Yotel: Owners see big return from small rooms
10 FEBRUARY 2016 8:09 AM
The Yotel concept, which utilizes small guestrooms and vibrant public space, is expanding beyond its airport-location roots by focusing on management contracts, according to CDO Jason Brown.
LOS ANGELES—Yotel, a London-based hotel chain that uses smaller-than-average guestrooms called cabins to appeal to value-oriented, technology-savvy consumers, is in the midst of an expansion campaign with its sights set on having 50 properties open or under construction by 2020.
During a break at this year’s Americas Lodging Investment Summit, Jason Brown, Yotel’s chief development officer, said the company’s growth primarily will come through management contracts forged with developers looking to cash in on the trend of maximizing real estate value by building hotels with more guestrooms per square foot than the industry average.
“It’s more about key count to us,” Brown said. “We’re focused on building an extremely profitable brand and business. We’re not rushing to market; we’re creating long-term value with partners who believe in what we’re doing.”
Yotel is owned by IFA Hotels & Resorts, which bought the hotel operating company from Yo Company after partnering with it in 2005 prior to the launch of Yotel. While the parent company has a number of real estate holdings, there is no real estate on Yotel’s balance sheet, Brown said. But with a successful seven-year track record—including five years of 90%-plus occupancy at its New York property—the brand is gaining momentum on the expansion front.
“We’re going international all in the markets we want to be in, all at that same time, with long-term management contracts,” Brown said.
Markets with properties in various stages of development include Boston, San Francisco, Brooklyn (Williamsburg), Miami, Paris, London, Dubai (two announced projects) and Singapore (two announced projects), according to Brown. In addition to the urban New York hotel, the brand has single properties open at three airports: London Heathrow, London Gatwick and Amsterdam Schiphol. An 80-room property is scheduled to open this summer at Paris’ Charles de Gaulle Airport.
Building a track record
Yotel was launched coming out of the last recession when so-called pod hotels were capturing the industry’s attention. Since then, brands have moved into the trend of offering properties with smaller rooms and more vibrant public space.
“We’re close to deals in other major markets in the U.S., Europe in particular, Asia and the Middle East,” Brown said. “We want to regain the first-mover advantage.”
Brown said financial margins for Yotel properties are double that of the typical lifestyle hotel.
Because of its parent company’s real estate background, Yotel primarily measures construction costs by square footage. However, the company has found it easier to communicate with hotel developers in the traditional per-room costs, and a Yotel property costs between $125,000 and $160,000 per key before land and financing costs, Brown said. It targets $200,000 per key in city-center locations.
Cabins measure between 170 and 190 square feet—although rooms in Asia are a bit smaller and rooms in Dubai are slightly larger because of market demands, Brown said.
Each cabin is built with modular construction that ensures consistency, according to Brown. However, the technology wall varies by region of the world and locations can have a different décor—some might have brick walks and others might have white walls, for example.
Public areas represent approximately 10% of the hotel’s total space—and the majority of that is taken by the club lounge that’s open to everyone.
Yotel’s evolution revolves around a kit of parts designed to focus on creating time for guests, Brown said.
“It’s about the automation of things that are usually painful to guests,” Brown said.
At the top of the list are check-in kiosks. Ninety-six percent of the customers at the New York Yotel property use them, according to Brown. This frees up staff to provide more customer service touch points, he said.
“There’s an efficiency that gets you into your room in under five minutes,” Brown said. “We like that to be in under three minutes.”
There are no in-room minibars because the transaction process and the potential hassles from guests who challenge charges are not worth the time, Brown said.
“You can’t charge anything to your room except rate and tax,” Brown said. “It makes it a really easy experience.”
The brand has an app that allows guests to buy early check-in or late check-out at its New York property. It sells four-hour chunks of time at airport hotels for those travelers looking for some rest—and has been rewarded with 150% to 250% occupancy rates at those properties.
“It’s good for consumers, and we’re focused on delivering on returns for owners,” Brown said.
A successful flagship hotel
Brown said Yotel has altered its approach in the U.S. based on what it has learned in the five years since opening its flagship property in New York.
“The asset works real well; it has never fallen below 90% occupancy,” Brown said. “We always figured it would be a big transient hotel with British tourists who know Yotel, but it’s been different. We have much more corporate clients than we thought we would ever have.”
For its nearly 700 cabins in New York, Yotel employs about 160 employees. For a 300-room project, the employee roster numbers between 80 and 100.
Brown said cutting-edge technology companies have embraced the Yotel concept because the efficiencies and vibe matches their cultural aspirations.
“The concept fits very well with the way the space at their offices are laid out,” Brown said.
Yotel’s club lounges are built to have impromptu meetings, which fits into the millennial mindset of those companies.
“Tech-oriented and service guys want to use that,” Brown said. “The club lounge is a must-have for us. We see that as an amenity for the hotel room. We want you to be able to sit and have a coffee for seven hours if that’s what you need.”
Changing travel policies for that type of company also has aided Yotel because it is geared toward a total daily travel stipend that benefits employees who seek more value-oriented hotel stays, Brown said.
Brown said the new breed of guests don’t want to sacrifice a nice shower, comfortable bed and free Wi-Fi, but isn’t about spending time in space away from crowds.
“We like to think they’re in a psychographic that identifies with millennials but aren’t necessarily millennials,” Brown said.