The hotel industry is worth £5.8bn in the UK. While the average rental yield stands at just 3.63% for UK residential property, the typical yearly ROI for hotels in Europe is between 12.4% and 16.1%. Therefore, it’s little wonder why investors and entrepreneurs alike want a slice of the pie by opening their own hotel.
From B&Bs to large hotel chains, there’s something for investors of all calibres when it comes to the hotel industry in the UK.
Furthermore, recent travel chaos has fuelled the already booming staycation market, with 39% of all Brits now more inclined to spend their holidays in the UK rather than head abroad.
So what do potential investors need to consider before opening a hotel? Here are the top 3 points to address before moving ahead with any hotel purchase.
All hotels need a high occupancy rate to survive. On a basic level, there needs to be a demand for the hotel in the area, and the rate charged for the room must generate a profit. So a great place to start before investing in a hotel is to conduct some market research to ensure this criteria can be met.
Some of the questions that can help decide whether an investment is viable and if it is, what the potential profit could be include:
- Proposed rating of the hotel
- Average cost per night charged by nearby hotels
- Typical clientele the area attracts
- Nearby attractions
- Transport connections
- Parking provisions on-site or nearby
It’s worth noting that not every hotel has to follow the same format. For instance, some guests will specifically look for a hotel off the beaten path. Likewise, some won’t mind paying more than nearby hotels, especially if the hotel will have a higher star rating. However, the clientele the hotel will attract and the rate each room can command must align.
Decide How To Fund A Hotel Investment
Building a hotel from scratch is the most expensive way to go about opening a hotel. Though, this remains the method of choice for many established hotel chains or entrepreneurs with a specific vision of how the hotel should look and operate.
The cost of building a hotel is based on the square footage, hotel location and the hotel specification. On the cheaper end of the scale, building a 3-star hotel in Northern Ireland costs around £1,475 per square metre. To build a 5-star hotel in London, costs can be as high as £4,250 per square metre. The total cost to build a hotel can run into millions of pounds, even before factoring in the cost of the land.
For those who cannot finance the build of a hotel, the next question is ‘How much would a hotel cost to buy?’. On BusinessesForSale, a bed and breakfast in Blackpool has a guide price of £5,000, whereas a central London hotel has an asking price of £60,000,000. There’s a huge amount of flexibility here, and a plus side of this is that the market in general is more attainable than it may first appear.
Finally, it’s also possible to partially invest in the hotel or just a hotel room. Research suggests costs for this method can be as low as £15,000, although it will depend on the specific hotel. UK hotel investments may also be funded by a SIPP, which opens up the market further still.
Ongoing Costs Of Running A Hotel
Once the hotel is constructed or refurbished, it will require further investment over its lifespan. As well as the building itself, the hotel will also need staff, along with additional services to keep it up and running.
Some of the top costs associated with running a hotel include:
- Business Rates
- Decor updates
- Hotel insurance
- Laundry (normally outsourced)
Hotels are also businesses like any other, which means they also require insurance. Legally, all businesses that employ at least one other person require employers’ liability insurance. However, commercial property insurance is also a top consideration to protect the hotel building itself against loss, damage or theft.
Creating A Long-Term Vision
The more profitable a hotel is the better. Anyone looking to purchase, invest in, manage or even work in a hotel needs to consider how to maximise profits without compromising on guest satisfaction over the longer term.
The main point for consideration will be the rate of each room, which may fluctuate depending on demand. If a hotel has different room specifications, then the profit for each room type will also vary.
Aside from the costing of letting out a hotel room, other ways a hotel can make money include:
- On-site restaurants
- On-site shops
- Additional guest services
- Partnerships with other businesses
- Parking charges
If a hotel is built from scratch, it’s easier to incorporate many of these ideas. Although, even smaller existing hotels can look to maximise guests’ maximum spend. The best way to do so is to look to provide convenience at every turn since any additional spend should feel natural, rather than unscrupulous.
How To Start A Hotel Business In UK FAQs
How To Buy A Hotel With No Money UK
As noted, for those with a SIPP it can be possible to invest in a hotel through a pension. Technically, this wouldn’t involve handing over a sum of cash, but using existing funds that have been put into a pension.
Buying a hotel outright may be out of the question without money. However, it is possible to manage a hotel instead, especially with experience in the hospitality industry.
How To Start A Hotel Business Plan
With any business plan, the purpose is to establish what the business is and how it will make a profit. Therefore, those looking to open a hotel need to follow this same mantra, but in terms of a hotel format. For instance, covering the steps involved in funding a hotel build or takeover, and demonstrating how profit can be generated. The business plan must include comprehensive research, detailing the target market and addressing any potential pitfalls.
How To Start A Career In Hotel Management
There are plenty of apprenticeships, courses and even foundation degrees related to hotel management. It's also essential to experience climbing up the junior ranks of working in a hotel to fully understand how the business model works. As well as practical skills, gaining experience in guest management is also going to be key.
How To Open A Dog Hotel
Don’t fancy working with the general public? Furry friends need a place to stay too, especially if their owners are also on holiday. To open a dog hotel, a licence is required from the local authority.
Pet owners will likely prefer an establishment that has experience in looking after pets, including one that holds licences related to canine care and welfare, grooming and home boarding.
Business plan wise, the same principles also apply with opening a regular hotel, in that there must be a demand for the service, and it must be able to generate a healthy profit.
Those who want to build or open a hotel need to do their research, figure out how they will finance their venture, and create a long-term strategy for the future. There’s no doubt that the hotel industry remains healthy in the UK, but with so much choice, new hoteliers need to offer up something that’s truly in demand. Above all else, creating a fantastic guest experience needs to be at the top of the agenda to build a great reputation as well as customer loyalty.