Despite continued economic and political headwinds, Europe has been witnessing resurgence in the hospitality market over the past several years.
The appetite for global hotel investment has been improving through the freeing up of debt and equity markets, and with this has come a new wave of Chinese and Asian capital. In 2014, the China Ministry of Commerce lift its US$100 million threshold on overseas investment, which enables investors to more readily compete on a global stage. As a result, it is anticipated that 2015 shall bring US$5 billion in Chinese global hotel investment.
Asian State Owned Enterprises and large scale developers are intent on investing overseas as a way of diversifying their portfolios and building their international brand. This is expected to grow in Europe as Chinese visa processing is streamlined and tourism increases.
Chinese insurance companies are also emerging as new source of capital. As regulatory restrictions continue to ease, these investors are anticipated to become one of the largest sources of capital, with an estimated US$7 billion in global real estate by 2018.
So, how can an overseas hotel investors reduce risk and avoid expensive project delays?
Employ a local team: It is important that local advice is sought for property matters, including legal advice, planning permissions, building control, project management, cost management and design.
Decision making: Design must be signed-off and agreed upon, at least in outline terms, before it is developed for the UK market. Clear communication lines and appropriate levels of authority for local client management will help to ensure that no time is lost waiting for a decision coming from the head office. Trust must be developed between the client and the local delivery team as early as possible.
Design: On the basis that the initial design is produced outside of the EU, it is critical that it is then “translated” for UK code compliance. This will require particular attention in order to satisfy the client’s requirements for a high quality product and also meet the contractors’ demands during construction. Good, feasible design is important – get independent design reviews by local designers and listen to them.
Quality expectations: A mismatch in expectation must be avoided if the project is to flow smoothly. Clear and precise specifications are the best solutions. Avoid procurement of too much material from outside of the EU, as this introduces considerable risk to the project in terms of time, quality management and compliance.
Procurement: The procurement strategy is critical and may be unfamiliar to the client. Get an experienced UK construction professional to give a clear and unbiased outline of available methods in order to make an informed and appropriate choice. It may not be as straightforward as transplanting successful procurement methods from other parts of the world. Appoint the right contractor, as this relationship is critical to the success of the project.
Risk: Facilitate a risk workshop to assist in defining the key project risks and developing the processes for managing them. This can be undertaken in stages, gradually bringing on board the project team and developing the detail of the risk register as the scheme develops.
Building regulations: Many developers prefer appointing approved inspectors – private consultants with relevant qualification – to administer the regulations on their behalf, rather than using the local authority. The regulations deal with several different aspects of construction, including the structural integrity of the building to the means of escape from fire, fire compartmentation of the structure and preventing moisture from entering. (A note of caution: Regulations are made under legislation that permits their regular updating without recourse to Parliament. They are constantly changing and getting tighter.)
(Disability) access requirements: Accessibility is an area where planning and the building regulations can collide. The need for accessibility by all is required by specific anti-discrimination legislation and imposes duties on both hotel developers and operators.
The accessibility requirement extends not only to guests, but also to staff. A hotel operator may be deemed discriminatory by not making provision for disabled staff to work in the premises and could be subject to severe financial punishment as a result.
Irregular design solutions may be acceptable and this is where a good accessibility consultant comes in. In conjunction with the design team, the accessibility consultant can prepare documentation that demonstrates compliance with the regulations and helps to produce a design that is deemed compliant.
Planning permissions: Planning legislation exists in the UK to control development. Although some development is permitted by right, much of it is directly controlled by local and central government bodies and it is almost guaranteed that a new development such as a hotel will require consent from the regulation authority.
This control extends to proposed uses, appearance, siting, massing, location, traffic servicing, noise and, importantly, can even extend to the building’s sustainability. It is not unusual to have sustainability measures imposed by planning condition that dictate how much energy and water are used, along with the amount of recycled material in construction for example. Planning consent isn’t solely required for new constructions either. Conversions may also invoke the need for consent.
The planning process can be convoluted and confusing and it is not uncommon for planning consultants to be employed as part of the development team to advise on legislation and to help steer any applications through to a successful conclusion.
Developing a hotel in the UK doesn’t need to be a complex and risky project if you have local consultants on board and do your research.
Contributed by Paul Graham, Sweett Group, London