REPORT FROM ENGLAND—Transport and travel have always had a symbiotic relationship, one which will continue to play out as the United Kingdom continues to develop its high-speed rail network.
The region’s High Speed 2—planned between London Euston, the Midlands and the North and potentially the central belt of Scotland—is set to go under construction beginning in 2017 with an open date of 2026.
Four major city centers will be served directly: London, Birmingham, Leeds and Manchester. Other cities will be accessed using HS2 trains running on existing tracks or with edge-of-town stations. Government officials maintain HS2 will generate £59.8 billion ($99.1 billion) in user benefits when the network is completed, as well as £13.3 billion ($22 billion) in wider economic benefits.
This second phase follows completion in 2003 of HS1, a 67-mile line between London and the Channel Tunnel. HS1 stations in Kent—at Ebbsfleet, a specifically constructed new town and Ashford—and in London at Stratford and the rerouting of the main Eurostar terminal from Waterloo to Kings Cross, created opportunities for hotels.
The same was true in the U.K. as the railways expanded during the mid-19th century, when enterprising railway companies built showpiece hotels to capitalize on the lack of capacity of traditional coaching inns. However, by the early 1960s declining passenger numbers, financial losses and the controversial Beeching Report prompted the closure of many lines and small stations. Once lavish hotels ended up in areas now downtrodden, and many hotels closed.
Several hotel groups have jumped aboard the rail-driven growth.
John Bates, head of acquisitions in the U.K. and Ireland for Whitbread Hotels & Restaurants, which owns the Premier Inn chain, said transport hubs are very much part of the company’s expansion strategy.
“In relation to high-speed rail specifically, we have several highly successful hotels in London, where occupancy is currently 90%, in and around the King’s Cross St. Pancras area. We also have hotels directly connected to HS1 stations at Stratford, where we are part of the wider Westfield Shopping Centre development, Ashford and Folkestone and close to the Ebbsfleet HS1 station at Gravesend and Rochester.
“As with all of our new hotel locations, we are customer-led and aim to develop in locations where hotels can best serve our guests with convenience, quality, consistency and value,” he said.
“Premier Inn is growing right across the U.K. in line with strong customer demand,” Bates added. “We have a target to achieve 75,000 U.K. bedrooms by 2018, up from the 54,000 bedrooms we have today. We’re building Premier Inn and our new hub by Premier Inn hotels and this frequently means building close to major transport hubs like airports and railway stations.”
Railway to growth
Transportation thoroughfares have contributed to hotel expansion elsewhere. For instance, the growth of the U.S. hotel industry is largely attributed to the development of the national highway system.
Further studies have linked performance gains with proximity to various transport hubs. According to a study released by the American Public Transportation Association and the U.S. Travel Association, hotels in cities with direct rail access from downtown to airport terminals receive nearly 11% more revenue per room than hotels in cities without a rail airport connection. The jointly released study, “A new partnership: Rail transit and convention growth,” shows higher revenue per room translates to a potential $313 million in revenue per year for “rail cities” with direct rail access to airport terminals.
In the post-recession period, rail cities commanded 16% higher revenue per room than hotels in non-rail cities.
But transport does not always bring treasure. Russell Kett, chairman of HVS London, cautions not to be too optimistic for HS2-related growth in the regions.
“The regional hotel market still has much to do to return to pre-economic crisis levels, and most hoteliers are focused on building back their corporate and conference business. Any spare investment cash available typically needs to be used to fund the deferred capital expenditure or maintenance,” he said.
He said the development of HS2 will speed up journey times between London and the Midlands, eventually spanning further north. However, there are people who feel this will allow visitors from London to return home the same day rather than staying overnight. These people say, “Birmingham could become a suburb of London.” The same goes for travelers in the other direction, he said.
“Moreover, regional occupancy levels typically have spare capacity, which means existing hotels could cope quite nicely with any increase in overnight business that HS2 might bring,” Kett added.
“The hotel industry has shown itself to be remarkably passive when it comes to investment and development, preferring not to be pioneers when it comes to development of this nature. I suspect it will be many years before the sector starts to believe there is merit in developing new hotels in tandem with the HS2 development,” he said.
There is a steep difference between the London market and that outside the capital.
Kett said London’s strong growth in “alternative” hotels in the boutique, hostel and serviced-apartment spaces is meeting the needs of an increasingly diversified and sophisticated base of travelers.
“Ultimately this might stretch more to the U.K. regions, but I would expect this to be more reactive than proactive,” he said.
Kett also maintained that the passenger numbers will make the difference.
“Increased capacity on trains is unlikely to stimulate huge increases in demand for hotels if all that happens is that people choose to take the train instead of driving or flying. There has to be a real increase in new passengers attracted by the proximity to make a journey that they would not otherwise have made. If this can be accomplished, then hotel demand could be stimulated. If this is achieved then, once the spare capacity in the existing hotels has been filled to an extent, developers will be encouraged to build more hotels.
“This could be a real boost for mid-market regional hotels but not a reason for building new ones, yet,” Kett said.