LONDON—As business booms for a new breed of budget hotels in Europe, a world famous name is entering the fray. Swedish furniture giant IKEA has announced plans to open 100 budget hotels across Europe, but in disappointing news for fans of the low-cost but funky furniture, the hotels will not feature IKEA's own fixtures and fittings nor even its brand name.
But despite not having IKEA's iconic furniture, the new chain certainly will follow the pattern of newcomers to the budget market who offer comfort and style at wallet-friendly prices. Trailblazers include Z Hotels in London, Germany's CitizenM properties in Berlin and London, and German brand Motel One, which has plans to open in the United Kingdom in Edinburgh, London, Manchester, and Newcastle, as well as hotels in Brussels and Vienna and more hotels in Germany. All have proven popular with both business and leisure travelers who are looking to rein in costs.
Inter IKEA, the company that owns the IKEA brand, already has a number of hotels and real-estate projects to its name, including a 26-acre multi-purpose center around the former Olympic Park in London. The new project will be its first chain, with the first property scheduled to open in Germany.
Harald Muller, a business development manager of Inter IKEA's property division told the Associated Press the chain will follow the IKEA philosophy of “good quality at a reasonable price.”
Inter IKEA declined comment for this article.
A savvy play
Analysts said it’s a smart move, as budget hotel revenues grew faster than the overall sector during 2011: Sales figures for budget hotels rose 10% in 2011, representing a 41% share of the $162.5-billion European hotel industry, according to Euromonitor International analyst Nadejda Popova.
“It is hard to envisage there not being demand for another budget brand, providing it is possible for the brand to achieve critical mass within a short space of time of a homogeneous product which does the simple things well—provides a comfortable night’s sleep, a good shower and connectivity, whilst providing good value for money,” said Russell Kett, chairman of global hospitality analysts HVS.
IKEA’s entrance to the scene also comes at a time when budget hotel stock is limited.
“Our data shows constrained supply growth, which is primarily due to lack of financing for hotel projects, and growing demand across Europe,” said Elizabeth Randall Winkle, managing director of STR Global, sister company of HotelNewsNow.com.
Kett also noted an uptick in demand. “The big demand generator which no one has really factored into their calculations yet is the potentially phenomenal outbound tourism markets of China and India,” he said.
Tourists from the BRIC countries made 54 million trips to Europe in 2011, according to e-Travel Blackboard, and that number is expected to increase considerably this year.
Budget brands evolve
Just as the type of guests staying in lower-priced properties is changing, so is the concept of budget hotels as the market becomes much more segmented, Randall Winkle said. “You have no-frills, basic offerings where all amenities are á la carte, such as the Tune Hotels model, and you also have the high-design budget such as the Motel One product.”
Z Hotels, for example, offers complementary Wi-Fi and cheese and wine for guests. The chain also provides several “luxury” amenities, including Thierry Muggler toiletries, handmade mattresses and 40-inch flat-screen TVs, said Dominika Rylska, GM of the Soho property.
Randall Winkle believes interest in the budget segment has increased from both an investment perspective and, unsurprisingly given existing macroeconomic uncertainty, guest interest.
“From the consumer perspective; higher inflation, reduced real income and currency fluctuations means that hotel guests are looking for value for money. This demand has created an opportunity to diversify the segment and redefine what was once a fairly standard offering,” she said.
Accor, Europe’s leader in economy hotels, is attempting to do just that by pulling its existing budget brands under an Ibis “mega brand.” The chain is in the process “injecting new momentum” into its Ibis, Ibis Styles and Ibis Budget brands, according to a spokeswoman. The company plans to modernize the hotels through the addition of public areas and improving bedding.
Approximately 65% of Accor’s openings during the first half of the year were in the economy segment.
Z Hotels, with properties in London’s Soho and Victoria districts, is on pace to open 10 to 12 more hotels “in the next few years,” Rylska said.
“Demand has become more polarized, and the middle market has come to realize that the quality of what the budget hotel sector delivers is often superior. All they are not providing is the ‘frills,’ which only certain market segments require—meeting space, a choice of restaurants, leisure facilities and so on,” Kett said.
And given the amount of competition in the market, the budget hotel chains that haven't raised their game are suffering for it, he added. “Not all budget hotels have kept their product up to the required standard.”