Earlier this year, Hospitality Investor analysed the extent to which the hotel sector featured in projects that received funding from the last round of the government’s Levelling Up Fund. It wasn’t a long exercise. So far as could be ascertained, just one project — Gateshead Quays — contained reference to hotels or hospitality, although there were plenty of projects that applied for funding but were rejected.
Given that the underlying purpose of the Levelling Up Fund is to support economic development, it is difficult not to conclude from the findings of the analysis that Whitehall mandarins and their ministers do not think hospitality has much of a role to play in helping towns and cities to grow their economies. So, what role does the sector play in economic development? And how can it be better communicated?
Marc Finney, head of hotels and resorts consulting at Colliers, says that he was surprised by the results of the analysis. “There were one or two places where there was a little bit of a nod to tourism,” he says. “But really the sector was very, very poorly served in that round [of funding]. Central government that writes the cheques and decided that it wasn't important enough.”
Not everyone agrees, however. Kate Nicholls, chief executive of industry body UKHospitality, for instance, takes a more positive line. “I think there's no doubt that this government is recognising that hospitality-led regeneration can support and sustain the recovery of many town centres and high streets and local communities,” she says.
“Obviously, there's more that they could do and I think what we need to make sure is that we keep reminding them of the strategic importance of the sector to ensure that we get the right help policies that we need, but it's not necessarily levelling up per se. It's things like planning, licensing, business rates and so on. More importantly, if you have that regeneration of town centres, hotels will have the headroom to be able to invest themselves.”
Economic contribution
Whether or not the investment comes from the public or private sector, it is clear that there are many ways in which hotel development and operation can contribute to economic development. “There are a lot of economic benefits that that come from hotels and not only during the construction phase, although obviously a lot of jobs are created during construction,” says Finney.
According to Nicholls, it is a mistake to think about those construction jobs as simply being about people in hard hats and high visibility vests. “In planning and construction, you’ve got high-skilled jobs in a local community that are often happening outside of traditional tourism seasons,” she says. “It’s also plumbers, builders, electricians, architects and so on.”
But it is also about hotel operation. Finney points to a typical four-star hotel that has a range of facilities, such as restaurants and meeting rooms and so on. Such an establishment, he says, will generate between 0.3 and 0.6 jobs per room depending on what facilities are on offer. “So, a 100-room hotel would generate 30 to 60 jobs in that kind of operation,” he says. “And that is in terms of full-time equivalents, so it might actually be more jobs, but some of them might be part time.”
Those are the jobs created directly, but hotel stays also support a plethora of other employment opportunities. “When someone comes and stays and visits a hotel, what they're effectively doing is bringing money that they've earned somewhere else into your town,” says Finney.
“And they don't just stay in the hotel. They will use taxis, they will go to local shops, they will go and visit the museums. If they are in business, they'll probably go out and eat in a restaurant, they'll use taxis. There's a whole range of other things and, so there is a multiplier effect. It does vary location to location and by the type of hotel, but for every pound spent in the hotel, another 40 pence gets spent outside of that hotel.”
Nicholls agrees. “If you have visitors coming and staying overnight, they spend 10 to 20 times as much as people who do day trips. The overnight visitor will also eat and drink out in the local area, will also buy things in retail or visit the museums, so the spend there is greater. You get that indirect benefit too and that flows through to the local supply chain.”
Easy to overlook
However, quantifying and communicating the jobs created and maintained by that multiplier effect can be difficult, which may explain why investment in hotels can be easy for politicians and civil servants to overlook. The problem isn’t helped by the fact that the average hotel in the UK only has around 10 rooms. “Central government is probably not interested in 10,000 businesses that produce two or three jobs a piece,” says Finney.
“If a company wants to build a new factory that's going to generate 5000 new manufacturing jobs, that's something that government can directly influence and say ‘we've created 5000 jobs’. But actually, if you created the right incentive, you could probably create 100,000 jobs in small businesses just by getting the basics right. We do risk losing a lot of those smaller businesses if we're not careful in our policymaking.”
It also has to be said that hotels can make a contribution to economic development in less direct but arguably more important ways. Here, it is important to define the contribution in the negative as well as the positive. According to Finney, an area that doesn’t have a decent accommodation offer will struggle to attract other forms of investment that can be even more decisive when it comes to job creation and boosting disposable income.
“Councils do seem to understand and recognise that a good hotel can be a very important part of a town's infrastructure,” he says. “If you're a business and you want to invest in a new factory or a new facility or set up a new office and you go to a town and there's nowhere to stay or the accommodation is really old and scruffy or you can only stay in a [budget hotel], it's going to affect the decision.”
Having the right offer
So, it isn’t just about having a hotel; it’s about the right offer. “The people who can set up these companies tend to have a lot of money,” Finney adds. “It doesn't have to be five stars, but it has to have at least a level of presence that will make people feel comfortable. It is one of the factors that I believe investors look for when they're analysing a place.”
He adds: “Obviously, it has to have good communication, there has to be good access, it has to have a good local workforce… all of those obvious things. But [a good hotel offer] is definitely one of the factors that we find that investors look for.”
Tom Cunningham, UK regional director, hotel capital markets, at Savills, agrees - but only up to a point. “Fundamentally, if somebody's going to build a factory and there's just nowhere for their clients or employees to stay, they will then move onto the next town where there is,” he says. “But I think it's a brave person that builds a hotel and then hopes to get investment off the back of it.”
And that point underlines the importance of state backing in the right circumstances. After all, if the case for development isn’t obvious, it is highly unlikely that the private sector will invest on a speculative basis. But that doesn’t mean that investment from central - or indeed local - government won’t ultimately deliver the goods.
“It can be definitely a good thing to do,” says Cunningham. “I think it's just that the approach has to be right. It has to be the right product, the right size and with the fundamentals that are going to support it. Then it can and will be helpful.”