Cost model: Hotels

01 Introduction

The annual turnover of the UK hotel industry is about £27bn, with close to 22,000 hotels and guest houses, according to the British Hospitality Association.

The amenities offered tend to be defined by the market sector served. Generally, the higher the standard of hotel, the greater the level of additional facilities.

The hotel sector has undergone significant change in recent years. A number of major branded owner/operators have sold a large proportion of their property portfolio to investors.

Entering into leasing or management arrangements allows the hotelier to generate significant amounts of cash to reinvest in their product and concentrate on what they do well: running hotels rather than managing property.

02 The changing client profile

The shift towards sale and leaseback has placed greater emphasis on the split between the operator and the developer. Put simply, the developer is now responsible for the construction and maintenance of the asset while the operator is responsible for implementing the brand.

Developers and their investors are willing to accept the risk profile of non-guaranteed income, because this can be improved through effective asset management. The long-term value is mainly generated by service quality and is facilitated by building a high-quality environment in the first place.

In addition, the developer has to balance the needs of the operator and avoid over-specification, while retaining flexibility, since the operator may change over time.

On the other hand, the operator needs the space, provision, build quality and facilities to enable it to establish a hotel that is closely aligned to its brand standards. Areas that are of particular importance include bedroom size and circulation capacity.

03 Procurement

As with all construction projects, the balance between cost, time and quality is a vital factor. The balancing act is further constrained in the hotel sector as there is usually a fixed budget and an opening date.

A limited budget will affect the level of specification and, to minimise cost risk, dictate that the majority of design work be completed before entering into contract between the developer and the contractor. This may extend the project programme.

Likewise, working to a fixed opening date on a relatively short programme may result in higher costs to meet quality expectations and provide extra resources to complete the job quickly. Selecting the right strategy largely depends on the following issues:

 

• Cost/programme/quality priority as defined by the client
• The type of relationship required between client, design team and contractor
• Whether single or multi-point responsibility for delivery is preferred
• The spread of cost, time and design risk between client and contractor
• The complexity of the project. For example, new build, mixed use, tower, conversion, refurbishment
• The planned use of off-site manufacturing
• The degree of repetition possible in the design and variations
• Whether the project is part of a bigger portfolio of future work.

The most common procurement methods for UK hotels are traditional, lump-sum design and build, and refinements of those systems such as two-stage tendering.

The reputation of construction management has been dealt a severe blow in the hotel sector on recent projects and although legal action associated with the Great Eastern Hotel established the construction manager’s liability, most developers think construction managers exposes them to too much risk without additional return.

Design and build is usually suited to less complex hotels offering a turnkey solution. However, design and build has delivered very high-quality environments. The conditions that achieved this were:

 

• The client ensured the scope of works and design were clearly defined and fixed for the duration of the programme
• The design team dealt with buildability issues specific to the site in the design phase
• A design team with experience of resolving intricate relationships of the functions of the hotel building was appointed
• The brand aspirations of the operator were clearly communicated to the design team.

Value can be added by concentrating the budget on areas that enhance service quality or the guest experience, or by increasing the certainty of delivery. All three are largely defined by the brand values and commercial requirements of the operator.

04 Guest rooms: layout and building services

The organisation of guest rooms on the floorplate and the impact this has on the room mix affects the hotel’s ability to maximise occupancy and hence revenue.

Guest room sizes are by and large uniform, have a high degree of repetition and can be accommodated with a relatively short structural span. By contrast, public areas require a clear span to accommodate amenities. Other issues that affect floorplate configuration include core location, vertical circulation requirements and the need to comply with escape legislation.

Most hotels offer a mix of standard and executive double and twin rooms, with a small number of suites of varying sizes.

Single rooms are usually avoided but may be incorporated when an existing structure is being converted to hotel use, or where the efficiency of an irregular floorplate can be maximised by introducing single rooms. This is more common in “boutique” hotels.

Guest rooms are defined by three basic measurements: the width, the length of the room from the external wall to the bathroom wall and the size of the bathroom. Bedroom widths generally vary from about 3.6 to 5m.

In general, the net floor area of a budget guest room is 20-22m2. Mid-range hotels vary from 30 to 40m2 and, at the luxury end of the market, guest rooms can be 50-60m2 and beyond.

Suites including a lounge are usually formed from a number of modules and may be up to 200m2 in area. Corridors are 1.2 to 3m wide. Rooms should be designed to facilitate cleaning and short turnaround periods.

Most guest rooms nowadays are designed with an internal bathroom. This allows for an economical system of externally accessed service risers and helps with sound insulation from corridor noise. The downside is that the bathroom requires artificial lighting and ventilation.

Where cooling is specified, the room fan coil unit should be located in a position that provides maximum diffusion without creating drafts or excessive noise. The most common position is in a bulkhead over the entry corridor to the room (horizontal air discharge). This allows air to flow along the ceiling while maintaining accessibility to the ducts. Systems should also be compact in size and simple to use.

This last point is important since rooms are not occupied all of the time. An intelligent building management system that detects when rooms are occupied and facilitates central control can contribute to a reduction in energy costs. Once in the room, the guest should be afforded some level of individual control of the room services, allowing them to turn it off, up or down to suit their own comfort levels.

Reliable, efficient mechanical plants support profitable hotel operations. The chillers and air handling units, for example, must operate efficiently at part loading but some redundant capacity should also be incorporated in case of failure.

Another issue is the testing and commissioning requirements for building services, which have often proven difficult to achieve. This is because these services are usually extensive in terms of quantity and complex due to the diversity of functions supported in the building.

Sufficient time at the end of the programme needs to be allocated to this critical activity as the reliable operation of room services could potentially have a significant impact on overall service offered.

05 Public areas

Public areas include lobby, restaurant, bars, breakfast rooms, function spaces, leisure facilities and retail areas. The design of M&E services to these areas needs to take into account the following:

 

• Heating and cooling available all year
• Independent units for each main public area
• Efficient operation at part-load and low-load conditions.

The load on the M&E system is generated from internal sources including people, lighting and activities such as cooking in a show kitchen. The lobby may operate 24 hours a day whereas the restaurant, retail and leisure facilities have fixed periods of operation and varying occupancy levels, which result in frequent load changes.

Further flexibility can be introduced to the services system through the use of separate, packaged plant that provides dedicated heating and cooling to areas of high and/or variable loads.

The lobby needs to be planned carefully in order to facilitate circulation and navigation to the support amenities. It must also be designed to create an initial welcoming impression that sets the tone for the hotel.

Revenue-generating elements such as the restaurant, bar, retail offering (typically a kiosk), function spaces and leisure amenities need to be able to accommodate both guests and external customers.

Restaurants should be located with direct access to the kitchen, be visible from the lobby and located alongside the bar.

The area that has the largest impact on the design of back-of-house operations is the main kitchen, as its position can determine circulation routes. Circulation of staff and guests between back and front of house should be segregated as far as is pragmatic.

The design of meeting rooms needs to consider size, divisibility, complexity of services and the quality of finishes.

These spaces must be adaptable for small meetings, banqueting, dances, conferences or exhibitions. Folding partitions must be soundproofed to allow adjacent spaces to be occupied at the same time. A separate entrance from the hotel foyer to the function room reception and from the breakout area to each individual space is recommended. Electrical, power and communication services need to be incorporated in order to maximise usage of these revenue-generating facilities.

A back-of-house services corridor allows effective circulation for catering and servicing of events. Space for storage of furniture and so on should be incorporated.

06 Sustainability

Sustainability affects the design of the hotel, the way it operates and ultimately the guest experience. A distinction needs to be made between compliance with the current energy efficiency regulation and implementing a genuine sustainable strategy. The former influences design, the latter impacts on the operational and experience side.

Much of current regulation, such as Part L of the Building Regulations, is concerned with the hotel design and minimising the energy consumption, and hence carbon emissions, of the hotel. Green design features include the use of an energy efficient plant, low U value materials, air-tightness and energy efficient lighting. These measures are being adopted partly because increasing energy efficiency means lower energy bills.

Implementing a Part L compliant carbon emissions strategy focuses on three steps:

 

• Minimise the demand for heating/cooling through improved building fabric performance
• Specify the use of efficient systems to meet loads
• Use of low or zero carbon technologies.

In addition to regulatory compliance, there is a growing realisation that adopting green policies in all aspects of the hotel’s operation need not mean a dilution of brand values or guest experiences. In fact, current evidence shows that this can become a differentiator that can increase business.

One prime example is One Aldwych, which has incorporated environmental policies without compromising its five-star level of service. The overriding theme on all its green policies is to minimise resource use. This extends beyond operational efficiency to establishing a green supply chain for resources used. Some examples include:

 

• Recycling, not just paper, plastics and glass but also light bulbs and batteries
• Increased water efficiency through the use of vacuum drainage on all toilets
• Locally sourced food
• Use of low toxic paint throughout.

When deciding which green policies and technologies to adopt, the same approach should be taken as to which hotel facilities to provide – that is, adopting policies that are appropriate to the standard of the hotel.

07 Off-site manufacturing

Hotels have led the way on off-site manufacturing (OSM) because of the use of guestrooms and bathroom pods. Those that specify prefabricated bathroom pods need to bear in mind the following:

 

• The robustness of the pod structure to withstand potential damage
• Tolerances for fitting into the structure
• Accessibility of services and ease of replacing ancillary components
• Conformity to British Standards and Code of Practice.

Key issues in pod design development are:

 

• Materials specification
• Interaction between floor and walls
• Integration of services
• The installation sequence.

The principal benefits of using OSM include improved quality, reduced installation time and a reduced number of trades. The degree of repetition in the design has a bearing on whether economies of scale can be applied to the cost of the unit. Typically at least 50 identical units are needed to achieve scale, and discounts don’t kick in before about 200 units are ordered.

The OSM contractor needs to be appointed early. Prefabricated units need to have their design finalised early to allow time for manufacture and delivery to site.

It is complex and costly to implement design changes once manufacturing has commenced. Risks relating to the manufacturing supply chain include:

 

• OSM manufacturers are critical single points of failure. Delay on their behalfs lead to irretrievable loss in the programme
• A lack of detail in the level of specification results in poor quality of finish.

Other forms of prefabricated technologies include modular room units, precast structural members and panellised systems.

08 Hotel cost breakdown

The cost model below is a new-build business hotel located in an urban location in Manchester. The hotel floor area is 8,400m2 and utilises a proportion of MMC including bathroom pods and pre-cast structural concrete beams, slabs, crosswalls and external wall panels. Amenities include meeting rooms, bar and restaurants. The costs cover all areas – front of house, back of house and guestrooms.

Rates are at fourth quarter 2006 price levels, based on a lump-sum contract in the North-west. The cost of site preparation, external works and incoming services are excluded. Also excluded are professional fees, VAT and site abnormals. The rates may be adjusted for specification, site conditions, procurement route and programme.

Acknowledgments

Thanks to Steve Lacey, partner of the hotels and leisure team at Davis Langdon, and Sarah Stickland of the hotels and leisure team for their input