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  • Writer's pictureKaren Fletcher

The SectorScope Analysis: Hotels

Updated: Jun 29, 2023

February 2023

There are around 10,000 hotels in the UK. However, this broad category includes the largest London luxury hotels and small regional B&Bs. The sector is estimated to be worth around £19 billion in revenues.

The UK’s biggest hotel brands by the number of rooms are:

2. Factors impacting building services specification in the hotel market Heating, cooling and hot water are essential services in hotels since they’re central to providing primary comfort conditions for guests – who wants an overheated hotel room or a cold shower?

Decisions on the specification of HVAC systems for new hotels or refurbishments are therefore based heavily on performance and consistent delivery of heat, cooling and hot water. However, in 2023 there are some other important factors influencing these choices.

Energy efficiency Rising energy prices have significantly impacted the hotel sector. As a result, some operators have decided to close rooms or restaurants to keep the rest of the hotel operational. Smaller outlets may not survive the energy crisis.

Figures on energy use in hotels are relatively tricky to find. However, the Energy & Environment Alliance Report from 2020 includes figures on energy use in the hotel sector from 2018. At that time, the UK hotel sector's energy use intensity (EUI) had remained flat in the previous decade. But, overall, UK EUI has reduced over that period, making the hotel sector one of the less energy-efficient business sectors in the UK economy.

Within hotel buildings, heating and hot water production account for around 45% to 50% of energy costs. Air conditioning can be approximately 15% and ventilation another 15%. However, it is difficult to generalise with these figures since much depends on the facilities within a hotel. For example, gyms, swimming pools and spa facilities will increase energy use.

Energy use is closely linked to profitability for the hotel sector. Energy-efficient building services can therefore save operational costs and put money back on the bottom line for hotel owners. This is a strong incentive for them to put efficiency high on the list of factors for services specification.

Sustainability Closely linked to energy efficiency is sustainability. Many large hotel brands have a global presence and have made substantial commitments to reducing their carbon footprint. More importantly, institutional investors in hotel chains and new hotel builds put ESG (environment, social and governance) considerations at the forefront of investment decisions. As a result, green leases and sustainability-linked loans are also becoming more widespread in the market.

In the UK, legislation around sustainability is also driving change in building design and operation. For example, hotels must meet the requirements of Part L for lower carbon operational carbon emissions. Minimum Energy Efficiency Standards (MEES) are also tightening, and from 2027 will require a minimum EPC rating of C, with B as the target for 2030.

The drive to decarbonise the UK economy is also important for the hotel sector. Gas boilers should no longer be the go-to for heating and hot water production. Electric alternatives such as heat pumps are being supported by government policy.

Customer choice is also crucial in the hotel sector. There are many brands and alternatives for business and leisure travellers to consider. And today’s travellers are very aware of their impact on the planet. So they want to see the hotel sector doing its bit for the environment (and not just paying lip service). Corporate travellers will also have their own ESG policies in mind and want to work with hotel brands that align with these.

For building services systems, energy efficiency must go hand-in-hand with sustainability features such as low embodied carbon, low GWP refrigerants and the ability to tap into the UK’s green electricity network – or to work alongside on-site electricity generation systems such as PVs.

Flexibility The lockdowns of 2020 and 2021 forced hotels to close their doors. Re-opening has involved refreshing their offering and responding to changing business and consumer needs.

This has seen hotels tap into the growing need for ‘third space’ working – not the office, not home – that an increasing number of remote workers are looking for. Digital nomads seek workplaces with good internet access, a desk and decent coffee. Hotels have responded by turning lobbies into hot-desking spaces or renting out rooms for daytime visitors looking for a quiet spot for video conferencing.

There has also been increased development of ‘aparthotels’ for long-term stays. While these seem to be more prevalent in the Far East, these trends are quick to catch on globally, so it’s likely that we may see more of these in the UK.

The result for building services is that systems must be as flexible as possible. For instance, today’s open plan lobby may be divided into hot desking cubicles. With a focus on refurbishing older hotel buildings that may not match requirements for energy efficiency, there is a place for building services systems that lend themselves to easy retrofitting.

Automation Another factor facing UK hotels is the challenge of finding staff. Many hotel workers, from the front desk to behind the scenes, came to work in the UK from the EU. Post-Brexit, these employees are harder to find, leaving many hotels scrambling to meet their staffing needs.

With this in mind, systems that can be automated or require less maintenance are increasingly desirable. This includes remote monitoring and control systems and services that can pre-empt system breakdowns that might result in loss of hot water or cooling, for example.

From the guest’s perspective, low-touch controls are ideal as personal hygiene awareness has peaked. In addition, easy-to-use in-room controls that provide a comfortable environment are a bonus, particularly in high-end hotels.

3. The future of the UK hotel sector Despite its challenges, the UK hotel sector has seen significant growth since 2020, which looks set to reach around 20% in 2023. Property specialist Knight Frank noted that investor activity in the UK hotel sector wavered slightly in 2021 but is expected to settle and grow with £500 million of asset sales completed in early 2023.

Refurbishment projects are underway on some of the UK’s leading hotels and across some well-known chains as they prepare to attract visitors. Environmental concerns about taking flights (as well as continued travel upheaval from Covid) mean the UK ‘staycation’ market is strong. Hotels outside London, such as Cornwall and the South West, are making the most of a home-grown market.

Hotel chains face increasing competition from Airbnb and boutique ‘experience’ hotels as travellers seek out authentic local accommodations. Providing high levels of comfort is one-way traditional hotels can compete. This has seen some hotels adding features such as spas, gyms and pools to attract a more lucrative customer base.

The hotel sector has undergone a significant shift in its market over the past three years, and its ability to survive and thrive in the future will depend on flexibility and operational efficiencies. Building services must respond to these requirements to support hotel clients.

4. What this means for marketers, sales teams and product developers

* Emphasise the energy efficiency factors of your products Provide performance figures wherever possible and show how they translate into energy use. Hotel owners are all about the cost of running each room, so break down your numbers so they can see the savings.

* Environmental issues include embodied and operational carbon It is becoming more important to show the embodied carbon of building services products (see CIBSE TM65 for current calculation methods). For example, low-GWP refrigerants are increasingly important, so if your products use these, make sure that fact is included in marketing and sales information.

* Be flexible in every sense The ability to deliver an upgraded air conditioning or heating system to an existing hotel is highly desirable. Minimum disruption is essential to hotel managers, so if it can be done without shutting down the whole hotel, that is a strong selling point.

The hotel sector has had to adapt to new ways of doing business over the past few years, and there is a good argument for helping clients in this sector by doing the same. For example, offering service and maintenance packages with equipment. Or offering ‘heating/cooling as a service’ may well open doors to a sector increasingly open to new ideas.

5. Insider tips – finding the right lead in the hotel sector The hotel market is unusual in that ‘owners’ may not necessarily be the people who make specifying decisions about HVAC equipment. This can challenge sales teams new to working with the sector. But this can vary depending on the brand. So it is important to identify the right lead when approaching this market.

There are three main types of hotel ownership and operation model in the UK:

Leasing The owner of a hotel building leases it to a hotel chain responsible for all hotel expenses. The owner will earn a fixed rental fee or may take a percentage of revenues after expenses (which is a higher-risk approach).

Management An investor purchases a hotel building but has no experience in the sector. In this case, the owner may bring in a hotel management company. The owner retains responsibility for the costs of operating the building, but the management company makes the operational decisions.

Franchising The franchise approach to hotel ownership became more popular worldwide as leading hotel brands wanted to reduce exposure to the debt and risk inherent in borrowing cash to purchase buildings. Therefore, they use franchisees to operate hotels under their brands rather than own the buildings. This is known in commercial property circles as an ‘asset light’ model.

The benefit of this approach for the building owner is that after paying the franchise fee, their hotel becomes part of a flagship brand with marketing support and consumer recognition. Franchisees also have access to global booking systems, which are set up and ready to go with full support. This approach means the big brands can also tap into local knowledge. Local franchisees may introduce local amenities to suit the demands of their customers, such as speciality restaurants or rooftop bars.



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