Cost model: Mixed-use hotel schemes

Cost model Dec 2019 Aerial-view-of-W-Hotel

New hotels are increasingly being built as part of larger, mixed-use projects – and 60% of hotel construction is now happening outside London

01 / Market overview and sector characteristics

Whether it’s a calming weekend in the country, a much-needed holiday for all the family or a midweek business trip, choosing the right hotel is a priority. And with more and more people travelling for work and leisure, the UK’s hotel market continues to expand.

According to research by Knight Frank, the UK hotel sector grew by 2.9% in 2019, equating to an additional 19,300 rooms. While London accounts for about 40% of new hotels, regional cities such as Edinburgh, Brighton, York and Birmingham are increasingly becoming hotspots for hotel development.

The shift towards sale-and-leaseback in the hotel sector has placed greater emphasis on the split between the operator and the developer. Developers are now responsible for the construction and maintenance of the asset, while the operator is responsible for implementing the brand. Developers and their investors are willing to accept the risk profile of non-guaranteed income, because this can be improved through effective asset management. Long-term value is mainly generated through service quality, driven by building a high‑quality environment. Developers must balance the needs of operators and avoid over-specification, while retaining flexibility, since an operator may change over time. 

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