BrandArena: Economy hotels: The rising demand, the trends and the challenges

Friday 31 July 2015

Economy hotels: The rising demand, the trends and the challenges

As the global tourism landscape continues to change, so does the hospitality industry. The rising number of middle-class travellers, business travellers and travelling families has led to a boom in the number of economy hotels, also known as select service hotels.

In this article, Wouter Brand, Aurecon Buildings Project Director in the Middle East; Jeff Robinson, Aurecon Development Leader: Property; and Stephen Olckers, Aurecon Head of Building Services (Cape Town) & Hotel Business Development in Africa, expand on the current demand for economy hotels in the hospitality industry.

They discuss how economy hotels differ from luxury hotels, both in terms of design and functionalities, the driving forces behind the rising demand for these establishments and how hotel brands can ready themselves to cater for a multicultural (and multi-aged) clientele that is part and parcel of this trend.

Can you define what an economy hotel/select service hotel is? How do these differ from conventional hotels?

Wouter: In the Middle East, an economy hotel doesn’t necessarily represent what it would mean in other parts of the world. Luxury hotels and resorts are abundant in the Middle East, so a select service or economy hotel in the Middle East could be a four star hotel or a family hotel, which would still be considered a luxury establishment elsewhere.

Traditionally, the Middle East is considered to be a luxury travel destination for affluent travellers, but the United Arab Emirates (UAE) government has encouraged the development of more economy and select services hotels, which will mean more four star and three star hotels in the region. Some of the proposed four star hotels will be quite large, with more than 400 guest rooms.

Jeff: Select service means that it’s not a full service hotel. A five star hotel will usually have a wide range of service offerings such as various restaurants, a ballroom, gift shops etc. With economy hotels or select service hotels, you need to focus on giving people what they want from their accommodation and not necessarily adding in all the bells and whistles. The things that guests typically want are a comfortable bed, a hotel in a good location, high-speed and free WiFi, in-room technology that works seamlessly and a lobby/breakfast area where guests can socialise with people and hang out. The hotels are often located in vibrant parts of cities where the guests can choose from a wide choice of local restaurants and bars within a short and safe walk from the economy hotel.

Recent research has shown that more than 50% of business guests consider the in-room technology before making a booking at a hotel, 7 out of 10 guests will be annoyed, stressed out or furious if they can’t access in-room technology and almost 50% of guests would never visit a hotel again if they had trouble accessing their in-room technology. Economy hotels need to focus on providing the services that are valued by their guests for an affordable price

Millennial travellers (people who were born in the early 1980s to the early 2000s), for example, value high speed broadband internet over good food. They want a good night’s sleep (so they will need a good bed) and they want an easy, seamless experience when it comes to researching a hotel and booking their room online. When they arrive at the hotel, they want to be able to connect to the internet wirelessly and use the new various technology in their rooms with ease. Hotel brands that want to appeal to both business travellers and millennial travellers need to focus on IT systems that interact with people in an easy and efficient way, including providing apps that help them check-in and check-out without having to stand in a queue for reception, and websites that make online bookings easy.

Stephen: Economy hotels provide basic accommodation along with select services. While a five star hotel will usually have all the luxury trimmings such as dining and conference facilities, and hair or beauty salons within the hotel, you won’t necessarily have all of these amenities at an economy hotel.

The current demand for economy hotels/select service hotels has increased. What is driving this demand? The number of tourists from emerging economies is expected to increase – are hotel operators ready to cater for this trend?

Wouter: One of the driving factors behind the need for an increase in economy hotels in the UAE is several large upcoming events in the region. The World Expo 2020, for example, will be hosted in Dubai and 25 million people are expected to attend this exhibition. The visitors will consist largely of business travellers who want a comfortable place to stay, but aren’t necessarily interested in resorts and other experiences that a five star hotel would be able to provide.

Another industry that is driving the demand for economy hotels is entertainment and theme parks.  Dubai Parks and Resorts is currently constructing a collection of theme parks, including Motiongate Dubai, Bollywood Parks Dubai and Legoland Dubai. They are expecting an influx of visitors from India and China, among other regions. It is expected that many families will travel to the UAE in order to visit these attractions and economy hotels will be able to cater for this market.

Jeff: Millennials are a huge driving force behind the demand for economy hotels. As mentioned earlier, they want a select few things from their accommodation – fast and free WiFi, a good bed, a great location and a comfortable place to socialise.

Factors that have led to the growth of the tourist industry worldwide include Global GDP growth that has increased by 3.6% per annum and has led to the growth of the middle class with the result that more people can afford to travel. There’s also been a growth in budget airlines (so it’s more affordable for people to get to their desired destination), and travel regulations to many countries have eased. Not everyone who travels wants to stay in a five star hotel and not all travellers can afford this type of accommodation either. These people want to visit the destination of their choice and they want value for money, which is why economy hotels are the ideal solution.

Stephen: The number of millennial travellers continues to rise and these travellers are primarily concerned with the travel experience and the destination they are visiting, not the hotel itself. They want to visit the local attractions and do the things they are interested in doing, so the accommodation has to be in the right place and offer them the basic services they need. Many hotel brands have picked up on this trend and are busy developing select service brands to meet these needs, including the Hilton Garden Inn, Ibis, Holiday Inn Express and Radisson Red and Rove hotel brands. The hotel industry is changing in order to respond to the changing needs of travellers.
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Does it make good business sense to respond to this demand?

Wouter: Yes, because it opens up the market for more travellers. Not all travellers want to or can afford to stay in five star hotels when they visit a new city or their intended destination, but they still need a great place to stay for an affordable budget.

The demand for these hotels has led to the Dubai government offering a tax reprieve for mid-market hotels, which makes it even more lucrative for property developers to respond to this demand. For every traveller who can afford five star hotel accommodation, there are over 100 travellers who can’t. The new influx of economy hotels will be able to cater to this market.

Jeff: Economy hotels are a very good investment vehicle because they require less capital expenditure than a five star hotel, but the income they generate from room rates is still high compared with the investment of building and operating the hotel. Economy hotels definitely make economic sense.

Stephen: Absolutely. The people who are interested in economy hotel accommodation represent a large portion of travellers. A very significant portion of the hotel market would be missing out on a lucrative opportunity if they don’t respond to this need.

What are the challenges unique to designing economy hotels?

Wouter: The challenge with designing economy hotels is how to achieve a high end looking design for a modest budget. The architecture needs to be well designed, but not overly complicated to allow for replication in construction. The MEP services will need to be designed to meet the brand standards of various operators which vary subtly to meet the particular requirements of the individual brand, the climate and the local standards of the municipality of where the hotel is being built. It  is also important that the consulting engineers designing the  air-conditioning systems think about what types of system can be easily maintained by the trades available in that locality

Since economy hotel rates are considerably lower than those of five star hotels, developers and operators need to plan their establishments in order to give guests everything they need, while still ensuring that they get a good return on their investment. In most cases, this means simplifying and streamlining the design approach so that it works across a number of economy hotels in different locations.

Jeff: What the property developers and operators are trying to achieve is a high degree of functionality with a lower budget. Just because you’re committing to a smaller capital investment, does not mean that you don’t want to give people the comfort and functionality that they are looking for. You have to be smart about the design, the layout of the rooms and how the facility will operate. Economy hotels typically have less staff, so and their design have to be carefully considered to help staff to provide a high quality of service with fewer staff members

When designing and constructing a hotel, a client would typically have an engineer on-site, but budget constraints mean that economy hotel developers might need to find alternative solutions. A possible option could be to set up the mechanical and building services and have it monitored off-site. Many of the economy hotels being built by the large operators also comply with the operators in house sustainability programs and they do so by integrating smart sustainable design solutions into both the design of the buildings and the operations of the hotel and by seeking to gain multiple benefits from each piece of construction.

Stephen: One of the challenges is including sufficient service offerings in the hotel rooms and public spaces. Economy hotels still want to be able to invoke a feeling of comfort and enjoyment for the client, but at a lower cost. Getting the balance of cost, luxury and value for money right requires careful planning.

What is unique about Aurecon’s approach to designing economy hotels?

Wouter: Aurecon works closely with clients to make sure that they are able to get a return on their investment. When it comes to designing and constructing world-leading economy hotels that not only attract new business, but are able to become a go-to destination for both locals and international visitors, Aurecon has the right people for the job.

Jeff: Being a design-led practice, Aurecon has solid experience in working closely with the owners, developers, architects and operators in order to ensure that we develop hotels that are well-designed, meet brand standards and are within budget. Our integrated teams can execute everything from structures and services to fa├žades, so we can give clients a holistic point of view on where improvements can be made. Our goal is to help an increasing number of developers create innovative, efficient budget hotels that are environmentally and financially sustainable.

Stephen: Aurecon has a great deal of experience in the hospitality industry and we have been designing fit-for-purpose hotels for many years. Cost efficiency needs to take into consideration a number of factors, including energy-efficient design, in order for it to be successful. Aurecon understands the product and the accompanying challenges involved with building economy hotels.

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