Hotel operators are increasingly acting as commercial landlords by renting space in their properties to third-party businesses like restaurants, cafes, bars, retailers, and beauty salons. This allows hotels to generate additional revenue streams and attract more visitors. Some hotels partner with well-known brands, while others create their own concepts. However, developing new concepts carries higher risks than partnering with established brands. As this trend continues, the line between hotel operators and landlords is blurring.

1. Room, board and manicure: hoteliers becoming
landlords
26 February 2016 | By Nick Hughes
No longer content with selling a bed for the night, hotel operators are increasingly acting as
commercial landlords in their own right.
Source: Alamy / Jeff Gilbert
From restaurants, coffee shops and bars to clothing retailers and nail bars, a huge range of
businesses are taking space in hotels up and down the country in much the same way as
concessions have started to pop up in supermarkets.
So why are hotels acting as property owners rather than mere service providers? And is this trend
just a flash in the pan or something that is here to stay?
The concept of hotel operators letting space to third parties is nothing new - luxury hotels have
housed flagship restaurants for many years, while outsourcing the running of health and beauty
clubs is another common practice. But increasingly hotel operators and owners are looking to
maximise their lobby assets by inviting in a broad mix of third-party occupiers, either through
straight rental arrangements or by establishing partnerships or licensing agreements.
For instance, the recently opened Hoxton Holborn houses trendy eateries Hubbard & Bell and
Chicken Shop through its partnership with brand owner Soho House Group. Elsewhere, Village
Hotels has an in-house Starbucks at 27 of its sites around the UK, Valor Hospitality Partners has a
burgeoning relationship with the Marco Pierre White Steakhouse Bar & Grill brand and guests at the
Hilton London Tower Bridge can now have breakfast at a branch of Jamie’s Italian.
And it’s not just restaurant brands that are gaining a presence in the hotel sector. In independent,
boutique-style hotels, operators are stretching the ‘hotel as landlord’ model by bringing in third
parties from other sectors.
Margate-based beauty firm Haeckels is housed in a pop-up space at Ace Hotel in Shoreditch, selling
natural skin, hair and beauty products, while visitors to Chicken Shop in the Hoxton Holborn can
treat themselves to a post-dinner manicure at a branch of nail salon Cheeky Parlour.
“We certainly have seen a trend towards more lifestyle-type hotel products with some interesting
brands such as Hoxton and Ace, as well as CitizenM,” says Graham Craggs, director, hotels and
hospitality advisory, at JLL.
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2. “Many of these are located in central city locations where they’ve contributed to the general
environment within which they’re located, and because of the nature of the product offer being
slightly more hip and engaging, they’ve attracted business from the local community as well.”
But could a branded nail bar ever find a home in a provincial Ramada or Hilton?
“I’d never rule it out,” says Brian McCarthy, managing director of Valor Hospitality Europe. “We have
prime retail space, so assuming it enhances the overall hotel guest experience and doesn’t in any
way detract from it then you’ve got to consider all your options.”
In fact, any concept potentially has legs as long as it is something that hotel guests and the local
community are going to use. “One of the things you do when you’re opening a hotel is think about
how you’re contributing to your local community,” says Alan Christie, a director at CBRE Hotels.
“You’re creating something that will encourage people to physically walk through your door.”
From a hotel operator’s perspective, the rationale for bringing in outside firms is multifaceted.
“First, it’s a great utilisation of space and in many cases gives us a brand-new revenue stream,” says
McCarthy. “On the restaurant side, it encourages hotel residents to stay in and non-residents to
come to the property.”
Another attraction in bringing in a well-known high-street food and beverage brand is that it
removes much of the pain involved in new concept development. “They are expert restaurant
marketeers who evolve the product perfectly and distribute perfectly,” says McCarthy. “Because they
do all the development, you don’t need an in-house development team.”
The trend is also a sign that hotels are having to become more outward facing in order to generate
fresh revenue streams. “Most hoteliers want to ensure they maximise the returns they receive from
their property, and it has historically been difficult to entice people to come into a hotel restaurant
because often they’re a bit overwhelmed by it,” says Ian Elliott, head of hotels at Knight Frank. “If
you’ve got a proper high-street restaurant name, they will be more inclined to go into that space.
It’s about getting people across the threshold as much as anything.”
Brands benefit too
Julian Troup, head of UK hotels at Colliers, agrees, adding that it allows the hotel operator to
concentrate on what it is good at, namely selling rooms. “Also, if the brand’s good enough, the view
is that it may well attract guests to stay in the hotel, too,” he says.
Hotel Indigo in Liverpool is home to a Marco
Pierre White Steakhouse Bar & Grill
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3. For the brands themselves, Elliott says a relationship with a hotel group represents an opportunity
to grow their presence without experiencing some of the headaches involved in starting new
businesses in unfamiliar markets.
“Ultimately, these high-street brands are looking to expand their own portfolios, so if you have the
right space there is enthusiasm among them, but it needs to fit with their strategy,” says McCarthy.
There is no universal structure for an arrangement between a hotel operator and a third-party
occupier. It can be as simple as a straightforward landlord-tenant arrangement with a fixed rent or
a more complex joint venture or licensing agreement.
“Every operator will have a different preference on how they like to structure things,” says Richard
Dawes, associate director of Savills Hotel Agency. “Equally, landlords [have different preferences] in
terms of how that marries up with how they operate their hotel and their funding structure and
partners.”
Profit-sharing arrangements are particularly popular, whereby the hotel has an income guaranteed
through a variable lease, but there is also an incentive for both parties to trade successfully, says
Dawes.
Conversely, Valor runs its Marco Pierre White Steakhouse Bar & Grills on a franchise basis, which
means paying a franchise fee and employing the staff directly, an arrangement that McCarthy says
works well for both parties.
“I think personally to run them you have to have a real commitment to their brand,” he says. “You
can’t cut corners; you can’t think you’ll outsmart the brand; you can’t think you’ll outfox the
customer. You have to be a fan of the brand and deliver it with energy and enthusiasm.”
Not all hotels are going down the third-party route, of course. Some operators are moving in the
opposite direction, developing their own outward-facing branded concepts that they hope will
encourage guests to stay in the hotel and attract custom away from established high-street chains.
Ace Shoreditch has recently opened a neighbourhood café called Bulldog Edition and a street-facing
unit for grab-and-go food called High Street Window. Meanwhile, Kew Green Hotels is soon to
launch a craft beer and burger concept in Brighton, and Sun Capital Partners has launched a Coppa
Club concept at The Great House at Sonning that it plans to roll out across its portfolio.
Risk versus reward
The benefit, says Christie, is that you get full control over the brand. “If it’s successful, then all that
profit comes to you and you’ve created a brand for yourself that you can now roll out or franchise to
create long-term financial gain,” he says.
The risks of failure, however, are considerably higher than with a concept that has already been
tried and tested on consumers.
“Can you realistically compete with a specialist food and beverage operator?” questions Christie.
“The risks are huge but the rewards are huge with it.”
It’s for this reason that partnering with a third party feels the safer option to many. Indeed, owners
and their agents report that they are now actively thinking about third-party occupation as part of
the development process, actively planning space in new-build hotels that will be let to partner
brands.
“In Hull, we’ve got a new-build Hilton where we’re looking to do a third-party letting that will face
the high street, and there will be a separate hotel bar there as well,” says Ross Kirton, head of UK
leisure agency at Colliers. “I think a lot of operators are getting more savvy to the potential benefits
of doing this.”
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4. So the insular hotel focused purely on overnight stays may soon be a thing of the past, and with it
the line between hotel operator and landlord is set to become even more blurred.
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