HOTEL DEMAND AND FEASIBLITY STUDY HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS Planning Application Support On Behalf of St George South London Limited May 2012 CONTENTS 1. Background and Method of Approach....................................... 3 2. Executive Summary ................................................................... 5 3. Site Appraisal ......................................................................... 10 4. Hotel Development ................................................................. 16 5. Economic Impact ..................................................................... 26 6. Viability of Implemented 261 Bedroom Hotel ......................... 29 7. Viability of Proposed 152 Bedroom Hotel ................................ 41 8. Conclusion .............................................................................. 54 APPENDICES A. Glossary of Industry Terminology............................................ 59 B. Locational Analysis ................................................................. 62 C. London Hotel Market .............................................................. 70 D. London Transactional Market Commentary ............................. 81 E. Implemented 261 Bedroom Hotel - Competitive Analysis & Demand Profile ....................................................................... 85 F. Proposed 152 Bedroom Hotel - Competitive Analysis & Demand Profile ....................................................................... 92 G. Comparison of Implemented 261 Bedroom Hotel and Proposed 152 Bedroom Hotel ............................................... 100 H. Lifestyle Hotel Images ........................................................... 104 CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS 1. BackgroundBackground and Method of Approach Introduction Planning permission was granted in 2009 for a mixed use development at One Blackfriars which includes a luxury hotel comprising 261 bedrooms (LPA Ref. 06-AP-2117) - herein referred to as the „Implemented 261 bedroom hotel‟. St George has acquired the freehold interest of this Site and are proposing a new development which will provide a high quality mixed use development including high end residential in a newly constructed tower, affiliated retail space at ground floor level and a 152 bedroom upscale/lifestyle hotel within the adjacent Rennie Street Building – herein referred to as the „Proposed 152 bedroom hotel‟. CBRE Hotels have been retained by St George to provide an independent overview and appraisal of the feasibility of the Implemented 261 bedroom hotel and the Proposed 152 bedroom 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, viability and deliverability the Proposed 152 bedroom hotel may have once built and open. CBRE Hotels' offers a wide range of services to support hotel investors, lenders, owners and developers. Our well established and experienced team have provided development consultancy advice, operator selection, feasibility studies and planning support for a variety of hotel schemes in London including The Metropole Building (now operating as The Corinthia), Heron Plaza, proposed Art‟otel Shoreditch, Chelsea Barracks, Great Northern Hotel, Central St Martin‟s, Café Royale and Battersea Power Station. 3 Page Scope of Works CBRE Hotels is to appraise the site and the wider area to assess the site‟s suitability for the Implemented 261 bedroom hotel and Proposed 152 bedroom hotel, as well as to understand accommodation supply and demand dynamics for London‟s Southbank. On the basis of these findings the report will seek to assess the viability of the Implemented 261 THODOFAPPROACH bedroom hotel and the Proposed 152 bedroom hotel. Our demand and feasibility report will address the following topics: 1. BACKGROUND1. AND ME Site appraisal and locational analysis; Critique of the approved plans for the Implemented 261 bedroom hotel and Proposed 152 bedroom hotel; Overview of the London and the London Borough of Southwark hotel markets; Financial appraisal and viability of each of the developments; Views on the suitability and brand positioning for the proposed offering. Method of Approach Our method of approach included the following steps:- . Inspection of the 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. CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS 1. Background and Method of Approach . Researching advertised rates for hotels in the immediate area. Analysis of information provided by STR Global on the historic hotel trading performance (occupancy and Average Daily Rate (ADR)) achieved in London and the direct competitive set. Review of floor plans of the Proposed 152 bedroom hotel. Once all our research has been undertaken, we will estimate future projections for an assumed competitive set of hotels and also more specifically for the Proposed 152 bedroom hotel at One Blackfriars Road. Provide an indicative view of upscale/lifestyle hotel values in London (as well as boutique hotels by way of comparison). Compare the viability of the Proposed 152 bedroom hotel with the Implemented 261 bedroom hotel in terms of indicative values and build costs. Assess the current viability of the Implemented 261 bedroom hotel in its present form. We are obliged to point out that all figures and values provided are indicative and for your general guidance purposes only. They should not be relied upon for security of loan or any other formal purpose. 4 Page THODOFAPPROACH 1. BACKGROUND1. AND ME CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS 2. Executive Summary The Site and Surrounding Area The Site is situated on the Southbank of the River Thames at the southwest end of Blackfriars Bridge, set back from the river by one block. It benefits from its close proximity to popular attractions on the Southbank such as the Tate Modern, National Theatre, Globe Theatre, London Eye, Borough Market and London Dungeons. The site benefits from excellent public transport links. The new southern entrance to Blackfriars station, which opened at the end of February 2012, provides direct access to the National Rail network and London underground system, via the Circle and District lines. Bus routes and Southwark underground station (0.3 miles away), served by the Jubilee line, connect the site to Canary Wharf and the West End. The City of London can be reached by foot in less than ten minutes. The Implemented 261 bedroom hotel is part of a wider mixed use development of the Site granted planning permission in 2009 and implemented in 2011. However, since then, change in the economic environment and hotel market has led the new owners to consider the content of the planning permission. This is to ensure the mix of uses (including the scale and format of the hotel) is realistic, viable and deliverable. Our report provides an independent overview and appraisal of the site for hotel use and the feasibility of the Implemented 261 bedroom hotel, which is designed at the luxury end of the market and the Proposed 152 bedroom hotel, which is tailor made for an upscale/lifestyle option. 5 Page Implemented 261 Bedroom Hotel The Implemented 261 bedroom hotel was to be part of a wider 52 storey mixed use development that also included residential and retail units and an observation deck or “Sky Deck” on the top two floors that were to be open to paying members of the public. Jumeirah expressed their interest in managing the whole development when planning EXECUTIVE2. SUMMARY permission was granted in 2009, including the residential and public areas. However, no actual agreement was signed and Jumeirah are no longer associated with the development. Managing the residential apartments would have made the hotel development more attractive to Jumeirah in this location. The Implemented 261 bedroom hotel was to be located on levels 2 through to 26 of the tower with ancillary meeting and conference facilities located in the basement and in the adjacent Rennie Street Building. Bedrooms would have been an average of 50m² which is typically the room size of a luxury plus hotel. The integration of the hotel in the main tower would provide opportunities to create an iconic hotel, nevertheless, there are important drawbacks which are important to be considered, which include higher construction costs, inefficient floor plan layouts for servicing guest rooms and operational difficulties. We understand the Sky Deck visitor attraction was to be managed by the hotel operator, which at the point of planning permission was envisaged to be Jumeirah. The feasibility of this is questionable as hotel operators are not experienced enough to take on such a mandate and are generally not interested to do so. There have been many new five star/luxury bedrooms which have entered the market in recent years. In addition, numerous luxury hotel developments are due to enter the market which will either compete directly or indirectly with the Implemented 261 CBRE HOTELS | HOTEL DEMAND AND FEASIBILITY STUDY - ONE BLACKFRIARS 2. Executive Summary bedroom