The UK’s hospitality industry is huge, aided massively by London’s continued top billing as a premier league tourist destination. It typically receives more inbound visits than all the other major UK destinations combined. Perhaps unsurprisingly, the UK hospitality industry was the 3rd biggest employer in the UK in 2022, accounting for 3.5m jobs through direct employment and a further 0.3m indirectly.
However, things were different only a few years ago, in 2020, when the hospitality industry was suffering and reporting a £200m loss per day. As we all know, this was due to the restrictions imposed during the pandemic, which, of course, weren’t unique to the UK. More than 10% of UK businesses within this sector were sadly forced to close, a devastating blow to both the sector and the wider economy. But also a reminder that most businesses survived and should now look forward with the expectation of better times ahead.
A new hospitality strategy was launched in 2021 by the government to further aid recovery, including a Hospitality Sector Council made up of industry leaders and officials created to oversee the delivery. Of course, challenges have remained for the entire economy. With sustained inflation and economic pressures, consumer confidence and spending are still down against pre-pandemic levels. But there is light at the end of the tunnel, the UK Hotel sector reported upwards trading performance in 2023, whilst volume of transactions, deals agreed and exchanges in the UK pub sector also increased in H2 2023.
The global luxury hotel market also continued to grow steadily. Destinations such as Dubai, Paris, Kyoto and New York offer unprecedented luxury experiences to travellers the world over. In the UK, there are several new prestigious hotel openings planned for 2024. In London, The Emory, the fourth site in the capital for the Maybourne Hotel Group (owners of Claridge’s, The Connaught and The Berkeley) and a new Mandarin Oriental in Mayfair. In Edinburgh, a £50m property for Resident Hotels, sixth in their chain. Oxford’s oldest department store Boswells will reopen to the public as a luxury boutique hotel known as The Store. A new upscale hotel in Manchester called The Reach at Piccadilly, is being built as part of Marriott’s Tribute Portfolio collection.
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These hoteliers have invested significant capital to make these projects a reality, and that’s where corporate finance can play a key part in the continued growth of this important industry. Helping those planning for future growth get ready today.
Renovation and expansion
If you have hotels that require major repairs, redecoration or refurbishment, corporate finance can be a good option to help you raise capital against your property to make the necessary updates, without eating into your cash reserves. Many hotel sites are now rebranding themselves as event venues, offering weddings, parties and conferences. By seeking short to medium term investment to help them expand or extend, they can reap the rewards of diversified revenue streams for the longer term.
New hotel developments
With the average construction of a 5-star hotel in London costing £5,550 per square metre, you’ll need to raise some serious capital to expand your chain, long before you can benefit from the income from additional bookings. Costs include the obvious such as land acquisition, architectural planning, building materials and labour. However, legal fees, permits, licenses, and administrative expenses associated with the development can also require a huge outlay.
Fixtures and fittings
Of course, if you’re building a new hotel, you’ll need to fit it out. Purchasing essential equipment and fixtures such as beds, kitchen appliances, lighting, restaurant furniture, bathroom fittings, and soft furnishings all add up.
Working Capital
Whether you’re renovating an existing hotel or building a new one, you’ll still have wages and other operational expenses to pay during this time, and this is where working capital can help. It can also provide liquidity for general day-to-day operational expenses such as payroll, maintenance bills, utilities, and inventory, helping to ensure smooth operations and sustainable growth.
Infrastructure and environmental improvements
Hotels are subject to strict legislation, including fire safety laws, legionella compliance and stringent hygiene standards. It can be challenging to maintain the quality standard, but implementing eco-friendly features or investing in better systems can help. Development finance can help you invest in upgrades to infrastructure such as electrical systems, plumbing or HVAC facilities.
Digital advancements
Many hotels are now incorporating modern technology solutions, such as smart room controls, digital booking systems, or extra security measures. The Mandarin Oriental group was one of the earliest adopters of smart room technologies, integrating intelligent devices such as smart locks, thermostats, and blinds, as well as voice-controlled room features, and smart speakers. Hilton is just one of the other chains embracing this trend, by offering technology enabled amenities, including the ability to control the lights and temperature in your room via their app.
Digital check-in processes have revolutionised the hotel industry in recent years, enhancing both guest experiences and operational efficiency. Guests can avoid long queues and enjoy seamless arrival; workloads are reduced for staff, and the collection of pre-arrival data allows hotels to personalise stays and tailor marketing efforts for guests. In room tablets can also provide a centralised hub for guest services, from ordering room service and requesting housekeeping to accessing a concierge.
If you’re serious about keeping up with the competition you’ll need to consider the investment required, but also calculate the potential efficiencies and impact of improved guest experiences. Savings are achievable, sometimes multiplying year on year, but businesses can also better deploy their teams and resources. Complaint handling can often be time-consuming and this can reduce if your investment tackles the main pain points. Whilst if you focus on enhancing experience quality you can boost positive customers reviews, and thereby leverage advocacy and the power of recommendation to grow trade, potentially helping save marketing spend.
Specialist support, tailored to your unique circumstances
When seeking a corporate finance broker, look for one who specialises in this type of lending. Ask for their track-record in securing funding for similar projects, to establish whether they have sufficient knowledge in dealing with the complexities of a project of this nature. Check which lenders they have access to and choose a broker with extensive market connections.
A good broker will conduct thorough due diligence on your project, assessing your financials, project viability, and risk factors, to match your requirements with the most suitable product and lender. Hotel projects may not fall into a one-size-fits-all solution, so choose a broker that has access to a variety of funding options such as commercial mortgages, asset finance, development loans, joint venture funding, mezzanine finance, and merchant cash advance. This way, they’ll be able to fulfil all your needs under one roof.
Lastly, a broker you can trust is essential. Choose someone who has a proven history of successfully completing ultra-complex deals and multi-million-pound hotel transactions. At Enness Global we are specialists in helping businesses source the corporate finance they need to take their businesses forward. For further information please get in touch.
