European Midscale Hotel Update

INTERNATIONAL REPORT—The midscale chain-scale segment comprises the smallest portion of the European development pipeline, but it still has relevance in the marketplace, according to hotel operators.

The midscale segment added only 3,353 rooms during the past 12 months, according to STR Global’s June pipeline summary. In the active pipeline, midscale rooms represented 6.4% of the total active pipeline (8,160 rooms), which is the smallest portion for any segment.

Source: STR Global

The midscale segment represents 7.5% of existing European hotel rooms, according to STR Global, a sister company of HotelNewsNow.com. This makes it essentially tied for the second-largest branded segment (upper midscale has 7.6%) after upscale, which represents 13.2% of all rooms.

Olivier Derycke VP of international operations Louvre Hotel Group

Midscale demand growth is outpacing supply growth according to the data, which is inherently good for the segment. June year-to-date, demand growth was 2.4% while supply growth was down 0.8%, according to STR Global.

The segment’s actual occupancy and revenue-per-available-room growth, however, are lagging the total Europe hotel industry. June year-to-date occupancy for the midscale segment was 61.1% (74% for Europe) and the RevPAR change was 6.6% (8.6% for Europe) in euros.

The segment has ways of coping with the global financial crisis, according to Olivier Derycke, VP of international operations, for Louvre Hotel Group.

“For midscale brands, when the global economy is in recession, the local economy can partly replace some of the business lost,” he said. A focus on local communities has always been part of the sales strategy.

“Local business is a good relay to the worldwide economy,” Derycke said.

Quality Inn is Choice Hotel International’s midscale offering. While it’s the smallest part of the European pipeline, for Choice it’s growing well, according to Duncan Berry, CEO of Choice Hotels Europe, U.K.

Berry said the U.K. division has improved its gross room revenue this year. “Really, that is something that given the franchise nature, you’ve got to engage hotels, encourage them and advise improvements in (furniture, fixtures and equipment) and emphasize the importance in investing in properties to ensure they get a fair share of the market.”

Derycke echoed the ability to react to market conditions. “Generally speaking, the financial recession strongly impacted budget/midscale hotel brands in Europe. The good thing is that limited-service brands such as ours have more of an ability to react and adjust, thus helping to preserve margins.”

Business models for growth
Quality Inns has been a conversion brand for Choice, because it’s somewhat challenging to secure financing for new development, Berry said.

Quality Suites and Spa Arachon

Louvre’s Campanile is a standardized brand that requires new builds or full refurbishment of converted properties to fully retain the standards, Derycke said.

Choice hotels to open recently in the United Kingdom include the Quality Hotel Reading and the Quality Hotel Birmingham Airport/NEC. Eight new Quality Europe properties recently opened, including the Quality Suites & Spa Arcachon in the Bordeaux region of France.

Campanile has new build projects in Nantes, France; Wroclaw, Poland; and also in India and Ukraine. Priority regions for development are: Eastern Europe (Poland, Hungary, Czech Republic, Ukraine), North Africa (Morocco) and India, according to Derycke.

Other midscale players
Best Western in the U.K. reported a 20.28% increase in business in the first half of 2011. Bristol and Birmingham saw the highest increases with the company reporting 47.6% and 40.4% growth, respectively.

Ibis, the second largest midscale brand in Europe by number of rooms was not able to contribute to the story during Accor’s quiet period. However, the company previously reported the expected annual growth rate of Ibis in Europe is 32%. France is by far the brand’s biggest market—with 380 locations as of 31 December 2010.