 49 Junior Suite 44 31 – 35 TotalTotalTotal 255255255 Source: 5plus Architects
LOCATIONAL QUALITIES The proposed development occupies a prominent building in Finsbury Square overlooking a large square with a bowling green and underground car park in its centre. The square occupies a strong location between City Road to the west and Broadgate and Liverpool Street Station to the east. The proposed development is well served by road and public transport. Both City Road and the A10 Norton Folgate to the east are important roads linking to the north and south. These roads also link nearby to Old Street and London Wall which connect to the east and west. Nearby underground stations include Moorgate (Northern Line) and Liverpool Street (Central Line and overland services). Crossrail will have a new station at Liverpool Street opening in 2017 which will ease congestion on the Central Line and being close to Crossrail will entice occupiers.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
The immediate area has a high density of office developments being located close to the boundary of the London Borough of Islington to the City of London. There are numerous office buildings plus new developments ongoing around Finsbury Square and City Road. Immediately to the east of Finsbury Square is Broadgate which comprises 16 office buildings with approximately 4.4 million ft 2 of office space with occupiers including Henderson Global Investors, UBS, HBOS, Close Brothers, RBS and Deutsche Bank. We are of the opinion that the proposed Montcalm Hotel provides much needed upscale hotel accommodation in the area. The bedrooms will provide accommodation for corporate guests visiting clients and companies located in the City of London and Islington. There are numerous office developments underway on City Road opposite Finsbury Square and at Broadgate (the latter is for a new 700,000 ft 2 office building for UBS due to open in 2014). Furthermore, we understand that over the next four years some 800,000 ft 2 of vacant office accommodation is due to be delivered from the buildings immediately facing Finsbury Square, which is likely to generate significant business for the proposed hotel in the way of corporate clients. We summarise the proposed developments as follows:
Proposed Finsbury Square Office Developments 2012 - 2015 PROPOSED DEVELOPMENT FLOOR SPACE (SQ FT) ESTIMATED COMPLETION 26 Finsbury Square 82,000 Q3 2012
15 33 Finsbury Square 72,000 Q4 2012 Page
10 Finsbury Square 143,000 Q3 2013 Triton Court 200,000 Q4 2014 City Gate House 175,000 Q4 2015 50 Finsbury Square 127,000 Q4 2015 TotalTotalTotal 799,000 PROPOSEDDEVELOPMENT SCHEME Source: Strutt and Parker For the City of London as a whole, Strutt and Parker state that future supply of both new developments and refurbishments currently under construction comprise approximately 4.9million ft 2 , for delivery over the next three years. Hence, there is substantial possible future corporate demand for hotel accommodation over the next few years which the proposed hotel can help to provide. The hotel lounge bar and brasserie/restaurant will provide dining facilities and an attractive bar area for business breakfasts, lunches, meetings and client entertaining from nearby offices. In addition, the spa, gym and pool could be used by nearby office workers as a useful amenity. As already found at the Montcalm The Brewery on Chiswell Street, the hotel will provide accommodation for delegates attending events at the Barbican, The Brewery and also Excel. We highlight below a summary of the upcoming events at both the Barbican and Excel:
Confirmed Excel Events as at 13 th March 2012 EVENT EVENT DATE Digital London Summit & Showcase 13 – 14 March 2012 Oceanology International 13 – 15 March 2012
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
EVENT EVENT DATE Interspill 2012 13 – 15 March 2012 Ecobuild 20 – 22 March 2012 Planet Under Pressure 2012 25 – 29 March 2012 European Congress of Clinical Microbiology and Infectious Diseases (ECCMID) 31 March – 3 April 2012 The London International Dive Show 31 March – 1 April 2012 London Marathon Exhibition 18 – 21 April 2012 The Property Investor Show (Spring) 2012 19 – 20 April 2012 Property Business Show 19 – 20 April 2012 Salute 21 April 2012 2012 Ungerboeck EMEA Conference 22 – 25 April 2012 22nd European Meeting on Hypertension and Cardiovascular Protection 26 – 29 April 2012 Cake International - The Cake Decorating and Baking Show 27 – 29 April 2012 Grand Designs Live 05 – 13 May 2012 KCM Europe Victory Campaign 2012 10 – 12 May 2012 Business Startup 17 – 18 May 2012 The Great British Business Show 17 – 18 May 2012 Unleash the Power Within - Anthony Robbins 18 – 21 May 2012 PDM12 (Plastics Design & Moulding 2012) 29 – 31 May 2012 Seni - The International Combat Sports Show 02 – 03 June 2012 RenewableUK Global Offshore Wind 2012 13 – 14 June 2012
16 The Autism Show 15 – 16 June 2012 Page 10th European Congress on Epileptology 30 September 2012 – 4 October 2012
Professional Pensions Show 2012 03 – 04 October 2012 BDTA Dental Showcase 2012 04 – 06 October 2012 Gastech 2012 08 – 11 October 2012 The Property Investor Show & OPP Live 2012 11 – 13 October 2012 Salon International 2012 13 – 15 October 2012 PROPOSEDDEVELOPMENT SCHEME World Travel Market 05 – 08 November 2012 Homes 2012 14 – 15 November 2012 HorseWorld Live 16 – 18 November 2012 HR Performance 21 – 22 November 2012 The State of the Art Meeting 2012 10 – 12 December 2012 Source: CBRE Hotels Research
Confirmed Weekend Barbican Events as at 13 th March 2012 We present in the table below a summary of the number of individual events which are planned to take place during weekends over the course of 2012 and may include the same event taking place across multiple time slots. Events at the Barbican range in genre from arts to trade exhibitions and examples include film screenings, technology workshops and performances by the London Symphony Orchestra.
MONTH NUMBER OF WEEKEND EVENTS March 50 April 70 May 53 June 39
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
July 31 August 26 September 8 October 8 November 11 December 7 Source: CBRE Hotels Research The City of London also has numerous historic and cultural attractions which will attract leisure demand including St Paul’s Cathedral, Tower of London, Bank of England Museum, Museum of London, Leadenhall Market, The Monument, Barbican Arts Centre, Guildhall Arty Gallery & London’s Roman Amphitheatre and Spitalfields Market. The proposed hotel is also located close to Shoreditch and Hoxton to the north which has numerous modern art galleries, bars, restaurants and nightclubs. We highlight below a list of notable tourist attractions in the vicinity of the proposed hotel:
Tourist Attractions in the Surrounding Area
St Pauls Cathedral Guildhall Art Gallery and London’s Roman Amphitheatre Tower of London Leadenhall Market Bank of England Museum The Monument
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Spitalfields Market Millennium Bridge Smithfields Clink Prison Museum Page
Mansion House Bloomberg Space Exhibition Centre Royal Exchange Galley All Hallows Brass Rubbing Centre St Stephen Walbrook Church Barbican Arts Centre (Home to London Symphony Orchestra) St Mary Le Bow Church Source: CBRE Hotels Research PROPOSEDDEVELOPMENT SCHEME
ECONOMIC IMPACT To measure the benefits of a project to the local economy and its economic impact we have assessed how a hotel can support the local economy in different ways – directly and indirectly. Examples of direct economic benefits include guest expenditure within the hotel and within its surrounding environment, such as shops, bars, restaurants and museums, etc. Indirect impacts include commissioning local suppliers and job creation.
Visitor Spend Based on the usual profile of corporate travellers in the upscale segment, we expect that the vast amount of this demand will come from business representatives and senior executives visiting the capital’s financial district. These guests can often have a large budget and are generally price-insensitive, their trips are meticulously planned with meetings scheduled in the City of London, West End and Canary Wharf where most major international companies are based. Breakfast meetings, lunches and evening meals are also likely to take place in these locations. Therefore, guests are likely to spend a reasonable amount of time in the hotel’s vicinity and local borough and hence local restaurants, bars and attractions will benefit from the business traveller.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
In addition, leisure guests staying at an upscale hotel in this location, away from the typical West End location, are more likely to be interested in art and cultural events and seek new and authentic experiences. They are also likely to be more interested in local attractions, maybe having already visited London or wanting to explore the City, Islington, Shoreditch and Bankside areas of London. With its museums, historical churches, art galleries, monuments and growing number of shops, bars and restaurants, the surrounding area is becoming a growing hub for the leisure guest and creates numerous opportunities for hotel guests to spend money in the local area. In general, research has shown that “one business tourist is worth at least three times the amount of one leisure tourist in employment and economic terms” (ICC Commission Report, 2005). Business visitor’s spend benefits many parts of the economy as well as hotels and travel services, such as retail, restaurants and entertainment facilities. The typical spend of a business traveller ranges from £355 to £550. As such, the corporate traveller is very important in terms of economic benefit to the local area. As we expect a higher share of business travellers for the proposed Montcalm hotel at Royal London House, we anticipate that the economic impact of corporate guests would be beneficial to the local area.
Employment In addition, the proposed hotel will also provide employment opportunities. As the hotel is aimed at the upscale market (4 – 5 star standard) with two food and beverage outlets,
leisure facilities and meeting/function rooms the hotel will require a good number of staff. 18
Staff levels will be at a much higher level than those required for a budget style operation Page
due to the facilities and service offered. The Employment Density Guide (second edition, 2010) is published by the HCA to assist appraisers in the estimation of employment generated by property development based on ‘employment density’ ratios. Ratios are generally expressed as the number of square metres per employee. Set out below are the ratios for uses relevant to the proposed hotel at
Royal London House. PROPOSEDDEVELOPMENT SCHEME
Hotel Uses
HCA Employment Density Guidance TYPE EMPLOYMENT DENSITY A1 High Street Retail 1 employee per 19 sq m (NIA) A3 Restaurants & Cafes 1 employee per 18 sq m (NIA) C1 Budget hotels 1 employee per 3 bedrooms plus casual staff C1 General hotels (3*) 1 employee per 2 bedrooms C1 Hotels (4* or 5*) 1 employee per 1.25 bedrooms
The types of hotel specified above have been retained as the benchmarking approach for consistency with the 1st Edition of the Guide. However, an alternative classification of hotel type, which aligns with that used in the hotels industry, is shown below, where hotel employment density is affected by: - Size of public areas - Occupation rates and turnover of rooms
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
- Ancillary operations i.e. conferencing & catering operations, health club etc.
Alternative Hotel Employment Density Guidance TYPE EMPLOYMENT DENSITY Limited service 1 employee per 5 bedrooms Budget 1 employee per 2.5 bedrooms Mid market 1 employee per 1.67 bedrooms Upper class 1 employee per 1.25 bedrooms Luxury 1 employee per 1 to 0.8 bedrooms
Staffing Implications Having due regard to the tables above we present below the estimated staffing levels for the proposed hotel.
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PROPOSEDDEVELOPMENT SCHEME
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
Staffing Numbers – Consented versus Proposed Hotel Schemes PROPOSED HOTEL SCHEME Number of Bedrooms 255 Classification Upper Class Staff per room* 1.25 Estimated number of staff 204 Note*: As per HCA Alternative Hotel Employment Density Guidance Source: HCS/CBRE Hotels Estimates
MONTCALM HOTEL CONCEPT There are currently two Montcalm hotels operating in London: The Montcalm located in the West End on Great Cumberland Place, close to Marble Arch and The Montcalm Chiswell Street Hotel located in the City of London on Chiswell Street. The Montcalm located in the West End was purchased by our cleint in 2007 and has subsequently undergone a major refurbishment to upgrade the property. The hotel now operates with 153 bedrooms, two restaurants, two bars, club lounge and spa including an indoor pool. Our client has also refurbished part of The Brewery on Chiswell Street, a listed building, into a second Montcalm hotel which opened in July 2011 with 235 bedrooms, 6 meeting
20 rooms, two restaurants and two bars. Both hotels are operate in the upscale market providing good quality contemporary accommodation, as can be seen below, suitable for Page the corporate and leisure guest. PROPOSEDDEVELOPMENT SCHEME
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
Source: Montcalm website Our client also operates a portfolio of mid market and limited service hotels mainly located in the West End of London in areas such as Paddington, Kensington and Hyde Park which operate under the name Shaftesbury Hotels including two operating as Best Western hotels. In total there are circa 17 hotels within the Shaftesbury Hotel group. Hence, the company benefits from group marketing and operational benefits. Due to the size of the portfolio the hotels benefit from cost savings on group purchases for goods and services such as linen, food, beverage supplies and contract cleaning staff. Hence, the proposed Montcalm Hotel at Royal London House will also benefit from the advantages of being operated as part of a larger hotel group and growing hotel brand. A third Montcalm Hotel on City Road is also being developed by our client, which is due to
21 open in mid 2013 providing 273 bedrooms. This hotel will be positioned above the two
existing Montcalm hotels providing larger bedrooms. We understand that the proposed Page hotel at Royal London House will be in a similar style to the Montcalm Hotel at Chiswell Street and both hotels will have cross-selling benefits and hence will be advantageous to driving demand and occupancy. The Montcalm and Shaftesbury hotels have a loyalty scheme in place called Premier Club Rewards. Members enjoy privileges including earning free nights, complimentary room upgrades and free spa treatments. This loyalty scheme will also encourage existing and PROPOSEDDEVELOPMENT SCHEME new members to use the proposed hotel, rather than a competing hotel in the area. After the first six months of trading the Montcalm Chiswell Street Hotel achieved an average occupancy of circa 73.0%, highlighting good demand for hotel accommodation in the area. This is very strong performance for the first year of trade. This hotel will be the main competition to the subject Montcalm at Royal London House with not many other competing hotels in the direct vicinity. Hence, based on the performance of the sister hotel at Chiswell Street (along with the local hotel market described later in this report), in our opinion the proposed hotel will perform well at Finsbury Square.
HOTEL COMPONENTS The following comments are based upon the floors plans prepared by 5plus Architects and are the basis for our demand appraisal.
Bedrooms We consider there to be an opportunity for a 255 bedroom upscale hotel. The proposed development is to be branded a Montcalm Hotel, positioning itself within the upscale four to five star market. Being located close to the Montcalm Chiswell Street Hotel, which is already establishing itself in the marketplace as a quality hotel operator with high customer
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
service, the proposed hotel at Royal London House will be able to make an impact within the market and thus achieve a sustainable performance level. We are of the opinion that the envisaged quality of room stock and its location close to Broadgate, Liverpool Street and Hoxton with limited competition in the direct vicinity will enable the proposed hotel to attract and accommodate corporate, conference as well as leisure demand. We would expect the following facilities to be included in the standard en-suite bedrooms: King size bed with duvet; En-suite bathroom with power shower; Air-conditioning; Flat-screen TV with on-demand films and internet; WI-FI; Tea and coffee making facilities; Laptop size safe; Mini-bar; Direct dial telephones with voicemail; Ipod docking station; Iron and ironing board;
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Work space with computer point; and Page
Work space. Suites should be equipped to a higher standard and range of facilities and amenities. In addition to the above, suites should also include: A large size room;
Bathrooms should, where possible, be four piece; PROPOSEDDEVELOPMENT SCHEME Sofa and/or arm chairs; Oversized work space. From the plans provided we understand that there are a number of disabled compliant rooms. There are also a number of rooms with inter-connecting doors which are being used as suites or can be used as family rooms, especially as the hotel is likely to appeal to the leisure market at weekends and during holiday periods, providing a cheaper alternative to similar standard hotels located in the West End.
Food and Beverage As the location of the hotel, at the border of the London Borough of Islington with the City of London, is close to both commercial and residential areas, the hotel is likely to attract not only hotel residents but also non residents from the local area. Behind the property is a residential development, there are also numerous residential apartments as part of the Barbican development and new residential apartments are currently being developed within Heron Tower close to Liverpool Street Station and to the north of the property towards Hoxton and Shoreditch. We have therefore assumed that the brasserie/restaurant located on the ground floor fronting Worship Street will be open all day, serving breakfast, lunch and dinner. We have also assumed that the lounge bar located on the ground floor
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
fronting Finsbury Square will also be open all day and will provide smaller snacks, afternoon tea and beverages. The main restaurant together with lounge bar should be able to attract a wide range of clientele. Breakfast and lunch service should be flexible to offer a formal but rapid service to suit corporate guests and meetings. The evenings are likely to provide demand from hotel guests, corporate entertaining, local employees and residents. There will be direct access from Worship Street which has an attractive wood paneled frontage and will not obviously be part of the hotel. The Chiswell Street Dining Rooms located at the Montcalm The Brewery are already trading well with good demand particularly at lunchtime which has high external trade, however, also has good demand, in the evening and weekends from hotel guests and local residents. We have been advised by the hotel operator, that the average spend per head at the Chiswell Street Dining Room since opening (between July 2011 and January 2012) is £31.97. This has grown from a starting average spend per head of £28.84 in July 2011 rising to £40.72 in December 2012. Therefore, we would expect similar demand at the subject development, albeit Worship Street is a slightly quieter street compared to Chiswell Street. However, once the reputation of the restaurant has been established the restaurant will benefit from good repeat external trade. We have been advised that all the food and beverage operations within the hotel will be operated by an experienced third party and hence we anticipate that all areas will be busy. It is important to create the right atmosphere and ‘buzz’ plus quality food which will entice new custom.
23 The lounge bar located on the ground floor fronting Finsbury Square will occupy prominent space either side of the hotel reception and main hotel entrance. The location of this facility Page will appeal to residents of the hotel and also to occupiers of the surrounding office buildings with limited competing food and beverage facilities in the direct vicinity of Finsbury Square. Offering a flexible menu provision should enable the facility to attract a steady trade throughout the day. This area should be the hub of the hotel and therefore the design should reflect this. PROPOSEDDEVELOPMENT SCHEME Conference and Banqueting Facilities The current plans provided by 5plus Architects include meeting facilities within the lower ground floor. There are four rooms which provide flexible space and partitioning which is important so that conference and event organizers have a choice of room sizes to choose from to suit different type of events. The four meeting rooms proposed at Royal London House can also be merged into two larger rooms or one big function room which can seat up to 160 delegates. Hence, the space can be used for small or larger meetings, presentations, corporate events, private dinners and functions. There is a satellite kitchen adjacent to the function area to cater for events. Our research has shown that meeting rooms within the hotels of competitive relevance are very popular with the local corporate community and as such we are of the opinion that this facility will be advantageous and will provide a valuable amenity. The following list outlines our recommendations of facilities that should be included in the conference facilities: Air-conditioning; Flexible lighting system; State-of-the-art audio visual equipment; and
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
Wi-Fi.
Leisure Facilities The proposed hotel includes in the lower ground floor a fitness and spa facility. The facility includes the following: Fitness room; Treatment rooms; Sauna/steam room; Indoor pool; Aerobic Studio; Reception; and Male and female changing rooms. Due to its locational qualities we are of the opinion that this facility will be able to attract members from the corporate market as well as use by hotel guests. We have also assumed that the facility will become a popular day spa and thus the facility will also generate revenue from ad-hoc visitation and day spa usage. This facility should also help drive leisure demand.
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PROPOSEDDEVELOPMENT SCHEME
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Proposed Development Scheme
KEY ASSUMPTIONS Within our projected demand for the proposed Montcalm at Royal London House we have assumed the following:- The hotel has been developed and is open and ready for trade assuming estimated market conditions. The hotel will open at the start of 2014. It will take four years to reach a stabilised level of trade. The hotel will be operated by Montcalm Hotels with the food and beverage facilities operated by a third party. New hotels that have gained planning consent or are under construction and are located nearby which will provide competition. As stated above we are of the opinion that the proposed hotel development being branded will have a positive impact on the future performance of the hotel as well as improve its ability to be absorbed into the market place. Benefits include the following: Advantage of being part of a brand with an established sales and reservation network. Wider distribution of sales and marketing literature through the brand network. Benefit from referral business from other hotels within the wider portfolio.
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Head office support and clustering opportunities in specialist overhead departments
such as marketing, financial/accounts and personnel. Page
Access to specialist services such as technical engineering and interior design/décor. Economies of scale in terms of purchasing power being associated with a national brand.
CONCLUSION PROPOSEDDEVELOPMENT SCHEME We are of the opinion that an upscale hotel with the envisaged ancillary facilities would match the surrounding area well. The numerous financial, legal corporate offices and headquarters located nearby, residential areas, tourist attractions, the ease of travelling to Canary Wharf and Excel to the east and the West End to the west would marry well with such a hotel offering and would complement and provide valuable services and amenities to the Borough and surrounding occupiers.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
INTRODUCTION We attach as an appendix a review of the London Hotel Market as a whole. However, in the following section we concentrate on the supply and performance of the local hotel market to the proposed development at Royal London House. The surrounding area to Finsbury Square, which is located in the Borough of Islington at the northern edge of the City of London and the south western end of Hackney, is predominantly supplied with a high number of office developments. To the east of Finsbury Square is Broadgate Circus which is a large office development. However, towards Shoreditch and Hoxton to the north and Barbican to the west there are several residential properties and apartments. In addition, Shoreditch and Hoxton has evolved fairly recently as a ‘trendy’ and fashionable area. It has a thriving arts community and vibrant culture with numerous galleries, public art spaces, bars, clubs and restaurants opening in converted disused warehouses. It is also home to various media, design and entertainment companies, has numerous upscale residential developments and appears to be becoming more and more popular with young urban professionals. Around Finsbury Square and towards Broadgate there are some new office developments underway which will be completed in the next few years. In addition, there are some newly completed office refurbishment schemes.
LOCAL HOTEL SUPPLY
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Current Supply Page There are several hotels now located within the City of London which the proposed hotel
will compete with in terms bedroom supply. In addition, hotels located in the Borough of Islington and Hackney will also compete to some extent with the subject site. The City and City fringe is becoming an increasingly popular location for hotel developers and operators to benefit from the strong corporate business which tends to be higher rated than leisure LOCALHOTEL MARKET business. There was only one hotel located in the City in 1999 and now there are approximately 15 hotels, showing the growing demand of the area. The City is still perceived by some as a five day market with lower demand at weekends, however, this image is changing as visitors realise the ease of travel to the West End by the underground. In addition, there are numerous popular tourist attractions located within the City such as St Paul’s Cathedral and Tower of London and its proximity to the numerous attractions on the South Bank and Bankside including Borough Market, Design Museum, HMS Belfast, Globe Theatre and Tate Modern. Furthermore, the area around Liverpool Station, Shoreditch/Hoxton, Smithfields/Farringdon and the Barbican are busy at the weekends with local residents and leisure tourists with numerous galleries, bars, restaurants and nightclubs which creates a lively atmosphere. Hence the development of further hotels in the area. Finsbury Square and the immediate surrounding area, although located in the Borough of Islington, is perceived to still be part of the City of London and is dominated by office developments. More recently, there has been an increase of hotel developments in the City of London and fringe of City locations. However, within the City of London, the majority of hotel developments are located towards Tower Hill and the Tower of London with other developments towards St Pauls and the western edge of the City. The hotels closest to the subject property are the new Montcalm Hotel The Brewery at Chiswell Street and the Apex London Wall. The nearest hotels in the Borough of Islington are predominantly located towards Islington and Kings Cross, although the Thistle Barbican, The Zetter and Holiday
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
Inn Express London City are the nearest to Finsbury Square. The hotels are a mixture of standards ranging from branded budget operations to mid scale and upscale hotels. However, within the City of London there is a prominence of upscale hotels to service the national and international corporate market. We highlight in the following map the main existing hotel supply in the surrounding area in relation to the subject site:
Local Existing Hotel Supply
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LOCALHOTEL MARKET
Source: Microsoft MapPoint
HOTEL NO. ROOMS Malmaison London 97 Andaz Liverpool Street London 267 Crowne Plaza Hotel London The City 203 Apex London Wall 89 Threadneedles 69 Zetter Hotel 59 Express by Holiday Inn 224 The Hoxton 208 Crowne Plaza Shoreditch 196 Indigo Tower Hill 46
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
HOTEL NO. ROOMS Novotel Tower Bridge 203 Grange City Hotel 318 Apex City of London 179 DoubleTree by Hilton 583 Grange Tower Bridge 370 TotalTotalTotal 333,,,111 Source: CBRE Hotels Research As far as competitors to the proposed hotel scheme are concerned, we have primarily looked at properties which are similar to the proposed development in terms of their style, concept, location and target clients. The properties which we have identified as potential competitors are located in the vicinity of the subject site. There are numerous similar standard hotels located around Tower Hill, which the subject hotel will compete with in terms of bedroom supply, however, these operate in a sub market and a cluster of the City. For our demand appraisal we have excluded these hotels and concentrated on those located further north and west within the City of London and in the Borough of Islington. In order to assess the demand profile of the local hotel market we have purchased a benchmark survey produced by STR Global, which provides the key performance indicators (KPIs) of a selection of hotels in the area including hotels in similar City fringe locations. We have excluded hotels operating in the budget sector and those located further afield. The
hotels we have included are: Crowne Plaza Hotel London The City, Malmaison London, 28 Andaz Liverpool Street, Apex London Wall and The Threadneedles Hotel. More detail on Page these properties as well as their recent key performance indicators is provided below.
Competitive Hotels of Relevance
When analysing the future competitive set for the proposed development, we have focused LOCALHOTEL MARKET on hotels with comparable concepts/brands in a similar location. We have analysed the likely origins of demand for a hotel of the proposed development’s style and standards and included the following properties in our competitive set:
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
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Page Source: Microsoft MapPoint
Malmaison London The Malmaison London is located on Charterhouse Square, close to Smithfield Market in LOCALHOTEL MARKET close proximity to the City of London and within easy walking distance to Barbican and Farringdon tube stations. The hotel follows a luxury, design-led boutique concept and is hence likely to become one of the major competitors of the proposed development. Whilst this asset is well located to attract corporate clients (financial services and other corporate customers from the City, as well as media and design companies which are situated in the local area), the location is less popular for leisure customers. In addition, the hotel is very discreet and does not benefit from visibility.
The property comprises 97 rooms in various categories, as well as two meeting/function rooms and a basement restaurant and bar. There is a lounge area which is situated in the lobby of the hotel and a small gym (cardiovascular equipment and free weights).
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
Andaz Liverpool Street The Andaz Hotel London Liverpool Street was the first Andaz branded property, which is Hyatt’s version of the boutique/design led hotel concept. The property is situated at Liverpool Street station and hence benefits from excellent accessibility by public transport. It is situated close to some key demand generators such as banks and financial institutions in the City of London. Spitalfields Market is also a short walk from the property.
The hotel has a total of 267 guestrooms in a contemporary style and whilst we understand that the hotel opened during the 1990’s, rooms have been well maintained and are finished to a high standard. The asset has numerous food and beverage outlets, including one main restaurant and bar, as well as 13 meeting rooms with a maximum capacity for 250 delegates theatre style.
Apex London Wall
The Apex London Wall is located south-west of Liverpool Street Station, close to Moorgate 30 and the Bank of England. The property has 89 bedrooms and suites finished to a 4 star Page boutique standard, with all rooms including both business and entertainment facilities. The
Apex also features a contemporary restaurant with private dining facilities, a small bar and a gym for the exclusive use of hotel guests. The property is finished to a good standard throughout and is likely to attract both corporate and leisure guests due to its proximity to the City of London and numerous tourist attractions. LOCALHOTEL MARKET
Crowne Plaza London The City The Crowne Plaza London The City is located towards the edge of the City of London, in immediate proximity to Blackfriars tube station. The property occupies a prominent position (with proximity to the River Thames) and hence benefits from a good level of visibility. In addition, its location towards the west of the City facilitates access to tourist areas of London such as theatre land, Covent Garden, The Strand, etc. Tourist attractions such as St. Paul’s Cathedral are in the immediate vicinity of the hotel, which we would therefore expect to benefit from corporate demand during the week, and some leisure demand on weekend as well as during school/bank holiday periods.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
The property has 203 rooms, including four suites, and is arranged over a total of seven stories. The asset has two restaurants, a cocktail lounge and six dedicated meeting and function rooms. The property seems to be in good condition and state of repair.
Threadneedles Hotel London The Threadneedles hotel is a luxury boutique hotel that belongs to the Eton Collection. It is situated within the City of London, in very close proximity to Bank underground station. The hotel features individually designed guestrooms, limited meeting and banqueting facilities as well as a restaurant and a lively bar.
The hotel comprises a total of 69 luxuriously furnished, well appointed guestrooms in various categories, with en-suite bathrooms. All bedrooms
are decorated in a coherent, contemporary style 31
and feature a relatively corporate atmosphere. Page
Whilst the condition of the hotel overall is good, some minor up keeping works are required, particularly in the guest bedrooms. LOCALHOTEL MARKET
Competitive Hotels of Relevance - Key Performance Indicators We have analysed key performance indicators (occupancy, ADR and RevPAR) for the chosen competitive set of hotels (as detailed above and summarised below) from 2006 – 2011 and Year to Date (YTD) January 2012 compared to 2011. The following graph sets out the annual performance of the selected hotels during 2006-2011. Competitive Hotels HOTEL NUMBER OF BEDROOMS Malmaison London 97 Andaz Liverpool Street 267 Apex London Wall 89 The Threadneedles Hotel 69 Crowne Plaza The City 203 Total 725 Source: STR Global, 2012
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
Key Performance Indicators (KPIs)
Royal London House Proposed Competitor Set KPIs £250 82
80
£200 78
76 Occupancy %Occupancy £150 74
72 ADR/RevPAR
£100 70
68
£50 66
64
£0 62 2006 2007 2008 2009 2010 2011 YTD Jan 11 YTD Jan 12
ADR RevPAR Occupancy
2006 2007 2008 2009 2010 2011 YTD JAN 11 YTD JAN 12 ADR £188.09 £205.36 £208.10 £177.50 £189.44 £197.70 £190.14 £187.37
RevPAR £145.83 £162.36 £149.22 £134.35 £153.35 £160.31 £135.84 £129.94 32 Occupancy % 77.5 79.1 71.7 75.7 80.9 81.1 71.4 69.3
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Source: STR Global, 2012 The chronology of the recent economic downturn seems to be coherent with historic periods of performance decline, when occupancy was the first performance indicator to fall with the decline in ADR usually following a few months later. The negative LOCALHOTEL MARKET development of hotel performance began in the second half of 2008 with the collapse of the financial markets which led to a global recession. This resulted in a sharp fall in bookings, particularly in upscale hotels which are focused on corporate clientele, as visible in the occupancy decline in the chart above during 2008, which fell by 7.4 percentage points compared to 2007. Since 2008, occupancy has shown strong growth increasing to a high, over the period under review, to 81.1% in 2011. London’s hotels recovered from the economic downturn more quickly than forecast, in part as a result of the weak Pound against the Euro making London a cheaper destination from European travellers. Overseas travel by UK residents also became more expensive and hotels also benefited from UK visitors taking advantage of good hotel deals and those doing ‘staycations’. In spite of new hotel supply in the City of London with the opening in 2011 of the DoubleTree Hotel at Tower Hill in March with 583 bedrooms, Indigo Hotel with 48 bedrooms, Grange Tower Hill on Prescott Street with 380 bedrooms, the sister hotel to the subject site the Montcalm The Brewery opening with 235 bedrooms in July and a Travelodge with 75 bedrooms, hotels within the benchmark set have still shown growth. The previous graph highlights that after the initial fall in occupancy at the end of 2008, ADR came under pressure in 2009 as hotels competed for reduced business. During 2009 ADR fell by 15% from £208.10 in 2008 to £177.50. However, good growth in rate was experienced in 2010 and 2011 of 7% and 4% respectively.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
In terms of RevPAR, these trends caused a fall of RevPAR in 2008 of 8% (due to occupancy decline) and a further fall of 10% in 2009 (ADR decline) with strong growth of 14% in 2010 and 5% in 2011. For January 2012 (the latest available data) compared to January 2011 there has been a decline in both Occupancy and ADR of 2.1 percentage points and 1.5% respectively. This could be a result of the unsettling economic situation regarding the Euro which decreased international travel plus January is generally a quieter month for hotel demand. However, in spite of the small decline, the hotels are still trading at strong levels and forecasts for 2012 are good taking consideration of the London Olympics and the Queen’s Diamond Jubilee celebrations.
Seasonality Trends
Weekday/Weekend Trends As part of our analysis of the sample market we have analysed weekday versus weekend occupancy to understand the demand profile of the area. Due to the location of the hotels within the sample within the City of London, its nature as a corporate based market and general demand trends of this area of London, the sample set is busiest during the period of Monday through to Thursday nights, with a clear peak on Tuesday and Wednesday. Occupancy is lowest on Sunday night. This is typical for a corporate led market. Whilst occupancy generally experiences significant drops on Friday night, it increases on Saturdays
suggesting some degree of leisure and weekend business, which is likely to be driven by UK 33
and European leisure guests visiting London for the weekend or attending exhibitions and Page
events at either Excel, the O2 or the Barbican. The graphs below illustrate the occupancy and ADR performance of the selected hotels by day of the week, on annual averages over three years: LOCALHOTEL MARKET Hotels of Competitive Relevance ---Weekly Occupancy 100
90
80
70
60 Occupancy% 50
40
30 Sun Mon Tue Wed Thu Fri Sat
Feb 09 - Jan 10 Feb 10 - Jan 11 Feb 11 - Jan 12
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
Hotels of Competitive Relevance ---Weekly ADR 260.00 240.00 220.00 200.00 180.00
ADR £ ADR 160.00 140.00 120.00 100.00 80.00 Sun Mon Tue Wed Thu Fri Sat
Feb 09 - Jan 10 Feb 10 - Jan 11 Feb 11 - Jan 12
Source: STR Global, 2012 Similar to occupancy, ADR seems reasonably low on Sunday nights and at much higher levels during Monday-Thursday, peaking on Tuesdays and Wednesdays. As with occupancy, ADR falls significantly on Friday nights when corporate travellers are reduced. However, contrary to occupancy, ADR falls further on Saturday nights, to its lowest point of the whole
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week. Since the City of London, is not a typical leisure location, hotels in the area tend to
lower their rates on Saturdays to appeal to leisure clients and drive volume, which in turn Page explains the increase in occupancy on Saturday nights.
Monthly Trends
When analysing the monthly evolution of occupancy over the 2007 – 2011 period, there LOCALHOTEL MARKET seems to be a similar trend between 2007 and 2011 respectively, however, the years in between highlight different patterns showing the decline and recovery from recession. The trend for 2008 clearly shows the fall in demand as the year progressed with the start of the ‘credit crunch’ and the hotels’ proximity to financial companies which were the first to curb international travel. Conversely 2009 shows an increase in demand particularly towards the end of the year with further pronounced growth in 2010. 2007 and 2011 show similar patterns throughout the year and hence could represent a more ‘stable’ pattern. This shows that demand for the hotels is strong throughout the year with only a 1.3 percentage change (in 2011) between the highest occupancy of 82.4% in June and the lowest of 81.1% in January and December. This highlights the strength of the London market being a year round destination.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
Hotels of Competitive Relevance ––– Monthly Demand
84
82
80
78
76
74
Occupancy% 72
70
68
66
64 JFMAMJJASOND
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2007 2008 2009 2010 2011
Source: STR Global, 2012 LOCALHOTEL MARKET Future Hotel Supply In order to assess hotel projects which are currently being developed or planned and which may become competitive to the subject development, we have made enquiries with the planning departments at the London Boroughs of Islington, Hackney, the City of London Corporation and Visit London. From our research we determined the following proposed hotel developments which have been granted planning consent in the surrounding area:-
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
PROPOSED HOTEL/ EXTENSION NUMBER OF BEDROOMS OPENING DATE BOROUGH Apex Temple Court, Sergeants Inn, EC4Y 185 2012 City D&D London, 3-4 South Street, EC2M 80 2012 Islington Montcalm City Road 273 2013 Hackney Apex City of London, Mark Lane, EC3R 54e 2013 City Serviced Apartments, Philpot Lane, EC3M 48 2013 City Cheval Apart Hotel, Lower Thames Street 77 2013 City 2 Dorset Rise, EC4Y 258 2013 City New Roman House 251 2013 Hackney 335-357 Old Street 128 2013 Hackney Four Seasons Heron Tower, Bishopsgate, EC2N 190 2014 City 10 Trinity Square, EC3N 120 2014 City Proposed art'otel 350 2014 Hackney 73-75 Scrutton Street, Shoreditch 81 2014 Hackney 359 Kingsland Road, Kingsland 290 2014 Hackney 35-42 Charlotte Road 65 Unknown Hackney Millennium Bridge House, High Timber Street, EC4V 348 Unknown City Stone House, Bishopsgate, EC2 Unknown Unknown City TotalTotalTotal279827982798 Source: CBRE Hotels Research It is important to note that we have excluded proposed hotel developments with a limited
36 number of bedrooms (under 40 bedrooms) or those located towards Islington/Finsbury Park or further east towards Bethnal Green. Page
The above table shows that there are numerous developments which have been granted planning consent, totalling 2,798 bedrooms in the boroughs of Islington, City of London and Hackney. There are some other schemes which have obtained planning consent, LOCALHOTEL MARKET however, we understand have been put on hold and therefore have not included these within the table above. We feel that the most competitive in terms of location, style and concept will be sites with consent located closer to the proposed site and those aimed at the boutique/full service markets, totalling 950 bedrooms, as follows.
Future Competitive Hotel Supply with Planning Consent PROPOSED HOTEL/ EXTENSION NUMBER OF BEDROOMS OPENING DATE Apex Temple Court, Sergeants Inn, EC4Y 185 2012 D&D London, 3-4 South Street, EC2M 80 2012 Montcalm City Road * 273 2013 Apex City of London, Mark Lane, EC3R 54e 2013 Serviced Apartments, Philpot Lane, EC3M 48 2013 Four Seasons Heron Tower, Bishopsgate, EC2N 190 2014 10 Trinity Square, EC3N 120 2014 TotalTotalTotal950950950 Source: CBRE Hotels Research Note: e – extension * Owned by our client
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
We highlight these hotel developments on the following map. Those developments in the immediate vicinity are shown as named markers, whilst other developments are shown as numbered markets with a key below.
Proposed Hotel Supply
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LOCALHOTEL MARKET
Source: Microsoft MapPoint
MAP MARKER PROPOSED HOTEL/ EXTENSION 1.1.1. Cheval Apart Ho tel, Lower Thames Street 2.2.2. 2 Dorset Rise, EC4Y 3.3.3. New Roman House 4.4.4. 335 -357 Old Street 5.5.5. Proposed art'otel 6.6.6. 73 -75 Scrutton Street, Shoreditch 7.7.7. 359 Kingsland Road, Kingsland 8.8.8. 35 -42 Charlotte Road 9.9.9. Millennium Bridge House, High Timber Street, EC4V 10.10.10. Stone House, Bishopsgate, EC2 Source: CBRE Hotels Research
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
In addition, we are also aware of two schemes in Shoreditch for boutique style hotels where planning applications have been submitted however are awaiting decisions. These would create some competition if consented and developed. There are also two hotel developments proposed on Minories towards Tower Gateway, plus other proposals to the western end of the City, others further north in the Borough of Islington and in Hackney, however, either they have been put on hold or no definite timescale has been confirmed, or they are at the budget end of the market or type of operation is unknown and therefore we have excluded these from our demand study. We comment as follows: The Montcalm City Road will be one of the strongest competitors due to its location, however, being part of the same group of hotels as the proposed scheme there will be benefits of cross selling and marketing. The D&D London will also provide strong competition being located nearby, just north of Finsbury Circus. This hotel is due to open in Summer 2012 and will comprise 80 bedrooms and two restaurants (including one roof top restaurant). This is the first hotel operation for the D&D group which specialises in the operation of 20 high quality restaurants in London including Coq d’Argent, Le Pont de la Tour and Quaglino’s. We understand the hotel will be operated in an upscale boutique style. Apex Hotels operate in a similar style and market to the Montcalm hotels, however, their new hotel which opened on 1st March 2012 at Temple Court is located further
afield (situated off Fleet Street) and therefore will not be as competitive as some of the 38
other new developments. Page
Apex Hotels are also planning a 54 bedroom extension to their hotel located close to Tower Hill, which will front Mark Lane. We understand that this is due to open next year. The Apex City of London is located closer to the subject site than their new
Temple Court property and hence will be more competitive. LOCALHOTEL MARKET Planning consent has been granted for a 350 bedroom hotel proposed to be operated as an art’otel at the corner of Great Eastern Street and Old Street. It is unknown when the development will be completed and if the total 350 bedrooms will be developed. The hotel will operate in a similar market to the proposed Montcalm hotel, however, due to its location further away towards Shoreditch we have assumed that not all bedrooms will compete with the subject proposed development. The Four Seasons Heron Tower and new hotel development at 10 Trinity Square are both due to open in 2014. Both hotels will operate in the luxury end of the market. The Four Seasons will be located reasonably close to Royal London House, however, it will have a large number of suites with high tariff rates. The Trinity Square hotel will also have some high rated suites and is located further away towards Tower Hill. Hence, whilst these hotels will compete in terms of bedroom supply they will not be direct competitors to the proposed Montcalm Hotel at Royal London House, operating in a different market and price point. The benefit of the subject site is that the owner is a developer/operator and therefore the proposed hotel standard is already known. Montcalm, being an upscale, quality brand with ancillary meeting, food and beverage and spa facilities will complement the financial and other companies located in the local area together with offering suitable accommodation for the leisure guest.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
Comment Although there are a number of potential new hotel developments in the area (up to 2,798 additional rooms within the next five years), this illustrates the interest by developers and operators in the wider area, attracted by the performance of the local hotel market, the strength of the financial district and ongoing developments in the area. In our opinion the future supply does not outweigh future anticipated demand. Taking into account the large number of corporate visitors to the City, which is anticipated to grow as the economy improves in the UK and other source markets, and leisure visitors coming to see the historic core of the capital, we believe there to be an opportunity for further hotel development in the area. Furthermore according to a document called ‘Hotel Info’ published in July 2011 by the City of London Corporation “the London Plan seeks an additional 40,000 hotel rooms by 2031 and an improved quality and distribution of visitor accommodation and facilities……Business visitors make a vital contribution to the success of the City. It is important that these visitors are adequately catered for and the hotel provision in the City meets their needs and requirements”. Hence, locations on the fringe of the City will also be in a prime position to cater for the business and leisure visitor such as Royal London House. We have illustrated in the demand section above that hotels in the area are trading at above 80% occupancy. This percentage is of significance as from our experience most hotel
39 operators would consider developing further bedrooms at over 70-75% occupancy to
protect their position and keep demand within a localised area. With hotels trading at over Page 80% and 90% during the week, there is likely to be a significant amount of frustrated demand, i.e. demand that is unable to be accommodated in the area and is forced to seek accommodation in other areas of London. It is therefore likely that currently there is a
proportion of roomnight demand in the southern area of Islington, the City and western LOCALHOTEL MARKET end of Hackney and the surrounding area that cannot be accommodated in the existing hotels and thus are forced to seek accommodation further a field such as the West End or new hotel markets on the South Bank, Excel and Canary Wharf.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
Future Competitiveness of Hotels Above we have listed those hotels which we believe to represent the future competitive set for the proposed hotel development at the Royal London House. However, as the hotel supply in the area grows and as the proposed hotel at Royal London House establishes itself in the marketplace, those hotels located further a field will lose some of their competitiveness. We present in the table below the number of competitive bedrooms in the market of relevance over the next ten years, taking into account the opening of the proposed Montcalm hotel at Royal London House in 2014.
NUMBER OF DAILY ROOMS AVAILABLE Hotels 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Current Supply Malmaison London 97 97 85 70 70 70 70 70 70 70 70 Andaz Liverpool Street London 267 267 267 200 200 200 200 200 200 200 200 Crowne Plaza Hotel London The City 203 203 150 100 100 100 100 100 100 100 100 Apex London Wall 89 89 89 89 89 89 89 89 89 89 89 Threadneedles 69 69 69 69 69 69 69 69 69 69 69
New Supply Royal London House 255 255 255 255 255 255 255 255
Montcalm Chiswell Street 235 235 235 235 235 235 235 235 235 235 Montcalm City Road 137 273 273 273 273 273 273 273 273 Apex Temple Court 0 0 0 0 0 0 0 0 0 0 Four Seasons 0 0 0 0 0 0 0 0 Apex Hotel House, Mark Lane (extension) 0 0 0 0 0 0 0 0 0 Philpot Lane Serviced apts 48 48 48 48 48 48 48 48 48 D&D London, 3-4 South Street 40 80 80 80 80 80 80 80 80 80 10 Trinity Square 0 0 0 0 0 0 0 0 Proposed art'otel 150 150 150 150 150 150 150 150
40 Total Daily Rooms Available 725 1,000 1,160 1,569 1,569 1,569 1,569 1,569 1,569 1,569 1,569
Growth in Supply 37.9% 16.0% 35.3% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Page
Source: CBRE Hotels Estimates We comment as follows:
The Malmaison and Crowne Plaza Hotel are located slightly further away to the west LOCALHOTEL MARKET and we are of the opinion that their competitiveness will reduce once the proposed hotel opens. Similarly, once the proposed hotel opens, we are of the opinion that not all the bedrooms at the Andaz will be competitive. The Apex Temple Court, which opened on 1st March 2012, is located off Fleet Street, and again located further away from the subject property towards the western boundaries of the City. The Apex will generate its own demand from more local corporates on Fleet Street and hence we do not assume that the hotel will be directly competitive to the subject proposed hotel. We have also shown that a number of new hotels due to come on stream will have only partial competitiveness against the proposed hotel due in large to locational aspects, but also envisaged product and design style, hotel classification and branding qualities as follows: We do not feel that the development at Philpot Lane will be competitive once the proposed hotel opens due to its small size and location further south towards Monument. The Four Seasons and the proposed hotel at 10 Trinity Square will be aimed at the luxury end of the market with a high proportion of larger suites which will have a higher price point than the subject hotel and therefore we do not consider that these hotels will be directly competitive in terms of target markets.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
The proposed art’hotel at the corner of Great Eastern Street, Old Street and Rivington Street has planning consent for 350 bedrooms, however the development has not commenced and it may be that a smaller hotel scheme is developed. Hence, we have assumed that 150 of the bedrooms will be competitive to the subject hotel due to its size and location.
DEMAND GENERATORS Our assessment of demand has been based upon our foregoing research of the City fringe areas and City of London itself, discussions with local hoteliers including the proposed operator who have recently opened a similar hotel at Chiswell Street. In the following section we highlight the main sources of bedroom demand that we envisage will generate demand for the proposed hotel development. Hotel demand in the local area is primarily generated by the multi-national financial and legal institutions based within the City of London but also the media and design based companies located towards Old Street and Shoreditch and the increasing leisure demand generated by local tourist attractions, the restaurant, bar and club culture associated with Shoreditch and hotels in the area providing more competitive weekend rates for leisure visitors. In the following pie chart we present our assumed market mix for the hotels we have taken to be representative for the local market.
41 Assumed Market Mix - 2011 Page
Rack Rate 5% LOCALHOTEL MARKET Leisure/Other 35%
Corporate 55% Conference and Incentive 5%
Source: CBRE Hotels Estimates We comment as follows:
Rack Rate Demand Segment The Rack Rate demand segment is made up of individuals who have not booked their hotel requirements in advance and have to pay full rate rather than a negotiated rate. Hoteliers situated in areas of high demand are able to generate a level of rack rate business compared with hotels in areas with lower demand and who offer continuous discounted rates to drive occupancy.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
With the area being predominantly corporate led and which is still developing as a leisure destination, there is unlikely to be a large amount of walk-in leisure business, ie guests that pay published rates due to last minute requirements. However, there could be a reasonable amount of last minute corporate bookings. We are therefore of the opinion that this market represents 5% of total roomnight demand. Based upon the business levels at weekends hoteliers have stated that they offer competitively discounted rates in order to attract demand. In light of the number of attractions located in the City of London and its growing reputation for competitively priced weekend rates compared to the West End, there is likely to be reasonable demand for leisure guests, however, below that of the corporate traveller.
Corporate Demand Segment Corporate travellers are defined as business people attracted by businesses in the area. Most demand from the corporate segment is generated between Monday and Thursday nights, declines Friday and Saturday nights, and increases slightly on Sundays (albeit this trend has decreased in the current economic climate). The typical duration of occupancy is one to three days and is characterised by single occupancy. Historically, this demand segment has been somewhat less price sensitive than other segments. The commercial segment includes smaller sub-segments, such as corporate transient and corporate volume discount guests. Commercial transient demand includes
individuals visiting the companies in the immediate area or passing through town. Often, 42
these types of travellers are influenced by quality of the hotel, brand loyalty, and location. Page
Corporate volume demand is generated by local firms and includes employees of the company or others doing business with the firm. Rates are often pre-negotiated with the hotel and are sometimes discounted in return for a high number of occupied rooms.
Due to the location of the hotels with our benchmark sample and the position the area LOCALHOTEL MARKET holds as one of the global financial centres it is not unsurprising that the corporate market represents the largest demand generator for hotel bedrooms. The sector represents an estimated 55% of total roomnight demand and as previously stated a large proportion of this demand is accommodated during the mid week periods with hotels achieving occupancies in excess of 80% and sometimes above 90%. Corporate demand generators in the direct vicinity include UBS, Invesco, Bloomberg, Henderson Global Investors, HBOS, Lloyds Banking Group and Royal Bank of Scotland.
Conference and Incentive Demand Segment Conference and Incentive travellers are defined as any group occupying five or more rooms on a given night. This segment includes corporate groups, conferences, associations and incentive groups. This segment is typically attracted by a hotel's meeting facilities and ancillary facilities together with the strength of its location. Demand from corporate groups is typically generated between Sunday and Thursday nights, and can include corporate functions, Christmas parties, incentive groups, etc. Often, corporate groups pay higher rates, especially incentive groups, where companies “wine and dine” their top salesman at upscale/luxury hotels. Corporate groups tend to have a high level of single occupancy, while other groups tend to have more double occupancy. Association groups have a more varied occupancy pattern and often hold weekend meetings. This demand segment tends to be somewhat price sensitive. The typical stay for group demand is between three and five days. There is a perception (often true) that by occupying a block of rooms, a volume discount should be given. Group/meeting travellers have a tendency to stay at full-service
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
hotels and utilise the hotel's food and beverage facilities. This segment is seasonal, and repeat business on an annual basis is not guaranteed. Overall, the group/meeting segment is desirable as it provides for a full utilisation of hotel facilities. Due to the limited conference and event facilities at the proposed hotel, we expect demand that is generated by residential meeting and incentive business to be relatively low. Those hotels that do attract demand from this market segment and which have a greater supply of meeting space is at the Andaz which is likely to absorb above its fair share of this market. However, due to the high volume of non residential conference, meeting and event business in the area (at venues such as the Barbican, Spitalfields, Livery Houses, Royal Artillery and Excel etc), we would expect the hotel’s rooms department to be able to benefit from some conference and meeting demand. We estimate this segment to make up 5% of the business mix.
Leisure Demand Segment Leisure travellers generally include tourists or visitors passing through the area. This category effectively includes all non-commercial related travellers too small to be defined as a group. This segment is typically attracted by a hotel's location relative to area attractions (including friends/relatives). Demand from leisure/transient travellers is typically generated throughout the week during peak holiday periods, with more weekend demand in shoulder seasons. Leisure travellers tend to have a high level of double occupancy. Both components of this demand segment tend to be price sensitive. The typical stay for leisure
travellers is between two and five days. Transient travellers typically occupy a room for one 43
night only. Page
We estimate that leisure demand represents 35% of total roomnights accommodated in the area. The area is not considered to be a prime leisure destination, with many tourists preferring to stay at hotels closer to the West End. However, the increased supply of hotels
in the City of London has increased the area’s reputation for leisure accommodation often LOCALHOTEL MARKET at competitive weekend rates. The area is also well connected by public transport to the West End and there are numerous local attractions such as St Paul’s Cathedral, Tower of London, Monument, Museum of London and Barbican Arts Centre which is home to the London Symphony Orchestra.
Segmented Demand Growth Conclusions Based on historic trends for the various demand segments, the state of the national and international economies and conversations with local hotel operators in the marketplace, the applicable demand segments are projected to exhibit the following growth trends for the benchmark market set of hotels.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
Future Growth in Competitive Market Demand
Segment 2011 2012 2013 2014 2015 2016 2017 2018 Rack Rate 10,731 12,340 13,327 14,927 15,076 15,076 15,076 15,076 % Change 15.00% 8.00% 12.00% 1.00% 0.00% 0.00% 0.00%
Corporate 118,036 162,890 192,210 259,483 264,673 264,673 267,320 267,320 % Change 38% 18% 35% 2% 0% 1% 0%
Conference and Incentive 10,731 14,272 15,699 20,408 21,021 21,021 21,021 21,021 % Change 33% 10% 30% 3% 0% 0% 0%
Leisure/Other 75,114 101,404 111,544 150,584 153,596 153,596 153,596 153,596 % Change 35% 10% 35% 2% 0% 0% 0%
Total 214,611 290,905 332,780 445,403 454,366 454,366 457,012 457,012 % Change 36% 14% 34% 1% 0% 1% 0%
Daily Supply 725 1,000 1,160 1,569 1,569 1,569 1,569 1,569
Annual Supply 264,625 365,000 423,218 572,685 572,685 572,685 572,685 572,685
Market Occupancy % 81.1% 79.7% 78.6% 77.8% 79.3% 79.3% 79.8% 79.8% Source: CBRE Hotels Estimates We comment as follows: Our assumed growth percentages, over the next seven year period, are based upon our
research of the local and wider area, to include future hotel, commercial and 44
infrastructure developments that are likely to increase hotel demand. We have also Page
taken into consideration other events happening in London over the period, such as the Queen’s Golden Jubilee celebrations and the hosting of the Olympic Games in summer 2012. Finally we have also been cognisant of the likely development of the global and
domestic economy and the recovery period from the recent recession over the next few LOCALHOTEL MARKET years. However, we have also taken into account the austerity programme initiated by the UK government and the uncertainty of the Greek debt problems within the Eurozone which affects the financial markets. The increase in room stock in the initial years will enable the area to capture a proportion of the current frustrated demand that exists and is being accommodated in hotels outside the area under review. It is also likely that new hotels will be able to generate demand by brand affiliation, i.e. build and they will come, the strength of brands and loyalty cards are in some cases worth up to 20 percentage points of occupancy. Based upon these assumptions we project market occupancy of 79.7% in 2012, below the level achieved in 2011 as new hotel supply comes onto the market. We expect a further decrease in 2013 and 2014 following the Olympics and further increases in supply with growth coming back in 2015 as new hotel supply is aborbed into the market together with projected increases in the UK and overseas source market economies. According to PWC’s latest economic forecasts (dated March 2012), UK GDP is set to grow from 0.7% in 2012 to 2.4% in 2015 and 2016 respectively. By 2017 we are of the opinion that the market will have reached a level of stabilisation, at occupancy of 79.8%. Our assumptions take into account the increase in rooms supply not only in the immediate area but also in the wider London market.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Local Hotel Market
CONCLUSION Based on the information outlined above, we conclude that the demand for hotel rooms in the subject area is predominantly of a corporate nature, with a relatively small meeting and conference segment and with growing leisure demand. We are of the opinion that the proposed development would also be able to attract good levels of demand through its brand and the Montcalm sister hotel located at Chiswell Street, its new hotel at City Road to be opened in 2013 and the numerous hotels operated in the West End under the Shaftesbury brand but under same ownership.
45
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LOCALHOTEL MARKET
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Envisaged Demand
ENVISAGED DEMAND FOR THE PROPOSED HOTEL Our assessment of demand has been based upon our foregoing research of the surrounding areas and discussions with local hoteliers. In the following paragraphs we describe the main sources of bedroom demand that we envisage will generate revenue for the proposed hotel development. In projecting demand for the proposed Montcalm Hotel at Royal London House we have adopted a fair share/penetration analysis methodology by market sector. This approach allows us to take into account the current business levels at the competitive hotels, envisaged future demand and future supply profiles in the market of relevance. In the previous section we highlighted our understanding of the current demand amongst the hotels of relevance and discussed the various market sectors that generate roomnight demand in the market place. We also set out our assumptions of future growth over the next ten years, which includes the increased demand levels envisaged during the London 2012 Olympics. In the following section of this report, we set out our assumptions of roomnight demand by market sector for the proposed hotel, based upon the number of rooms and facilities as set out above and with our client managing the hotel under the Montcalm brand. We have projected the demand for the hotel’s guestrooms on the basis of our fair share model. This takes into consideration the hotel’s comprised within the subject’s competitive set and their degree of competitive relevance. We then forecast the hotel’s performance
46 relative to its competitive set by way of market penetration rates, whereby one (1.0) means that a hotel would get exactly its fair share of the market, values higher than one indicate Page
over performance and lower values hint to an underperforming hotel.
Rack Rate ENVISAGEDDEMAND Our analysis of the hotels of competitive relevance has shown high levels of occupancy during the mid week period, which enables them to impose rack rates on individuals booking last minute. We have taken account of the current economic climate within the UK, Europe and source markets further afield. Whilst source markets are still recovering from recession and job cuts in the financial markets, in the longer term, business levels are likely to be restored and the area around Finsbury Square and the City of London will continue to develop with existing companies expanding their operations or new firms locating to the area. There are new office developments being developed including new 700,000 sqft offices being built for UBS due to complete in 2014 in line with the opening of the propsed hotel. It is therefore likely that visitation to the area will increase and as a result demand for hotel accommodation will reach such levels that hotels will be able to impose rack rate levels to those guests looking for accommodation on a last minute basis. As a four to five star hotel (based upon envisaged product quality), the rates at the proposed hotel are likely to be similar to those levied at The Montcalm The Brewery and some of the other hotels within the benchmark competitive set of hotels but below hotels such as the Andaz and Threadneedles which are aimed at the five star and luxury boutique markets. We have therefore assumed that the proposed hotel will achieve a market penetration of 0.95, ie below fair share, by the fourth and stabilised year of operation. Fair share would represent 1.0. This is equivalent to a rack rate demand of only 3.1% of total roomnight demand or 2,328 rooms per annum.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Envisaged Demand
Corporate Demand We anticipate that corporate related demand will account for the majority of roomnight demand at the proposed hotel is similar to other hotels of competitive relevance, based upon the number of financial and corporate entities located nearby in the City and towards Old Street. We have been advised by our client, the proposed hotel operator, who currently operates the nearby Montcalm Chiswell Street Hotel that their top ten corporate clients are as follows:
CLIENT ROOM NIGHTS Lloyds Banking Group 920 Activision 381 RBS 643 Bloomberg 512 Allen Overy 277 Anglo American 257 Linklaters 310 Marubeni Europe 266 Airline Retail Conference 135 Mitsubishi 147 TotalTotalTotal 333,,,848848848 Source: Montcalm
47 We would expect similar corporate demand for the subject proposed hotel in addition to other occupiers within Finsbury Square and towards Broadgate. Based upon our interviews Page
and visits to hotels of relevance we anticipate that corporate demand will account for approximately 59% of total roomnight demand.
The immediate area continues to develop and already there are some improved signs of ENVISAGEDDEMAND office take up in the City with some major office developments ongoing, which will provide further accommodation demand in the future. Once the economic environment improves, confidence will return to the market place and activity amongst firms established in the area as well as relocation of firms into the area will stimulate further demand from this demand sector. Based upon the above together with the good location close to Broadgate, Moorgate and Liverpool Street Stations and visibility within Finsbury Square, the envisaged quality and branding, we have estimated that by the fourth and stabilised year of operation this market sector will achieve a fair share of 0.99, just below fair share. This is equivalent to approximately 43,011 roomnights annually or 59.0% of total demand.
Conference Demand The subject property represents a strong location for conferences, due to its proximity to the City and surrounding office developments, there is a demand for meeting space. The Montcalm Brewery Hotel has six meeting rooms which are popular with local businesses. The Andaz has much larger function and conference facilities and therefore will generate greater demand for this sector. The Apex London Wall, the next nearest competitor, does not have any meeting rooms whereas the Crowne Plaza The City and Threadneedles although located further away, do provide some meeting facilities with five and two rooms respectively. The Malmaison has two meeting rooms plus a private dining room.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Envisaged Demand
Consequently, the Andaz will provide the greatest competition in terms of meeting room capacity with 14 rooms. The proposed hotel development contains a reasonable amount of dedicated flexible meeting room space to provide space for off site meetings, conferences, presentations, functions and banquets and which would also attract some roomnight demand. We envisage that demand will be mainly be derived from corporate functions. In light of the small number of meeting facilities on offer at the hotel we have estimated that the demand sector contributes approximately 4.3% of rooms sold. This represents guests staying at the hotel who are attending a conference within the hotel and we also anticipate good demand for day delegates not requiring overnight accommodation at the hotel but will generate revenue. In addition, we anticipate bednight demand from delegates attending conferences and exhibitions at other venues including the Barbican, The Brewery and Excel. Whilst not a significant demand generator of rooms, compared to the corporate and leisure sectors, the conference rooms would be suitable for training purposes on long term contracts as well as attracting a high level of day use demand, which has a positive impact on food and beverage revenues. With an increase in envisaged corporate activity in the area over the next few years as the economic environment improves and with the knock-on benefits of the Olympics in 2012, we are of the opinion that the proposed hotel will attract demand from the conference
market segment. Due to the proposed star rating, envisaged facilities, style of hotel and 48
branding, it is likely that the proposed hotel will attract demand for senior management Page
meetings from local companies. By the fourth and stabilised year of trading we have estimated that this sector of demand will be equivalent to approximately 2,972 roomnights or 4.3% of total demand. In terms of fair share this represents 0.87. ENVISAGEDDEMAND Leisure Demand The surrounding area is currently not considered as a primary leisure/tourism destination within London, however, as stated previously there are numerous attractions located nearby and in the City of London which will attract a certain leisure demand. In addition, hotels located nearby and in the City of London tend to offer lower prices at weekends when there is lower corporate demand. These rates tend to be below comparable hotels located in the West End and therefore offers good deals for the leisure guest, especially with quick access to the West End and other parts of London via the underground and buses. Shoreditch and Hoxton located close by to the north and Smithfields and Clerkenwell to the west have developed in recent years providing lively areas in the evenings with numerous popular bars, restaurants, cafes and nightclubs. The hotel’s proximity to these areas will also help drive leisure demand. The Barbican Arts Centre (which is home to the London Symphonic Orchestra), Spitalfields Market and Brick Lane are within walking distance and historic attractions within the City of London such as St Pauls Cathedral, The Monument, Museum of London, Smithfields, the Tower of London and bankside are also within easy reach. In addition, the announcement that London will host the 2012 Olympic Games has generated an increase in leisure demand for the hotels within the market of relevance located towards the east of Central London.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Envisaged Demand
We have also assumed that the Montcalm brand will generate its own additional leisure demand as a result of its reservation system, promotion and cross selling from its hotels located in the West End. We have assumed that the proposed hotel will be able to attract approximately 23,216 roomnights by the fourth year based upon an assumed fair share penetration of 0.93.
Latent Demand In addition to the fair share/penetration analysis we are also of the opinion that there is a level of latent demand. Latent demand represents potential roomnights in the market place that could not be accommodated by the existing hotels, and comes in two forms: Induced demand – represents additional accommodated roomnights by the introduction of a new demand generator, such as the construction of a conference centre, a major company moving to the area, or the introduction of a new hotel that has distinct advantages over existing competitors. Displaced demand – occurs when individuals are unable to rent a room because all the hotels in the market place are filled to capacity. As a result, individuals must defer their trips or make accommodations in other markets. Because this demand was not accommodated historically, it is not illustrated in the estimate of the historic accommodated roomnight demand. We have already accounted with our assumption of future demand that new hotels into the
49 market place will absorb a significant level of displaced demand. However, we are of the
opinion that the introduction of another Montcalm Hotel in the area will be able to generate Page a level of induced demand. We have therefore assumed by the fourth and stabilised year of trading that the proposed Montcalm Hotel is likely to generate 840 induced corporate roomnights, 210 meeting roomnights and 1,460 leisure roomnights over and above our
fair share assumption, detailed above. By the fourth and stabilised year of operation the ENVISAGEDDEMAND corporate penetration index rises to 1.01 (above fair share), 0.93 for the meeting segment and the leisure segment represents 0.99, just under fair share.
Average Annual Room Occupancy Based upon the estimates of demand from each market sector (illustrated in the following table), assumptions of latent demand, the location of the hotel, envisaged standard of facilities and services, we present below our assessment of fair share/penetration and annual average room occupancies for the proposed hotel development for the first five years of operation. By the fourth and stabilised year of operation we have projected occupancy of 79.5%, equivalent to approximately 74,037 roomnights sold. On a fair share analysis this is equivalent to 1.0, i.e. fair share.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Envisaged Demand
Penetration Analysis and Occupancy Projections
Segment 2014 2015 2016 2017 2018 Rack Rate 2,232 2,303 2,328 2,328 2,328 Projected MPI 0.92 0.94 0.95 0.95 0.95 Displaced/Created Demand Rooms Sold 2232 2303 2328 2328 2328 Adjusted MPI 0.92 0.94 0.95 0.95 0.95
Corporate 40,064 41,725 42,155 43,011 43,011 Projected MPI 0.95 0.97 0.98 0.99 0.99 Displaced/Created Demand 525 735 840 840 840 Rooms Sold 40,589 42,460 42,995 43,851 43,851 Adjusted MPI 0.96 0.99 1.00 1.01 1.01
Conference and Incentive 2,653 2,870 2,938 2,972 2,972 Projected MPI 0.80 0.84 0.86 0.87 0.87 Displaced/Created Demand 0 210 210 210 210 Rooms Sold 2,653 3,080 3,148 3,182 3,182 Adjusted MPI 0.80 0.90 0.92 0.93 0.93
Leisure/Other 21,537 22,716 22,966 23,216 23,216
Projected MPI 0.88 0.91 0.92 0.93 0.93 50
Displaced/Created Demand 913 1095 1278 1460 1460 Page
Rooms Sold 22,449 23,811 24,243 24,676 24,676 Adjusted MPI 0.92 0.95 0.97 0.99 0.99 ENVISAGEDDEMAND Rooms Sold - Royal London House 67,923 71,654 72,715 74,037 74,037
Available Rooms - Royal London House 93,075 93,075 93,075 93,075 93,075
Resulant Total MPI - Royal London House 0.94 0.97 0.98 1.00 1.00
Room Occupancy - Royal London House 73.0% 77.0% 78.1% 79.5% 79.5% Source: CBRE Hotels Projections We comment as follows: Our assumed penetration analysis takes into account the current and future demand profile of the local hotel market as well as the envisaged hotel’s position in the market place, the design led attributes of the building, its classification and branding recognition. As with all new hotels, there is a period of build up until the property reaches its stabilised level of occupancy. We have assumed for the proposed hotel that this will take four years to achieve. We have assumed an opening occupancy of 73.0% increasing to a stabilised level of 79.5%. This represents a growth of 6.5 percentage points or 6,114 roomnights.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Envisaged Demand
In the following chart we illustrate our assumed market segmentation by the fourth and stabilised year of trading.
Proposed Montcalm Hotel Market Segmentation
Rack Rate 3%
Leisure/Other 34%
Corporate Conference 59% and Incentive 4%
Source: CBRE Hotels Projections
− Royal London House is located just north of the City of London boundaries and 51
therefore we would expect that the corporate market located in this area would Page
account for the largest segment of demand. As a result of the location of the hotel, within walking distance to Broadgate and surrounded by offices, we are of the opinion that the property will become an attractive hotel for this market.
− The leisure sector is projected to be the second most important market for the ENVISAGEDDEMAND proposed hotel with 34% of total roomnight demand. This is similar to the benchmark sample. With the hotel operator managing several hotels in the West End there is good potential for referral business. − The conference and incentive demand only represents 4% of demand and this is more than likely to be driven by event business. The limited meeting room provision provides an added amenity to the guests and local companies located in the area, however, will not be the main driver of demand. − Similar to the wider hotel market, we believe that the rack rate segment will only generate a small proportion of total roomnight demand. Based upon our assumptions of demand and our understanding of the Montcalm concept and proposed size of offering we are of the opinion that the hotel occupancy will be positioned equal to the market as illustrated in the following graph.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Envisaged Demand
Occupancy Performance of Market and Proposed Montcalm Hotel
90.0%
85.0%
80.0%
75.0%
70.0%
Occupancy 65.0%
60.0%
55.0%
50.0% 2011 2013 2015 2017 2019
Royal London House Market
Source: CBRE Hotels Estimates
Achieved Average Room Rates
52
The following achieved average room rates or average daily rate projections are based Page
upon our research amongst the hotels of competitive relevance and the envisaged position of the proposed hotel. We have taken consideration of the ADR achieved within the STR Global benchmark data for our assumed competitive set, which is £197.70 for 2011. January 2012 ADR is down by -1.4% compared to January 2011. We have also taken into ENVISAGEDDEMAND consideration that The Andaz and Threadneedles Hotel advertise higher tariffs and provide superior accommodation and/or facilities compared to the proposed hotel and hence will drive up the ADR for the competitive set as a whole. We have also considered other similar hotels we have been involved with where we have had sight of trading information (on a confidential basis) including the Crowne Plaza Shoreditch, The Zetter, Malmaison, DoubleTree Tower of London, Grange City and Threadneedles Hotel.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Envisaged Demand
Published Tariffs In assessing the appropriate tariff level for the proposed hotel, we have taken into account the current tariff levels of the competitive hotels of relevance, which are listed below. We have provided indicative rates for midweek and weekend dates to show the comparison.
BEST BEST AVAILABLE AVAILABLE MIDWEEK WEEKEND HOTEL LOCATION BEDS RATING RATE * RATE ** Andaz Hotel Liverpool Street 267 Upscale £234 £161.75 The Threadeneedles Bank 69 Upscale £390 £201 Hotel Malmaison London Charterhouse Square 97 Lower Upscale £175 £155 Crowne Plaza Blackfriars 203 Lower Upscale £217 £147 London City Apex London Wall London Wall 89 Lower Upscale £270 £199 Source: CBRE Hotels Research
*Unless otherwise stated, the rate is the lowest available midweek rate on Wednesday 18 th April 2012 for a double room with dual occupancy booked in advance on the internet. It is inclusive of VAT and exclusive of breakfast and dinner.
st
** Unless otherwise stated, the rate is the lowest available weekend rate on Saturday 21 April 2012 for a double 53 room with dual occupancy booked in advance on the internet. It is inclusive of VAT and exclusive of breakfast and
dinner. Page
We have also looked at a handful of other hotels in the wider area operating at the upscale end of the market as a further comparison. This includes the Montcalm The Brewery which which will be more closely linked to the proposed hotel at Royal London House. ENVISAGEDDEMAND BEST BEST AVAILABLE AVAILABLE MIDWEEK WEEKEND HOTEL LOCATION BEDS RATING RATE * RATE ** Montcalm The Chiswell Street 235 Lower Upscale £230 £149 Brewery The Hoxton Hoxton 208 Lower Upscale £199 £169 Apex City of London Tower Hill 179 Lower Upscale £210 £159 Grange Tower Bridge Tower Hill 370 Lower Upscale £237.15 £148.75 DoubleTree by Hilton Tower Hill 583 Lower Upscale £209 £129 Source: CBRE Hotels Research
*Unless otherwise stated, the rate is the lowest available midweek rate on Wednesday 18 th April 2012 for a double room with dual occupancy booked in advance on the internet. It is inclusive of VAT and exclusive of breakfast and dinner.
** Unless otherwise stated, the rate is the lowest available weekend rate on Saturday 21 st April 2012 for a double room with dual occupancy booked in advance on the internet. It is inclusive of VAT and exclusive of breakfast and dinner. In the following table we present our assumed tariff levels which are in line with the tariffs published by competing hotels in the area. We are of the opinion that this is an
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Envisaged Demand
appropriate rate structure for the proposed hotel based upon the envisaged positioning of the property, branding and facilities as set out in the previous section of this report. The assumed published tariffs and weighted tariffs below are presented in 2012 values.
Proposed Tariff Levels
ROOM TYPE NUMBER PUBLISHED TARIFF Deluxe 163 £220.00 Disabled Rooms 24 £220.00 Junior Suites 44 £290.00 Suites 24 £465.00 Total 255255255
NET RACK RATE Weighted Average Room Rate 255 £255.14 Rooms 187 £220.00 Suites 68 £351.76 Source: CBRE Hotels Estimates
Suite Utilisation and Discounts Based upon the plans provided, the proposed hotel has 44 suites and 24 junior suites. A
certain percentage of the market will pay the supplement for the suites and a percentage of 54 the market will pay for a bedroom and will be upgraded to a suite. In the table below we Page
set out our estimated utilisation of the suites at the proposed tariff levels assumed above. In line with the hotels of competitive relevance we are of the opinion that the proposed hotel will have to offer discounts to key clients including local, national and international
corporates; conference bookers and leisure guests in order to attract the levels of demand ENVISAGEDDEMAND envisaged and to penetrate the market. As the hotel becomes more established in the market place, we envisage that the level of discounting will decrease. In the following table we set out our assumptions of the level discounting and within each market segment.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Envisaged Demand
Assumption of Suite Utilisation and Discounting
YEAR 1 YEAR 2 YEAR 3 YEAR 4 RackRackRack Suite Utilisation % of mkt 5.0% 6.0% 7.0% 8.0%
Discount Utilisation % of mkt 0.0% 0.0% 0.0% 0.0% % discount 0.0% 0.0% 0.0% 0.0% Corporate Suite Utilisation % of mkt 4.0% 5.0% 6.0% 6.0%
Discount Utilisation % of mkt 80.0% 75.0% 72.0% 70.0% % discount 25.0% 18.0% 15.0% 13.0% Conference Suite Utilisation % of mkt 1.0% 1.0% 1.0% 1.0%
Discount Utilisation % of mkt 100.0% 100.0% 100.0% 100.0% % discount 35.0% 33.0% 30.0% 30.0% Leisure Suite Utilisation % of mkt 4.0% 4.5% 5.0% 5.5%
Discount Utilisation % of mkt 80.0% 75.0% 70.0% 70.0% % discount 45.0% 40.0% 35.0% 30.0%
55
Source: CBRE Hotels Estimates Page Based upon these assumptions, in the following table we present our projections of average room rate by market sector and the total achieved average rate for the proposed hotel:
Projections of Average Daily Rate (£) ENVISAGEDDEMAND YEAR 1 YEAR 2 YEAR 3 YEAR 4 Rack 226.6 227.9 229.2 230.5 Corporate 183.0 198.4 205.6 209.1 Conference 145.0 149.5 156.0 156.0 Leisure 149.2 162.9 175.4 183.6 Average Daily Room Rate 171.5 185.4 194.1 199.0 Source: CBRE Hotels Estimates We comment as follows: Based upon the foregoing assumptions relating to published tariffs, suite utilisation and discounting, together with our knowledge of the performance of the other hotels within the competitive hotel market of relevance, we project by the fourth and stabilised year of operation the proposed hotel will achieve an average daily rate (ADR) of £199.00. As we would expect, the rack rate sector achieves the highest rate, followed by the corporate market. Due to the more limited demand from the conference sector and relatively small amount of conference facilities at the proposed hotel, conference related demand has the lowest achieved sector rate due to the higher levels of discounts offered.
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Conclusion
We consider that there is good demand for an upscale four to five star standard hotel at the subject site, Royal London House. Whilst historically, the area surrounding the site has not typically been a hotel destination, there has been an increase in supply of hotels in the City of London over the last few years showing the increase in the demand for this location. There was only one hotel located in the City in 1999 and now there are approximately 15 hotels, showing the growing demand of the area. The City is still perceived by some as a five day market with lower demand at weekends, however, this image is changing as visitors realise the ease of travel to the West End by the underground. In addition, there are numerous popular tourist attractions located within the City such as St Paul’s Cathedral and Tower of London and its proximity to the numerous attractions on the South Bank and Bankside including Borough Market, Design Museum, HMS Belfast, Globe Theatre and Tate Modern. Furthermore, the area around Liverpool Street Station, Shoreditch/Hoxton, Smithfields/Farringdon and the Barbican are busy at the weekends with local residents and leisure tourists with numerous galleries, bars, restaurants and nightclubs which creates a lively atmosphere. Hence the development of further hotels in the area. Furthermore according to a document called ‘Hotel Info’ published in July 2011 by the City of London Corporation “the London Plan seeks an additional 40,000 hotel rooms by 2031 and an improved quality and distribution of visitor accommodation and
facilities……Business visitors make a vital contribution to the success of the City. It is 56
important that these visitors are adequately catered for and the hotel provision in the Page
City meets their needs and requirements”. Hence, locations such as Royal London House on the fringe of the City will also be in a prime position to cater for the business and leisure visitor. CONCLUSION We have illustrated in our report that hotels in the area are trading at above 80% occupancy. This percentage is of significance as from our experience most hotel operators would consider developing further bedrooms at over 70-75% occupancy to protect their position and keep demand within a localised area. With hotels trading at over 80% and 90% during the week, there is likely to be a significant amount of frustrated demand, i.e. demand that is unable to be accommodated in the area and is forced to seek accommodation in other areas of London. It is therefore likely that currently there is a proportion of roomnight demand in the southern area of Islington, the City and western end of Hackney and the surrounding area that cannot be accommodated in the existing hotels and thus are forced to seek accommodation further a field such as the West End or new hotel markets on the South Bank, Excel and Canary Wharf. In addition, we have been provided with trading performance of the Montcalm Chiswell Street Hotel, which show that the hotel is already achieving 73% occupancy and an ADR of £163 after the first seven months of trade, which is extremely strong. We have assessed the projected demand for the proposed hotel based upon our foregoing research of the Islington, City of London and Hackney areas, discussions with local hoteliers and council officials. The graph below highlights the main sources of demand we forecast for the proposed development based upon current sources of demand and the estimated market penetration of the proposed Montcalm hotel, taking account of the benefits of its brand, its nearby sister property on Chiswell Street and associated reservations, cross-selling and promotional benefits.
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Conclusion
Proposed Montcalm Hotel Market Segmentation
Rack Rate 3%
Leisure/Other 34%
Corporate Conference 59% and Incentive 4%
Source: CBRE Hotels Estimates In general, research has shown that “one business tourist is worth at least three times the amount of one leisure tourist in employment and economic terms” (ICC Commission Report, 2005). Business visitors’ spend benefits many parts of the
57
economy as well as hotels and travel services, such as retail, restaurants and
entertainment facilities. The typical spend of a business traveller ranges from £355 to Page
£550. As such, the corporate traveller is very important in terms of economic benefit to the local area. As we expect a higher share of business travellers for the proposed Montcalm hotel at Royal London House, we anticipate that the economic impact of CONCLUSION corporate guests would be beneficial to the local area. We have taken account of the current trading and economic environment and made assumptions of market growth leading up to the proposed opening in 2014, in undertaking our projections of ADR and occupancy. Within our projections we have assumed the following:- − The hotel has been developed and is open and ready for trade assuming estimated market conditions. − The hotel will open at the start of 2014. − It will take four years to reach a stabilised level of trade. − The hotel will be operated by Montcalm Hotels with the food and beverage facilities operated by a third party. − New hotels that have gained planning consent or are under construction and are located nearby which will provide competition. We are of the opinion that the proposed hotel development being branded will have a positive impact on the future performance of the hotel as well as improve its ability to be absorbed into the market place. Benefits include the following: − Advantage of being part of a brand with an established sales and reservation network.
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Conclusion
− Wider distribution of sales and marketing literature through the brand network. − Benefit from referral business from other hotels within the wider portfolio. − Head office support and clustering opportunities in specialist overhead departments such as marketing, financial/accounts and personnel. − Access to specialist services such as technical engineering and interior design/décor. − Economies of scale in terms of purchasing power being associated with a national brand. Based upon our assumptions of demand and our understanding of the Montcalm concept and proposed size of offering we are of the opinion that the hotel occupancy will be positioned equal to the market and will reach market share, as illustrated in the following graph.
Occupancy Performance of Market and Proposed Montcalm Hotel
90.0%
85.0%
80.0%
75.0%
58
70.0% Page
Occupancy 65.0%
60.0% CONCLUSION
55.0%
50.0% 2011 2013 2015 2017 2019
Royal London House Market
Source: CBRE Hotels Estimates In terms of proposed achievable ADR, we have assessed the appropriate tariff level for the proposed hotel, by taking into account the current tariff levels of the competitive hotels of relevance plus other hotels in the wider area operating at the upscale end of the market as a further comparison. This includes the Montcalm Chiswell Street Hotel which which will be more closely linked to the proposed hotel at Royal London House. In the following table we present our assumed tariff levels which are in line with tariffs published with competing hotels in the area. We are of the opinion that this is an appropriate rate structure for the proposed hotel based upon the envisaged positioning of the property, branding and facilities as set out in the previous section of this report. The assumed published tariffs and weighted tariffs below are presented in 2012 values.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Conclusion
Proposed Tariff Levels
ROOM TYPE NUMBER PUBLISHED TARIFF Deluxe 163 £220.00 Disabled Rooms 24 £220.00 Junior Suites 44 £290.00 Suites 24 £465.00 Total 255255255
NET RACK RATE Weighted Average Room Rate 255 £255.14 Rooms 187 £220.00 Suites 68 £351.76 Source: CBRE Hotels Estimates In line with the hotels of competitive relevance we are of the opinion that the proposed hotel will have to offer discounts to key clients including local, national and international corporates, conference bookers and leisure guests in order to attract the levels of demand envisaged and to penetrate the market. As the hotel becomes more established in the market place, we envisage that the level of discounting will decrease. Based upon our research we have projected the following occupancy and ADR for the proposed hotel, assuming current market conditions. This shows that we estimate it will
59 take approximately four years to reach a maintainable level of trade. Page
YEAR 1 YEAR 2 YEAR 3 YEAR 4 Occupancy 73.0% 77.0% 78.1% 79.5%
Average Daily Room Rate (£) 171.5 185.4 194.1 199.0 CONCLUSION With an average occupancy stabilising at just under 80%, this shows that there is good demand for the proposed hotel development. We have also estimated the potential employment benefits of the proposed hotel with reference to HCA Alternative Hotel Employment Density Guidance which specifies one employee per 1.25 bedrooms for an upscale four to five star hotel. The proposed hotel provides 255 bedrooms in the upscale market, therefore on this basis this would provide job opportunities for circa 204 employees.
DO NOT DELETE
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London Hotel Market
60
Page
APPENDICES CONCLUSION
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Glossary of Industry Terminology
GLOSSARY OF INDUSTRY TERMINOLOGY
Administrative & General Food & Beverage Minor Operated Departments (A&G) (F&B)(F&B)(F&B) (MOD)
This covers items that are not easily This covers restaurants, bars, room These are sources of income that attributable to any one department. service, banquets and conferences. do not fall under any of the listed It includes items such as headings. They generate limited management, administration, income and incur minor direct finance and accounting, stationery, operating expenses. Examples uniforms, training and recruitment. include sports supplies or laundry.
Average Daily Rate (ADR)/ Food Revenue Occupancy Average Room Rate (ARR)
ADR reveals the average rate Includes all sales of food and non- This is the percentage of rooms that charged per occupied room and is alcoholic beverages for have been sold over the period calculated by dividing total rooms consumption by customers. being analysed. revenue for a period by the number Includes revenue from restaurant, of rooms occupied during that conferences, room service etc. period. It may also be referred to as ARR.
Base Fee & Notional Franchise Fees Other F&B Revenue Management Fee (NMF)
The cost of management services Revenue generated through This includes any revenue performed by a management allowing an independent party to generated in the food and
company to operate the property as operate a business under the beverage department, but not 61 a whole. company’s name, merchandise through the sale of F&B. and supplies. Page
Beverage Revenue Gross Operating Profit Property Operations & (IBFC/GOP) Maintenance (POM) TERMINOLOGY
Includes all sales of alcoholic Gross operating profit is the total Includes all expenses associated beverages for consumption by departmental operating profit, less with operating and maintaining the customers. all undistributed operating property and includes salaries and expenses. It may also be referred to wages as well as equipment costs. as income before fixed charges. GLOSSARYOFINDUSTRY
Cost of Sales (COS) Incentive Fee Per Available Room (PAR)
The cost of raw materials prior to Management fees that are A measure that can be applied to their resale. contingent upon achieving certain any revenue or cost to facilitate pre-defined levels of profitability analysis. The revenue or cost being and charged to this item. analysed is divided by the total number of bedrooms available for sale during the period under analysis.
Departmental Operating Profit Insurance Payroll and Related Expenses as (DOP) a Percentage of Total Sales
The total profit made by the specific The cost of insuring the building This is calculated by dividing the department named, less costs for and its contents. It will also include sum total of related expenses by that department. general insurance costs including total sales and then multiplied by premiums relating to liability. 100.
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
Glossary of Industry Terminology
Per Occupied Room (POR) Rooms Revenue Per Available Total Revenue Room (RevPAR)
Total or individual dept revenue This measures the room’s revenue Sum total of net revenues from all generated per occupied room. POR yield a property achieves relative to the operated departments including is used to determine the total the rooms available in the property rentals and other income. revenue and profit potential of the for a period. company.
Percentage of Departmental Rooms Revenue Undistributed Operating Revenue Expenses (UOE)
Demonstrates any given criteria as Revenue generated through the These include expenses that are a percentage of the total revenue rental of bedrooms and suites, for considered applicable to the entire generated by a specific a day, week or longer. It includes property and not a specific department. revenue raised from no-show department. They include charges and excludes allowances Administrative and General, Sales and cancellation fees. and Marketing, Property Operation and Maintenance, and Utilities.
Property & Other Taxes Total Operating Costs Utility Costs
This includes a number of tax The total cost of sales, direct The cost of general utilities such as deductions which may be expenses and payroll costs for any electricity, gas, oil, water, steam applicable to a given property and given department. and sewerage which the property includes real estate taxes, personal may incur. property taxes, and business and transient taxes.
62 Reserve for Renewals/ FF&E Total Payroll Replacement Reserve Page
The cost of furniture, fixtures and The total of salaries and, wages, equipment, which do not have a and employee benefits from all permanent connection to the operated departments and all TERMINOLOGY building and are not covered by undistributed operating utilities. They include computers, departments. tables and chairs. They may also be referred to as furniture, fixtures
& equipment or FF&E. GLOSSARYOFINDUSTRY
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
London Hotel Market
ECONOMIC OVERVIEW Since officially emerging from recession in early 2010, economic growth in the UK has stalled; declining by 0.5% during the last quarter of 2010 before marginal growth of 0.5%, 0.2% and 0.6% in the first three quarters of 2011 respectively, with a decrease of 0.2% in the final quarter of 2011. Growth has sharply slowed and the outlook is weakening rapidly. RPI and CPI in the UK have continued to be significantly above target, with pressures on energy and food prices driving price inflation. The Monetary Policy Committee voted on the 8 th March 2012 to maintain the interest rate at 0.5% for the 12 th consecutive quarter, whilst they also recently agreed to sanction a further £50 billion of quantitative easing (QE), pushing the total UK QE stimulus to £325 billion. The Pound has fluctuated against the Euro, reaching £0.88/€ in October 2011 and dropping to £0.84/€ at the start of March 2012, as fears about the solvency of some key Eurozone member states have continued to affect investor sentiment. There remain concerns that some states will be forced to abandon the Euro, although politicians have continued to provide support for the struggling states. Despite concerns about the US economy and debt status, the US dollar has strengthened against the Pound in recent months, being at a level of £0.65/$ in November and sitting at £0.63/$ in March 2012.
63 HOTEL MARKET COMMENTARY Page
Introduction One of the great world cities, London benefits from a vibrant hotel market commensurate TERMINOLOGY with the city’s international image. However at times this can be a double edged sword since the city is from time to time disproportionately impacted by world events. These influences tend to be more trackable in terms of negative variances but there is an
underlying resilience and the city has generally bounced back more strongly after each GLOSSARYOFINDUSTRY downturn.
Factors underpinning London’s hotel market There are many factors which, combined, have a positive impact in creating the resilience which is evident in London’s hotel market. Below we summarise some of these factors:
Economy (Source: www.lda.gov.uk) With a population of 7.8m (July 2010, latest figures available), London is the largest city in Europe. Estimates suggest the city will expand to over eight million by 2020. (Source ONS, GLA). With a GDP of £162 billion, London’s economy accounts for around 17% of the UK’s total GDP, and is larger than many EU countries including Austria, Denmark, Finland, Greece, Ireland, Luxembourg and Sweden. London’s economy has grown faster than the rest of the UK for most of the last 15 years. London’s economic position is supported by a series of remarkable statistics, for example, the headquarters of more than 100 of Europe's 500 largest companies are in London and there are 240 overseas banks located in the City of London, which together employ more than 160,000 people. (Source: City of London)
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London Hotel Market
Airports (Source: Think London; Civil Aviation Authority) London has five international airports – Heathrow, Gatwick, Stansted, Luton and City Airport. Approximately 126.9 million airline passengers travelled to or from London’s airports in 2011, down from 133.4 million in 2010. The number of international passengers flying through London is over twice as many as the nearest competitor. Between them, these airports offer direct flights to 530 destinations worldwide which collectively contribute 80% to the world’s GDP. London’s three main cargo airports at Heathrow, Gatwick and Stansted have more international cargo flights to more destinations by more carriers than anywhere else in the world. There are also direct high speed rail links to and from Paris and Brussels.
Tourism (Source: Visit Britain) Tourism is a vital contributor to the UK’s economy, with 29.8m visitors spending £16.9 billion in 2010. Visitor numbers in the city peaked in 2007 at 32.8m, but have steadily declined by approximately 10% since then. For a long period, average spend per visitor was approximately £500, but this has increased to £563 on average owing to the relative weakness of Sterling. In the figures published by The United Nations World Tourism Organisation in 2010, the UK retains 6th position in terms of the number of visitor arrivals, accounting for 3.0% of total arrivals worldwide, although it is losing its market share.
64
London is the leading destination for visitors of the UK. In 2010, 14.7 million visited
the city, spending over £8.7bn; representing 52% of all inbound visitor spending. Page
London witnessed growth in the number of total visits and the number of overnight stays in 2010, increasing by 3.4% and 5.4% respectively. As of year to date Q3 2011 (latest TERMINOLOGY data available), the London market had performed positively, showing year on year growth for total visits and overnight stays of 6.2% and 4.1% respectively. The Association of Leading Visitor Attractions revealed that its list of top ten attractions
was comprised of all London attractions in 2010 (latest reported data). All bar two of GLOSSARYOFINDUSTRY these top ten saw an increase in visitor admissions compared to the same period in 2009.
Hotel Market
Demand The strong growth that has been evident through most of the period since 2004 is over for the time being. In an industry which typically has a marked seasonality, the peak of the recent cycle was reached in late 2007. 2008’s modest growth in terms of ADR and RevPAR was below the prevailing level of inflation and thus represented a real-terms decline. 2009 also represented a further decline for the hotel market as market conditions worsened further. However, 2010 and 2011 saw London recover strongly, with ADR and RevPAR levels exceeding those witnessed in recent years, although occupancy fluctuated.
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London Hotel Market
Central London KPIs
2007 – YTD January 2011 2007 2008 2009 2010 2011 YTD Jan 2011 YTD Jan 2012 ADR £128.85 £134.30 £126.47 £139.25 £149.87 £129.39 £132.93 RevPAR £107.07 £110.40 £105.11 £116.37 £123.88 £88.92 £96.46 Occupancy 83.1% 82.2% 83.1% 83.6% 82.7% 68.7% 72.6% Source: TRI HotStats
Central London KPIs £160 90.0%
£140 80.0%
70.0% £120 60.0% £100
50.0% Occupancy £80 ADR/RevPAR 40.0% £60 30.0% £40 20.0%
65 £20 10.0% Page
£0 0.0% 2007 2008 2009 2010 2011 YTD Jan 2011 YTD Jan 2012
ADR RevPAR Occupancy TERMINOLOGY
Source: TRI HotStats The above table and graph show key performance indicators for the Central London market from 2007 to the latest available figures, YTD January 2012. GLOSSARYOFINDUSTRY The London hotel market has fared better than the UK regions since the onset of the downturn in 2008 and continues to defy expectations with sustained demand accompanying increases in rate. London began recovery in Q4 2009 and the trend continued into 2010 with record occupancy levels for some London hotels in Q1 and Q2, marking the return of the corporate market. 2010 saw the London market recording strong RevPAR growth, led mainly by increases in occupancy, whilst 2011 was also an outstanding year for the London hotel market with strong growth in both ADR and RevPAR, although occupancy slightly dropped on a year on year basis. Year to date figures for January 2012 show that there has been strong growth on a year on year basis, with ADR, RevPAR and occupancy all showing marked increases. Peaks and troughs are nothing new to the London hotel market and they can be driven by global events and/or economic circumstances. The latter lies behind the recent downturn and recovery and, given the difficulty of obtaining a reliable prognosis as to the timing and extent of recovery, it is equally difficult to determine how sustainable the current growth is. Helpful factors that continue to drive recovery will be any evidence of continued low interest rates, low oil prices and an increase in bank lending which could be key to supporting the economic recovery.
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London Hotel Market
The table below highlights the outlook for London as determined by two of the largest collectors of hotel market data, PricewaterhouseCoopers and STR Global, with both publications being released in February 2012.
LONDON 2012 2013 PWC % Change y-o-y STR % Change y-o-y PWC % Change y-o-y STR % Change y-o-y Occupancy 83.60% 1.20% 81.90% -0.50% 81.10% -3.00% 80.60% -1.60% ADRADRADR £135.43 1.20% £137.32 2.00% £130.80 -3.40% £140.05 2.00% RevPARRevPARRevPAR £113.81 2.80% £112.49 1.50% £106.16 -6.70% £112.89 0.40% Source: PwC Hotels Forecast/STR Global Forecast In the run up to the Olympics in 2012, London is expected to witness good levels of growth as the city begins to gear up in preparation for the international event. Many forecasters also foresee the year of the Games being a bumper year for London tourism as overseas visits begin to flock to the capital. The Games are projected to lift occupancy above the historic peak; however caution is needed, due to the inconsistent impact seen historically at other Olympic cities. 2013 will likely see a decline on 2012’s exceptionally strong occupancy, although ADR growth will likely compensate for this, leaving RevPAR broadly flat. It is difficult to source market segmentation and nationality mix information for the city’s hotels. The best source was PKF’s City Survey but this is no longer produced. Nevertheless below we illustrate data from their reports in the early part of this decade. These illustrate
the strong trading year of 2000 as well as 2002, a weaker year but the most recent for 66 which data is available. Page
Business and Nationality Mix in London hotels
2000 and 2002 TERMINOLOGY 2000 2002 Business Mix
Full rate 14.0 11.9 GLOSSARYOFINDUSTRY Corporate Discount 35.3 32.9 Tour operator / group discounts 18.5 12.0 Leisure break 15.9 24.4 Conference / incentive 8.1 10.4 Airline crew 2.8 3.0 Other 5.4 5.4 Nationality Mix Domestic 30.9 33.3 Europe 16.4 18.2 USA/Canada 32.8 30.2 Japan 3.5 3.4 Middle East 5.2 5.9 Australasia 2.7 1.7 South America 1.7 1.2 Far East (exc. Japan) 2.4 2.7 Africa 1.4 1.1
CBRE HOTELS | ROYAL LONDON HOUSE, FINSBURY SQUARE, LONDON
London Hotel Market
2000 2002 Other 3.0 2.3 Source: PKF City Survey (Most recent data since the survey is now discontinued) At the upper end of the market there are some variances to this pattern with Full Rate business being roughly twice as significant, at the expense of Corporate Discount business which is relatively less significant. Similarly Leisure breaks are the main source of leisure business with Tour operator and group discounts being relatively less significant. The USA and Middle East nationalities are relatively more significant at the expense of the domestic market in particular. Of course there are variances between hotels depending on their size, positioning and facilities but the most significant statistic to note was that in 2000 North American visitors represented 51.8% of all business in the upper market properties – by 2002 this was down to 44.6% and this was a proportion of a far lower occupancy level. However, the North American market remains the most important geographic source for London’s leading hotels.
Supply According to their 2009 accommodation census the London Development Agency estimate that the city offers overnight visitors a choice of 140,472 bedrooms across 2,020 accommodation establishments to suit all budgets. This is summarised below, by category:
All London Accommodation Stock 2009
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TYPE ESTABLISHMENTS ROOMS Page
Hotels 603 86,681 B&B / Guesthouse 921 18,567 TERMINOLOGY Serviced Apartments 159 4,994 Subtotal Serviced Accommodation 1,683 110,242 Other (includes campus, hostel and self catering) 337 30,230 GLOSSARYOFINDUSTRY TotalTotalTotal 2,0202,0202,020 140,472 Source: London Development Agency (latest available data) This census contains less information than the Visit London census of visitor accommodation in 2006. We present combined results in the table below. This demonstrates that around a net gain of 3,299 rooms has occurred in the city in the past 2-3 years. Of the 86,681 rooms that are now understood to exist in the city, our own knowledge and experience suggests that there are some 70,000 rooms that are relatively easily identifiable, of reasonable size and in many cases, branded. However there is still a large swathe of properties which are smaller, generally of lower quality and in private hands. There has however been large growth in new supply since 2009, however more recent data is currently unavailable. In the table below we illustrate the breakdown of London’s hotel supply by star grading:
Total Hotel Supply in London 2006 & 2009 NB. Number of hotel rooms in 2009 census is reported as 86,681 NUMBER (2009) NUMBER (2006) ROOMS (2006) BEDS (2006) 5 Star 44 56 10,150 20,215
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London Hotel Market
NUMBER (2009) NUMBER (2006) ROOMS (2006) BEDS (2006) 4 Star 136 173 36,645 71,437 3 Star 58 107 16,521 32,607 2 Star 11 21 1,150 2,311 Budget 93 113 13,650 28,842 Others 261 94 5,266 10,434 TOTAL 603 564 83,382 165,846 Source: Visit London; London Development Agency (latest available data) Visit London’s further analysis of the size of London’s hotels indicates that around 23% of the city’s hotels (in all categories) have more than 200 rooms, thus 77% of the city’s hotels have less than 200 rooms. The average size of a five star hotel in the city is 181 rooms. These statistics emphasise the diverse range of supply in the market, in terms of size and location as well as quality. The past decade has seen a greater variety of supply, with a new genre of boutique/designer hotels opening in the city as well as branded budget properties and branded aparthotels. In 2006 Visit London estimated that some 16% of the city’s supply was in the budget hotel category. Undoubtedly this is now a higher proportion. The boutique/designer properties have generally been positioned at a relatively high position in the market but none have rivalled the city’s truly five star properties in performance terms.
Nevertheless some have made it into the top twenty properties in terms of average achieved 68 room rate. Properties such as Number One Aldwych, those operated by the Firmdale Page
Group and The Metropolitan (as examples) have demonstrated resilience and sustainable levels of performance over a number of years and are now a well-established part of the London hotel scene. The design, fashion and style of some of these properties have TERMINOLOGY influenced trends in the mainstream hotel market in a city that is often seen at the cutting edge of fads and fashion. According to The London Development Agency’s latest development guide (2010), “It is estimated that there are approximately 134,230 hotel rooms in London, with the supply of GLOSSARYOFINDUSTRY new hotel rooms growing significantly over the past 20 years.”
Supply Growth Between 2005 and 2008, the city underwent a period of rapid supply growth, in a similar fashion to the growth seen between 1998 and 2000. In the run up to the Millennium Year, there were around 12,000 new hotel rooms added in the city (1995-2000), and more than a further 15,000 rooms came on stream between 2001 and 2007, with 1,991 of them in 2007. According to London & Partners/TRI’s most recent Development Log publication, produced in January 2012, a total of 6,611 bedrooms will enter the London hotel market over the course of 2012. The report states that 2,335 rooms have already been added to London stock this year, with a further 4,276 to be added over the year. There are also plans to add a further 1,496 rooms to the London market in 2012, although these have not been confirmed. This supply pipeline for 2012 is significant as the average new build rate between 1989 to 2010 sat at just under 200 bedrooms per year. This huge increase is primarily attributable to the fact that London will host the Olympic Games in 2012. Of the ca.12,000 new hotel bedrooms forecast to be created between 2012 and 2014, ca.44% of these are expected to be in the budget or 2 star market, whilst the 3 and 4 star
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London Hotel Market
markets will account for 21% and 16% respectively. Rooms in the 5 star and luxury markets will account for 15% and 2 % respectively, whilst the Boutique sector will also provide 2%.
Prospects (Source: PwC UK Hotels Forecast) Whilst predictions for the UK economy become bleaker and evidence begins to suggest the possibility of a double dip recession, it seems that London hotels have so far weathered the economic conditions far better than that of the hotel sector in any other part of the UK. Particularly of note is that the depreciation of Sterling, down around 25% on average on 2007 peaks, has encouraged international visitors to travel to London. As well as strong demand from international leisure and business visitors in London, the Arab Spring in particular is thought to have boosted demand for upscale and luxury hotel rooms in the London area. The favourable exchange rate seems to be perhaps the key factor influencing the London hotel market, with favourable exchange rates to the Dollar and Euro against the Sterling. London has a higher proportion of foreign visitors than the UK regions and many European cities. As a result, the city appears to be a relatively cheap destination which has, to some extent, prevented the need for room rates to be discounted heavily as has been seen in other parts of the UK.
New developments
In our overview of the London hotel market we have demonstrated that, as is usual, the 69
London hotel market has a large number of projects on the drawing board and a steady Page
stream of new openings and refurbishment projects. Typically this tends to be boosted during periods of strong trading and subsides slightly in trough periods. Thus, in current economic and trading circumstances the development pipeline is slowing and it is more TERMINOLOGY difficult to get new projects ‘to the finishing line’. Nonetheless with the length of the planning and financing cycle, and the 2012 Olympic Games on the horizon, there are still many projects which have been a long time in gestation, still moving forward.
The tables on the following pages show both recently opened hotels and those which have GLOSSARYOFINDUSTRY had planning permission approved in all London locations.
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London Hotel Market
Recently Opened London Hotels RECENTLY OPENED HOTELS HOTEL LOCATION BOROUGH ROOMS DEVELOPMENT TYPE GRADE DATE OPENED AFFILIATION BRAND EXTENSION DEVELOPMENT,OWNER, OPERATING INFORMATION Pestana Chelsea Bridge Chelsea Bridge Wharf Wandsworth 218 New Development 4 2010 Pestana Pestana Grupo Pestana Westminster Bridge Roundabout Waterloo Lambeth 1037 New Development 5 2010 Park Plaza Park Plaza Marlbray H10 Waterloo St Georges Circus, Waterloo Road, SE1 8RQ Southwark 177 New Development 4 2010 H10 Hotels H10 Hotel H10 Hotels Hotel Verta Battersea Heliport, Bridges Wharf Wandsworth 70 New Development Boutique 2010 Von Essen Hotels Von Essen Von Essen Hotels Travelodge Waterloo St Georges House, Waterloo Road, SE1 8UX Southwark 279 New Development Budget 2010 Travelodge Travelodge Travelodge Holiday Inn Express, London Heathrow Terminal 5 Shepiston Lane, UB3 1LP Hillingdon 125 Rebrand 2 2010 InterContinental Hotels Group Holiday Inn Express Crimson Hotels -Former Comfort Hotel Holiday Inn Express London -Stratford 196 High Street, E15 2NE Newham 39 Extension 2 2010 InterContinental Hotels Group Holiday Inn Express TLC Group Savoy Hotel 189 Strand, WC2R Westminster 5 Redevelopme nt Luxury 2010 Fairmont Hotels & Resorts Fairmont Redevelopment of Hotel Tune Hotel, Waterloo Former HQ of Lambeth Building Society, corner of Westminster Bridge and Baylis Road Lambeth 79 New Development Budget 2010 Tune Hotels Tune Hotel Queensway Hospitality, Tune Hotels Town House Hotel Patriot Square, E2 9NF Tower Hamlets 98 New Development 4 2010 Town Hall Hotels Town Hall Hotel Town Hall Hotels Hotel Indigo London Tower Hill 142 Minories, EC3N 1LS City 46 New Development 4 2010 InterContinental Hotels Group Indigo Thai Square Restaurant Group Costello Palace Hotel 364 Seven Sisters Road N4 2PG Haringey 21 Extension 3 2010 Independent Independent Costello Palace Hotel Premier Inn Orbit House Orbit House, Ritz Parade, Hangar Lane W5 3RA Ealing 167 New Development Budget 2010 Whitbread Premier Inn Ryhill Properties Ltd, Whitbread Plc 1446 High Road 1446 High Road, N20 9BS Barnet 96 New development Budget 2011 Travelodge Travelodge Newmark Properties, Travelodge Mint Hotel Pepys Street, EC3N 2NU City 583 New Development 4 2011 Mint Hotels Mint Hotel Mint Hotel Euro Traveller Hotel Scanmoor House, 56-60 Northolt Rd Harrow 40 New Development 2 2011 Euro Traveller Hotel Euro Traveller Hotel Euro Traveller Hotel Group
W Hotel Swiss Centre, Leicester Square Westminster 194 New Development 5 2011 Starwood W McAleer & Rushe 70
Renaissance St Pancras Chambers King's Cross/St Pancras Station Camden 245 New Development 5 2011 Marriott Marriott Marriott/Manhattan Loft Hilton Syon Park Hotel Syon Park Hounslow 155 New Development Luxury 2011 Hilton International Waldorf Astoria Ability Group, Hilton Page
Corinthia Hotel Northumberland Avenue Westminster 350 New Development 5 2011 Corinthia Conrinthia Crown Estate St John Hotel Leicester Square, China Town Westminster 15 New Development 4 2011 Independent Independent Fergus Henderson, Trevor Gullivar Holiday Inn Express, London Heathrow Terminal 5 London Road, UB3 1LP Hillingdon 124 New Development 2 2011 InterContinental Hotels Group Holiday Inn Express Crimson Hotels Premier Inn Greenwich Greenwich High Road Greenwich 150 New Development Budget 2011 Whitbread Premier Inn Whitbread, Premier Inn Grange Hotel 44-56 Prescot Street Tower Hamlets 380 New Development 5 2011 Grange Hotels Grange Hotel Global Grange CONCLUSION Travelodge Ealing 77 Uxbridge Road, W55ST Ealing 99 New Development Budget 2011 Travelodge Travelodge Stevens Properties Ltd & Travelodge Forest Gate Hotel 105 Godwin Road, E7 OLW Newham 18 Extension 2 2011 Independent N/A Forest Gate Hotel Ruskin Arms 366 High Street, E12 6PH Newham 50 Redevelopment N/A 2011 Independent N/A Ruskin Arms Public House 1 Poyle Road, TW6 3XZ Poyle, Heathrow Hillingdon 350 New Development 4 2011 Hilton International Hilton Shiva Hotels/Hilton Former Playboy Club & Casino 45 Park Lane Westminster 50 New Development Luxury 2011 Dorchester Collection Dorchester Collection Dorchester Collection Ibis Hotel, Greenwich 30 Stockwell Street, SE10 8EY Greenwich 82 Extension 2 2011 Accor Ibis Accor Aloft Excel Royal Victoria Dock, E16 1XL Newham 252 New Development 3 2011 Starwood Aloft Abu Dhabi National Exhibitions Company The Montcalm at the Brewery London Chiswell Street, EC1Y 4SA City 181 New Development 4 2011 Montcalm Hotels Montcalm Hotel Precis Holdings Travelodge City Of London 21-23 St Swithin's Lane, EC4N 8AL City 75 New Development Budget 2011 Travelodge Travelodge Travelodge Premier Inn Islington 18-19 Parkfield Street Islington 96 New Development Budget 2011 Whitbread Premier Inn Whitbread, Premier Inn Holiday Inn Express Bugsby Way, Greenwhich, SE10 0GD Greenwich 94 Extension Budget 2011 InterContinental Hotels Group Holiday Inn Express Somerston Hotels (Greenwich) Ltd Longford House 420 Bath Road, UB7 0RF Hillingdon 400 New Development Budget 2012 Whitbread Premier Inn Arora Developments Belgraves 20 Chesham Place, SW1X 8HQ Kensington & Chelsea 85 Extension 5 2012 Thompson Hotel Thompson Hotel Harilela Group, Thompson Hotels Travelodge Twickenham Regal House, London Road, TW1 3QS Richmond 111 New Development Budget 2012 Travelodge Travelodge Travelodge Tune Hotel, Liverpool Street 12-14 Folgate Street, E1 6BX Tower Hamlets 183 New Development Budget 2012 Tune Hotels Tune Hotel Hazlitts Ltd, Conversion of Office Building Premier Inn Stratford Block 3, Stratford City Development, E15 2NQ Newham 267 New Development Budget 2012 Whitbread Premier Inn Premier Inn, Whitbread Travelodge Stratford Kwik Fit Euro Ltd, 1-4 Park Lane, E15 2JG Newham 188 New Development Budget 2012 Travelodge Travelodge Travelodge Premier Inn Leicester Square Former Queen's Hotel, Leicester Square Westminster 84 New Development Budget 2012 Whitbread Premier Inn Soho Estates/Whitbread Kensington Close Hotel Wright's Lane, W8 5SP Kensington & Chelsea 193 Extension 3 2012 N/A N/A Kensington Close Hotel Cricklewood Broadway 214-218 Cricklewood Broadway, NW2 Barnet 96 New Development Budget 2012 Travelodge Travelodge Travelodge Travelodge Edmonton Shopping Centre The Broadway, N9 Enfield 73 New Development Budget 2012 Travelodge Travelodge St Modwin Properties Travelodge Greenwich Greenwich High Road Greenwich 90 New Development Budget 2012 Travelodge Travelodge Travelodge Jolly St Ermins Caxton Street, SW1H 0QW Westminster 78 Extension 4 2012 Independent Independent St Ermins Hotel Former Whtibread Brewery Chiswell Street, EC1Y 4SA City 235 New Development 4 2012 N/A Independent Precis Holdings - Montcalm Hotels Source: CBRE Hotels Research and London Hotel Development Monitor, January 2012 (London & Partners and TRi Hospitality Consulting)
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London Hotel Market
Proposed London Hotels (2012 – 2014)
UNDER CONSTRUCTION HOTEL LOCATION BOROUGH ROOMS DEVELOPMENT TYPE GRADE DATE DUE BRAND AFFILIATION BRAND EXTENSION DEVELOPMENT,OWNER,OPERATOR INFORMATION Thompson Hotel/ Sheraton Belgravia 20 Chesham Place, SW1X 8HQ Kensington & Chelsea N/A Extension 5 2011 Thompson Hotel Thompson Hotel Harilela Group, Thompson Hotels Travelodge City of London 21-23 St Swithin's Lane, EC4N 8AL City 75 New development Budget 2011 Travelodge Travelodge Travelodge, Open in September 2011 Nicoll Road car park 9 Nicoll Road, NW10 4LX Brent 120 New Development Apart Hotel 2011 N/A N/A Hallmark Estates Premier Inn Islington 18-19 Parkfield Street Islington 96 New Development Budget 2011 Whitbread Premier Inn Whitbread Holiday Inn Express Bugsby Way, Greenwich, SE10 0GD Greenwich 68 Extension 2 2011 InterContinental Hotels Group Holiday Inn Express Somerston Hotels (Greenwich) ltd Adria Hotel 88-89 Queens Gate SW7 5AB Kensington & Chelsea 28 New Development 4 2011 Chorus Hotels N/A Des Res Ltd, Chorus Hotels Hyde Park Premier London 14-16 Craven Hill, W2 3DU Westminster 9 Extension 3 2011 Independent N/A Ashurst International Ltd Park Lane Mews Hotel Stanhope Row, W1J 7BT Westminster N/A Redevelopment & Extension 5 2011 N/A N/A Premio Group Holdings Ltd Citizen M London 20 Lavington Street, SE10 Southwark 209 New Development 2 2012 Citizen M Citizen M Citizen M Travelodge Teddington Park House, Station Road Richmond 113 New Development Budget 2012 Travelodge Travelodge BA Partnership, Travelodge Holidayy Inn Stratford City Stratford Rail Lands, E15 Waltham Forest 188 New Development 3 2012 IHG Holiday Inn Stratford City Developments Acton Town Hotel 109-113 Gunnersbury Lane Ealing 28 Extension Budget 2012 Independent Independent Acton Town Hotels Holiday Inn Express Earls Court 295 North End Road Hammersmith & Fulham 50 Extension Budget 2012 IHG Holiday Inn Express Splendin Hotels InterContinental Hotel Queen Anne Chambers Westminster 254 New Development 5 2012 InterContinental Hotels Group InterContinental Spledid Hotels/InterContinental Ibis hotel, Atlantic house 1 Rockley Road, W14 0DJ Hammersmith & Fulham 128 New Development 2 2012 Accor Ibis Tops Shop Precincts Ltd, Accor Hayes Central Hayes Goodsyard Hillingdon 126 New Development 4 2012 N/A N/A Ballymore The Quadrant, Regent Street Café Royal Westminster 160 New Development 5 2012 Alrov Hotel Alrov Hotel Alrov Group
London Bridge Tower London Bridge Southwark 195 New Development 5 2012 Shangri-La Hotels Shangri-La Teighmore Ltd, Shard Development 71
Hotel Ibis Blackfriars 46-49 Blackfriars Road Southwark 297 New Development Budget 2012 Accor Ibis McAleer & Rushe Ltd Novotel London Blackfriars 46-49 Blackfriars Road Southwark 182 New Development 4 2012 Accor Novotel McAleer & Rushe Ltd Page
Apex Temple Court Hotel 1-2 Serjeants Inn, EC4Y 1LL City 185 New Development 4 2012 Apex Hotels Apex Apex Hotels Citibank House Strand/Aldwych Westminster 173 New Development 5 2012 Sol Melia Sol Melia Sol Melia Travelodge Twickenham Regal House, London Rd, TW1 3QS Richmond 111 New Development Budget 2012 Travelodge Travelodge Travelodge
Hampton by Hilton Croydon 29-30 Dingwall Road CR0 2NB Croydon 120 New Development 3 2012 Hilton International Hampton by Hilton Hilton, Phoenix Property Investment Company Ltd CONCLUSION Travelodge, Bromley 37 London Road Bromley, BR1 1DG Bromley 92 New Development Budget 2012 Travelodge Travelodge Skillcrown Homes Ltd, Travelodge Ltd Premier Inn Stratford Block 3Stratford City Development, E15 2NQ Newham 267 New Development Budget 2012 Whitbread Premier Inn Premier Inn, Whitbread Travelodge Stratford Kwik Fit Euro Ltd 1 -4 Park Lane Stratford London E15 2JG Newham 188 New Development Budget 2012 Travelodge Travelodge Travelodge Premier Inn Leicester Square Former Queen's Hotel, Leicester Square Westminster 84 New Development Budget 2012 Whitbread Premier Inn Soho Estates/Whitbread Holiday Inn Commercial Road 261-267 Commercial Road, E1 2BT Tower Hamlets 130 New Development 3 2012 InterContinental Hotels Group Holiday Inn Sleeptex The Yorkshire Grey Pub 335-337 High Street, E15 2TF Newham 80 New Development N/A 2012 N/A N/A Synthesis Architects, Gromore Ltd Kensington Close Hotel Wright's Lane, W8 5SP Kensington & Chelsea 193 Extension 3 2012 N/A N/A Kensington Close Hotel Hilton Hotel Bear Lane/Great Suffolk Street, SE1 Southwark 280 New Development 5 2012 Hilton Hilton Splendid Hotels, Hilton Coventry House and Spencer House 3-4 South Place, EC2M 2GT Islington 80 New Development 4 2012 N/A N/A FREP (South Place) Ltd Shubette House Olympic Way, Wembley Brent 225 New Development 3 2012 Rezidor Park Inn Fleming Developments/Rezidor Bulgari 163-169 Knightsbridge, SW7 1DW Westminster 78 Demolition and redevelopment N/A 2012 Marriott Bulgari K007 Developments Hilton -Wembley Wembley Stadium Brent 306 New Development 5 2012 Hilton International Hilton Quintain Estates/Hilton - Expected to open in September 2012 Cricklewood Broadway 214-218 Cricklewood Broadway NW2 Barnet 96 New Development Budget 2012 Travelodge Travelodge Travelodge Yeoman House 57-63 Croydon Road, SE20 7TS Bromley 89 New Development N/A 2012 N/A N/A Penge Partners Great Northern Hotel Kings Cross Camden 94 Redevelopment Boutique 2012 N/A N/A Argent Premier Inn Ealing 22-24 Uxbridge Road, W5 2BU Ealing 165 New Development Budget 2012 Whitbread Premier Inn Viper Ltd & Whitbread Travelodge Greenwich Greenwich High Road Greenwich 90 New Development Budget 2012 Travelodge Travelodge Travelodge 11-13 Knightsbridge 11-13 Knightsbridge, SW1X 7LY Westminster 38 New Development 5 2012 N/A N/A Arab Investments Ltd Premier Inn Lavington Street/Great Suffolk Street, SE1 0 Southwark 122 New Development Budget 2012 Whitbread Premier Inn Whitbread Premier Inn 1071 Sealand Road 1071 Sealand Road Hillingdon 240 New Development Budget 2012 Whitbread Premier Inn Arora International Lower Mortlake Road 136-138 Lower Mortlake Road TW9 2JZ Richmond 100 New Development Budget 2012 Whitbread Premier Inn The Big Yellow Self Storage Company Ltd Woburn House 155-157 Falcon Road SW11 2PD Wandsworth 77 New Development Budget 2012 Travelodge Travelodge Oak Trading Co Tune Hotel, Liverpool Street 12-14 Folgate Street , E1 6BX Tower Hamlets 183 New Development Budget 2012 Tune Hotels Tune Hotel Hazlitts Ltd, Conversion of Office Building 5 Lower Belgrave 5 Lower Belgrave Street, SW1W 0NR Westminster 106 Conversion N/A 2012 N/A N/A Grosvenor Estate Belgravia Firmdale Ham Yard Hotel Ham Yard site near Regents Street Westminster 100 New Development 5 2012 Firmdale Hotels Firmdale Firmdale Staybridge Suites Stratford Stratford Rail Lands, E15 Waltham Forest 162 New development 3 2012 IHG Staybridge Suites Stratford City Developments
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London Hotel Market
UNDER CONSTRUCTION HOTEL LOCATION BOROUGH ROOMS DEVELOPMENT TYPE GRADE DATE DUE BRAND AFFILIATION BRAND EXTENSION DEVELOPMENT,OWNER,OPERATOR INFORMATION Holiday Inn London Barking Wakerin Road, IG11 Barking & Dagenham 207 New Development 4 2013 IHG Holiday Inn Coplan Estates, Key Homes Fund Travelodge, Waltham Forest 1-6 Hoe Street, E17 9QF Waltham Forest 88 New Development Budget 2013 Travelodge Travelodge Solum Regeneration Manchester Sq Fire Station 1 Chiltern Street, W1U 7PA Westminster 27 New Development Luxury 2013 Andre Balazs Hotels Andre Balazs Hotels The Portman Estate and Chiltern Street Investments Hampton by Hilton Waterloo Land adjacent to Partnership House, SE17 Lambeth 278 New Development 2 2013 Hilton International Hampton by Hilton Shiva Hotels, Hilton Ar'otel Hoxton Old Street, Rivington Street Hackney 350 New Development 4 2013 Park Plaza Ar'otel Squire & Partners, Park Plaza Cheval Apart Hotel Three Quays , Lower Thames Street City 77 New Development 4 2013 Cheval Group Cheval Apartments Cheval Group Park Inn ExCel ExCel Newham 223 New Development 3 2013 Rezidor Park Inn Rezidor New Roman House East Road, N1 6AD Hackney 251 New Development Budget 2013 Whitbread Premier Inn Rocket Investments, Whitbread Balderton Road 8 Balderton Road, W1K Westminster 73 Conversion 5 2014 Corbin & King Hotels Corbin & King Hotels Grosvenor West End Properties - Conversion to boutique hotel Malcolm House & Fulton House Fulton Road, Wembley HA9 0TF Brent 262 New Development 4 N/A Summit Hotels Summit Quintain Estates and Summit Hotels Ltd Drayton Court The Avenue, West Ealing, W13 8PH Ealing 27 New Development N/A N/A N/A N/A Cliff Walsingham & Co Battersea Reach Gargoyle Wharf, York Road Wandsworth 150 New Development N/A N/A N/A N/A Treasury Holdings UK ltd Bond Street 26-42 Bond Street, W5 5AA Ealing 50 Conversion N/A N/A N/A N/A Tubbs Davis Partnership Source: CBRE Hotels Research and London Hotel Development Monitor, January 2012 (London & Partners and TRi Hospitality Consulting)
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CONCLUSION