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Could hoteliers move into empty high streets?

03 March 2020 by

With dozens of department stores lying empty and landlords eager to fill their spaces and pockets, savvy operators could use the UK's retail crisis to their advantage. David Harris find out how

Britain's high streets might be in crisis for retailers, but hoteliers could be poised to take advantage.

As big shops shrink, go bust or move out of venerable old buildings, several things happen. Landlords try to work out a strategy, local councils worry about town centres becoming dilapidated, and other businesses consider whether they can make profitable use of the space available.

On the high streets, as elsewhere, a nightmare for one business is an opportunity for another.

Hence the emergence of a number of forward-thinking hoteliers who are looking keenly at town centres. Rob Paterson, chief executive of Best Western in the UK (pictured right), is among them. He said that two of the group's boutique brands, Sadie and Aiden, are the most likely candidates for high street sites, partly because they are "non-specific" about room sizes and ceiling heights. This helps because handsome but old department stores can require flexible thinking if they are to be redesigned.

Best Western is keen to take advantage of any grants that might be on offer from local authorities that want to encourage businesses back into town centres. However, the group represents owners rather than running hotels directly, so its role is usually as a link between landlords and hoteliers.

Paterson explained: "Typically, property agents will come to us and say they know of an opportunity and things will go from there."

Russell Kett, UK chairman of hotel consultant HVS, said he has been pointing out the potential of high street retail sites for three or four years. He added that it is not necessarily about a hotel taking over an entire building, because one solution might be a hybrid of retail and a hotel in the same place.

"It's quite possible that the top two floors of a four-storey building are not needed by a retailer, so those could be used," he said. "You can even use just the outside of the top floors, with the inside remaining as retail. But it needs creativity and capital expenditure."

Kett conceded that this has not really happened yet, but puts it down to reluctance to go down an unconventional route, although he is convinced it will start to happen soon.

Big names, big opportunities

It is no surprise that those who have already got one or two retail conversions in their portfolio are the big budget groups. Travelodge last year converted a Next store in Winchester high street into a 62-bedroom hotel close to the city's cathedral. It also has other retail conversions coming up, including a former BHS store in Chelmsford, which it plans to turn into a 70-bedroom hotel.

Tony O'Brien, Travelodge's UK development director, said: "Britain's high streets are a great attraction for us. We have 35 years of expertise in designing, building and operating low-cost hotels and can easily convert a closed store or office into a Travelodge hotel."

O'Brien is not shy about selling the idea to local authorities casting around for alternative uses for empty shops.

He added: "Closed retail space is a great example of how you could convert the space into a Travelodge hotel and create jobs, bring vibrancy back into the area and, most importantly, be a magnet to attract visitors.

"This is also great news for the local economy. Our research shows customers staying in a Travelodge hotel will spend at least double their room rate during their stay with local businesses, and annually this can equate to a multimillion-pound boost for the local economy."

Meanwhile, in Stratford-upon-Avon, another former BHS site that has sat empty since the collapse of the retail chain in 2016 has just received planning permission for the development of a 170-bedroom hotel, believed to be operated by Bespoke Hotels.

Aparthotels groups are also keen to take advantage of empty high street locations. Simon Walford, Staycity's development director for the UK and former chartered surveyor, explained the reasons behind the attraction of these sites and it is not just about lower rents.

"It's more nuanced than that," he said. "Many locations are not attractive because they are cheap, but because it has become possible to get space there at all. In places like Oxford and Cambridge, you couldn't get in a few years back."

He added that a further complication is that retail buildings can be difficult and expensive to convert. Little natural light and deep floorplates mean that such conversions often need to include lightwells, which not only cost a lot but eat into available space. There is a big difference between a relatively uncomplicated conversion of a tall and narrow 1960s or 1970s office block into a hotel and doing the same for a monolithic department store.

Things to consider

The result is that hoteliers are often pleased at the prospect of access to city centre sites, but still have to pay attention to whether the numbers add up.

Walford said: "You need to be in a high-revpar [revenue per available room] city, because many hoteliers struggle to do it in mid-range cities. We looked at Birmingham and couldn't make it work. It's all about rate, yield and build costs."

Even when local councils are keen to encourage hotels to move in, the councils tend to have conditions. This can include keeping the frontage for retail in order to make the high street busier. "They want life," said Walford.

Alongside this and the sobering cost of converting some retail buildings, some hotel groups remain unsure if the decline of retail offered them any opportunity at all.

Tim Martin, whose Wetherspoon pub group now has more than 50 premises operating as hotels, said that the potential of hoteliers moving in where retailers move out is "difficult to assess".

He weighed the advantages of centrality against the disadvantages, not just of conversions costs but more everyday matters, such as driving to the hotels and ease of parking.

He added: "I can see that Premier Inn or Travelodge might want to do it, but it's partly about scale. I saw the other day that Premier Inn has more than 70,000 rooms. We only have 1,000."

And even though Wetherspoon has many city centre sites among its 900 pubs, Martin was cautious about adapting too many for hotel roles. "You don't see McDonald's or Starbucks putting rooms above their sites," he said.

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