Budget bedroom

bait

Small hotels and guest houses are often as attractive for the lifestyle they offer the purchaser as they are for the profits they generate. Tony Halstead reports on a buoyant market

Britain's small-hotel and guest-house sector is a market of contrasts. It covers a landscape of ever-changing environments and embraces properties of every conceivable age, design and style.

Quite simply there is no such thing as a typical letting-accommodation property, because each business is uniquely geared towards the culture of its owner and the aspirations of its paying guests.

It often offers a friendly, cosy and personal hospitality package that can make up for in style what a big, modern hotel lacks in personality.

But if there is one common denominator at play that sets these letting properties apart, it is surely budget and value-for-money bedroom rates. Small hotels and guest houses ultimately claim the guests who cannot stomach the high-cost room rates charged by the three and four-star hotels.

There are two distinct customer types attracted to this homely, budget-priced letting accommodation. One is the tourist visitor traditionally attracted to premises located in the UK's popular holiday destinations, such as the Lake District, north Wales and the West Country. The other is the casual visitor or traveller seeking out cheap accommodation as a functional, means-to-an-end way of getting a bed for the night.

Both categories are equally popular in their own right, but it is without doubt tourism that is the principal driver of the small-hotel and guest-house market.

It is here that the proprietor-operator undoubtedly influences the character and the way the business is run.

People often decide to quit the rat race for the delights of running a small hotel or B&B as a distinct lifestyle choice, and many entering the trade are already proven business operators in their own right.

Many of these venues in tourist hot-spots tend to be country-house hotels, larger size bed and breakfast accommodation and pubs that offer a larger-than-average number of letting bedrooms. This category is undoubtedly growing in size, with licensees adding on increasing numbers of bedrooms to provide extra income to compensate for a general drop in wet bar sales across the pub trade.

Letting accommodation is no longer a bolt-on to a pub, but a key element of the overall business, where high occupancy rates have the bonus of transferring into valuable increased food and drink sales.

The market for small-hotels and letting-room accommodation is generally buoyant and many properties are currently fetching high prices.

The heatwave summer of 2003, which saw the UK tourist market experience a boom year, meant owners enjoyed very healthy returns from their labours during the hot spell.

Many were reluctant to sell after such a good trading year and those who were willing to test the market soon found that their asking price was being met.

But running these type of tourist premises has a downside. It's a virtual 18-hour-a-day job, staff are difficult to find in some of the more isolated spots and trade can be very volatile.

Skilled marketing expertise is vital for a business to succeed and that means good contacts with the local tourist boards and accommodation listing companies.

"Owners of bed and breakfasts come from a wide range of backgrounds," says Douglas Philp, from the Exeter office of Christie & Co.

"Some owners continue to work full time while their partner runs the business, while others have retired from previous professions and the money from letting rooms is a welcome addition to their income.

"Many of them look for properties in quiet rural locations with plenty of character. However, busier locations often mean more passing trade and work very well as a B&B business," he said.

Further north Mark Bailey from Christie & Co's Leeds office reports that businesses around Yorkshire and its surrounds are experiencing improved room occupancy rates.

"Britons taking more than one holiday a year, an increase in short breaks and a rise in business travel have fuelled the increase," he says.

"Evidence of strong sales and profitability usually assists in increasing the value of a hotel, as does a long period of financial stability, like the one that the nation has experienced and which has prompted the UK economy to continue to grow.

"These factors have influenced many people to acquire a hotel ­ particularly those who have realised high-equity gains from their houses ­ or other property-based business in which to invest," he adds.

Road to recovery

The UK hotel and tourist industry enjoyed a substantial recovery last year and recent global events are unlikely to have a substantial impact on the improving climate, reports Steve Rodell from Fleurets' hotel department.

Continuing low UK interest rates and unemployment have presented a positive business climate in the sector and significant transactions are ongoing in the market, he says.

"Private sales continue to be dominated by high-net-worth individuals, and all Fleurets' offices are happy to report a good level of interest, new instructions and healthy demand for hotels.

"There is a general shortage of good-quality stock that reaches the open market and those that do so are strongly priced to reflect the demand.

"This market could be regarded as a seller's one, however, this must be heavily caveated so that if vendors want to achieve their aspirations they must support the asking price with proven business accounts," Rodell said.

Different trade surveyors and agents across the country all agree that the small-hotel and pub market is now blurred around the edges.

"There is a certain amount of grey area in what actually constitutes a hotel or a pub with letting bedrooms," concedes Rodell.

He adds: "However, there is no doubt that Fleurets' historic roots in the pub market have stood us in good stead."

He pointed to the increasing numbers of deals, featuring premises with both high letting-accommodation income and food-and-drink sales, in which Fleurets has been involved.

"The popularity of pubs with letting rooms is highlighted in our Leeds and Brighton offices with the completion of a number of deals in this type of property," he said.

He went on: "Running a public house requires a range of skills at which the publican must be proficient and includes a sound business knowledge, being aware of customer needs, marketing, negotiation, health and safety, etc.

"Running a hotel requires a similar, if not a larger array of skills, which might include yield management to maximise occupancy and room rate and, perhaps, the requirement for a better understanding of the conference and banqueting business.

"In both instances the emphasis must be on providing a high quality service to the customer," he said.