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Breakdown of the Hotel-Millionaires

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It is estimated that there is over 7,000 meeting venues on offer in the UK.



Hotel and meeting venues markets are competing. Hotels are improving meeting facilities and meeting venues are enhancing overnight facilities.



Disposal of dedicated company-owned conference facilities has been the trend of the past few years.



With property costs at an all time high, corporates

are utilising their space to full occupancy and hence will out-source meetings.



Serviced office providers have a role to play within the meetings market and have a good property solution to meet the smaller-scale demand.



As with all property markets, the conference centre

market is dominated by supply and demand.



There is a trend to move from C2 (residential

institutions) planning use class to C1 (hotels).



The growth into Europe is a natural progression for

UK operators.

“Hotel operators have cherry picked the top end of the conference

market and will enhance the venues - smaller conference operators

will need to maintain a quality offering, switch their attention to

specialist training or even dispose of units for alternative use.”

Hotel Research

Principal Hayley Group’s Alexandra House, Swindon.

Research

UK Conference Centre

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What is a conference and how does it differ from a meeting? In 1977 the British Tourist Authority defined it as:

- a meeting held in hired premises; - lasting a minimum of six hours;

- attended by a minimum of 25 people; and - having a fixed agenda or programme.

Over the years this definition has changed for the number of people only. It is generally regarded that as few as eight people could be in attendance. Often less than a standard team meeting in an office! So what does this mean? Ultimately, the meeting market is very large and too diverse to cover in every detail. Mention conference centre property to people and the initial reaction is to think big to a political party conference or a union congress. However, in reality the conference market, or more generically termed ‘meeting venues’ market is smaller scale on the whole.

The term ‘meeting venue’ may not mean much to most, but covers a wide range of meeting types. These are shown in the pie chart at the bottom of the page. From a one-to-one meeting to a multi-national conference of thousands of delegates, the meetings industry continues to be one of the fastest growing in the hospitality sector and ensuring an increasing market share and customer loyalty requires

appropriate property offerings to attain and retain the level of demand from customer.

The global meeting market is estimated to be worth £250 billion, out of which the UK accounts for £15 billion (or 6% of the total). The ‘conferences and meetings’ sector, with £10.3 billion, accounts for the largest part (76% as shown in the pie chart below).

Percentage share of the ‘meetings’ market

Source: Business Tourism Partnership

Despite the anecdotal evidence of business cost savings, the market in the last 18 months has been buoyant, which was reflected in the number of openings of new venues. More meetings of a shorter period must be a market trend. The main competing sector to the pure conference centre market is hotels, but we have also seen serviced offices rapidly increasing their share for one-day meetings. This is mainly due to the fact that serviced office venues, like MWB Business and Regus, tend to be well equipped technologically. Serviced offices, however, with an average room capacity of eight, tend to concentrate on the smaller scale of the market. This provides the serviced office providers with an income stream that sits alongside and complements the core business users operating out of the same buildings.

Looking ahead, corporates will continue to out-source their conferences. With property costs, particularly in Central London, at an all-time high, larger corporates are utilising their space to full occupancy for staff and hence will out-source meetings. Full occupancy of desks is better for profits.

“We are seeing an increased demand for more unusual, inspiring, exclusive conference spaces where candidates really have a sense of ‘getting away’ from the office.”

The market has been through a series of mergers and acquisitions in the last few months, the major being Permira Funds’ purchase of Hayley Conference Centres for £358 million. There has been more competition due to an increase in the number of venues and competitive prices from other destinations. Demand from a wider range of corporates and the public sector is stimulating the development of more venues in new and existing locations. Not too surprisingly, the increase in the supply of facilities means that venues are forced to aggressively compete for business, reflected in the quote above. A unique offering or established and renowned facilities and services will ensure success in this maturing market.

However, the market conditions are still dominated by supply and demand, as with all property markets. Considering a higher level of supply in the UK market, corporates still “call the shots”. Corporates are demanding a shorter lead time into arranging meetings, of all scales, and are expecting a higher level of service. In one example that we know of, after speaking to a leading meeting venue company, was a meeting of 300 people was organised and successfully accommodated within two weeks.

Sector overview

Conferences, training and meetings 76% Exhibitions and trade fairs 11% Outdoor events 6% Corporate events 6% Incentive travel 1%

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The market can be split into three main and broad categories in terms of the ‘players’ in the market. The target market is in brackets:

- Hotel chains (mixed duration of meetings).

- Specialist conference facilities (longer duration), e.g. Hayley, De Vere Venues, Sundial and Chartridge.

- Serviced office operators (shorter duration), e.g. Regus and MWB Business Exchange.

The actual number of UK meeting venues for all types of offering differs between sources, however, it is estimated that around 7,000 locations are on offer.

The hotel chains seem well placed to offer a mix of meeting durations as well as having the capability of meeting the higher expectations for suitable

accommodation. The meetings market is expecting more flexibility with shorter lead times and lower costs. A trend of the past few years, and one that is likely to continue, is the disposal of dedicated company-owned conference facilities. Owning and running a dedicated facility is not cost effective considering choice available in the wider market on an ‘as-and-when’ usage. There is also the added advantage with day conferences of being away from the corporates own environment.

The data from Deloitte suggests that on a multi-day meeting total expenditure is around £460 per delegate compared to £120 per delegate for a one-day meeting. The rationale for shorter meetings is clear. The question is the degree to which the serviced office operators take an increasing market share.

Estimated split of delegate cost for corporates

Source: Deloitte

The trend towards fewer and shorter conferences and meetings is the result of employees being under pressure to be away from the office as little as possible. There is also a trend towards meeting at all times of the year. The January/February and summer

lulls have virtually disappeared. This is driving new entrants to the market, which can cater for this all year round demand. Arguably, hotels are well placed to supplement revenue in their quieter periods.

The range of venues will continue to grow. The days of a room with a white board have gone. Sophistication in technology, venue facilities to ensuring employee participation and enjoyment have become much more important. However, dedicated facilities have a clear role in providing a large and diverse offering for corporates of all sizes. These facilities will come under pressure from hotels but they have a clear role to play and will remain successful.

These requirements had driven the likes of Hayley to establish a brand within the conference and meetings market that has the capability to cater for a wide range of demands in a relatively short period of time. The fact that conference centres are more profitable than hotels is a driving factor and a rationale for the recent investor interest in buying Hayley. The reason for enhanced profitability is, for the majority of meetings, the fact that bookings are taken in advance and staff planning is more effective and profit enhancing. The major benefit is that the chance of last minute cancellations is low.

Bedrooms can be slightly lower quality, but conference venues are now investing heavily to make

improvements to hotel standards. The facilities for attendees, in terms of comfort, have become much more important. Again, it can therefore be argued that hotels are well placed to compete with dedicated facilities as providing quality accommodation has been their core business for a lot longer.

A key question is where we see the market heading in terms of geography. New locations will present the industry with growth opportunities. According to HBI, unique events accounted for around half of all events booked in 2006.

“Demand for City Centre Venues is growing

exponentially. Almost immediately after opening Holborn Bars in London we realised that despite its size, we could use another similar sized venue and this led a year later to the opening of West One. We are actively seeking other metropolitan opportunities as it is clear that clients relish City Centre Venues with first class facilities that are dedicated to meetings, conferences and training”.

Trends

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% A c c o m m odat ion (a t c onf er enc e) A c c o m m odat ion (p re /p o s t) T rav el at c onf er enc e F ood & B e v e rage ( a t c onf er enc e) Fo o d & B e v e rage (p re /p o s t) E v ening ev ent s G ifts T o ta l or ganis e r ex pendit u re

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Future offering



The traditional hotel sector competing aggressively for the higher yielding meetings venue market to counter periods of lower occupancy.



Sustainability will have a larger impact in the future. Sustainable transport and accessibility to

conference centres. Statistics point to the fact that 68% took environmental issues into consideration when planning a conference. Those venues that assist corporates in meeting their Corporate Social Responsibility (CSR) targets will perform well.



Improving fortunes for the hotel industry in the

second half of this decade has followed a ‘shaky’ period where everything from unsteady financial markets, war and the impacts of terrorist activity has tested the market. Consequently, the hotel industry has moved from cut price and last minute room offers to establish a steadier income stream once again. Events that present higher revenue, including meetings, has come to the forefront on their financial and strategic plans. This will remain the case going forward.



It is estimated that two-thirds of external meetings now take place in hotels which has put pressure on conference centres to develop their

accommodation offerings. Therefore, planning will also play a role for future growth in competition. The move from a C2 planning use class, which is ‘residential institutions’ to C1 (Hotels) is a current trend. The rationale is a diversity of income from both the meeting venue and standard

accommodation. The opportunity is clear for those C2 locations that offer a ‘resort’ experience for other guests. A traditional training centre, which is often quite sterile and not far removed from a university’s halls of residence may not have the opportunity to attract ‘traditional’ hotel guests, but those centres with superior rooms and facilities will certainly compete with the wider market. Supply of meeting venues will increase.



Despite the cost to get employees away from the office, it is important to put a physical distance between workplace and meetings. We therefore predict that companies will continue to out-source their meetings that last longer than half a day.



Finally, the serviced office sector will play an

increasing role. The likes of Regus have responded to demands by tenants to provide meeting space. The maximum size was below 10, now this is being extended in many locations to 15 delegates as a Training Centre product. This will compete with most of the current market as it offers superior flexibility and technology in some cases. The serviced office offering that comes attached provides a captive audience for the meeting

product. The chance that hotels will compete with this type of operator is slim. Serviced offices are not something that the hotel sector will try and is likely to stick to the core businesses of beds.



The growth into Europe is a natural progression for

the UK companies. The press release for the acquisition of Hayley Conference Centres by Principal Hotels suggested that the development of Chateau de Saint Just near Paris is a “platform for growth in Europe.”

Chateau de Saint Just (computer generated image)

Technology

There are two ways in which technology could affect the market. Firstly, there is the replacement of meetings with technology and secondly there is the process of booking meetings. On the first point, as with the office sector, much was discussed in the 1990s on the role of technology and the ultimate replacement of face-to-face contact. The role of video conferencing was going to decimate the airline industry! The truth has been an increase in business travel as employees prefer to get out of the office and interact with colleagues and competitors. The competitive corporate environment ensures that employees want to ‘get out there’ and develop relationships for corporate and personal reasons. Workers have become more comfortable with faceless communication including e-mail, but this will not reduce the demand for meeting venues as the development of ideas and innovation ensures faster advancement in products and services which ultimately resulting in a ‘coming together’ of minds much sooner than in the past.

Regarding the second issue, databases of meeting venues and automated Request For Proposal (RFP) software has ensured a reduction in the time taken to organise meetings as well as increase the choices available. According to the British Association of Conference Destinations (BACD), venues can receive hundreds of RFPs a day. There will be a fierce rise in competition over the medium-term as a higher number of venues can compete for business.

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Economic & business growth

Despite the credit turmoil, the general business environment for the next few years is broadly positive. This is good news for corporate profitability, which will impact positively on training budgets and corporate marketing expenditure. The data from Consensus Economics points towards trend rates of growth.

Economic growth looks positive

Source: Consensus Economics

Business investment is also expected to rise across the three geographies shown above. This, along with the positive economics, ensures that the incidence of cancellations and postponements of meeting is likely to be minimised. In 2006, for London, around 50% of meeting did not happen due to cancellations. In terms of sector, IT companies are a major meeting source. A Deloitte survey of CEOs of technology companies illustrated the proportion split of those confident that the next 12 months will sustain “high growth” levels. 80% are highly confident that this will happen, which bodes well for training budgets.

Opinion that company will sustain high growth

Source: Deloitte

In terms of location, for the IT sector specifically, the dominance of such companies in the Thames Valley presents good opportunities for those meeting venue organisations that are close by. The fact that meetings are shortening, there is a likelihood that meetings will take place closer to the permanent place of work. This is a likely reason why venues in the Windsor and Reading region have performed well.

Throughout many business sectors, despite an improving economic and business investment environment, there are cost cutting programmes in place, e.g. large banks. Usually, major shareholders are putting pressure on the company principals and demanding a reduction in overheads. Conversely, smaller companies are finding themselves to be cash richer, albeit technology and financial companies generally. Both these sectors rely on their staff, who are their major asset and companies are realising once again that there is a need to attain and retain the best labour force in the market. The use of dedicated facilities for meetings and training is very important to these companies, but it must be at the right price.

There is no general performance data for meeting venues but there is information for hotel performance, which covers part of the property market. This represents hotels owned by property investors, as measured by Investment Property Databank. On average, hotels have performed slightly better than the wider market. Going forward, total return forecasts for hotels, produced by Savills Research and shown below, present a picture of out-performance in the next 5 years compared to the UK ‘all property’ measure.

Overall, as discussed earlier, confidence in the sector has been illustrated recently with the £358 million acquisition of Hayley Conference Centres by Principal Hotels (owned by Permira Funds). This ‘a la carte’ meeting venues sector is likely to show consistent growth.

Hotels will out-perform the UK property market

Source: Investment Property Databank / Savills

Drivers of demand & investor returns

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 00 01 02 03 04 05 06 07 08 09 10 11 12 A nnua l % gr ow th UK US Eurozone Very confident, 64% Extremely confident, 16% Pessimistic, 2% Somewhat confident, 18% -5% 0% 5% 10% 15% 20% 25% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 T o ta l re tu rn

UK hotels All property

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This document is for general informative purposes only. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The report and all its contents are strictly copyright and reproduction of the whole or part of it in any form is prohibited without prior written permission from Savills.

Savills Commercial Ltd. October 2007.

Savills plc is a leading international property services company with a full listing on the London Stock Exchange. The company has undergone dynamic growth in recent years establishing itself as a powerful player on the international stage with offices and associates throughout the UK, Europe, Asia Pacific, the US and Africa. In addition, Savills is the trading name for the property service subsidiaries of Savills plc which advise on commercial, rural, residential and leisure property. Other services include corporate finance advice, property and venture capital funding and a range of property related financial services.

For further information please contact

Tim Stoyle

Valuation

+44 (0) 20 7409 8842 tstoyle@savills.com

Gary Witham

Agency & Development +44 (0) 20 7409 9902 gwitham@savills.com

Hotels and serviced apartments

Savills are market leaders, having sold and transacted more than 250 hotel and serviced apartment sales in Central London alone. Sales include trading hotels at both corporate and private levels, from tourist class to 5 star deluxe hotels. Based throughout the UK and Europe, we provide the complete package from acquisition and planning stage, through to lease, management contract or turn-key negotiations and sale of investment.

In 2006, Savills provided advice regarding the Marston, Park Plaza, Park Inn, Menzies and Hayley portfolio's in the UK and advised on the sale of Blakes Hotel in London and Cambridge Moat House as going concerns, as well as the Thistle hotel portfolio.

Savills remain one of the most experienced agents and valuers in the industry. Annually, we handle some €7.5bn worth of hotel assets transactions and valuations across the UK and Europe.

Agency & Development

During 2007, Savills successfully sold six conference centre premises, both trading and vacant, which generated over £45 million in revenue for our clients. These properties have all previously been used as conference centres and have been sold to purchasers planning a change of use. Examples are:

Stanford Hall - sold for £6.25m in March 2007 (hotel and

residential development).

Bailbrook House - sold for £9m in February 2007 (hotel use). Woodstock House - sold in excess of £7m in June 2007

(conversion to special needs education).

“Good quality modern conference centres are still very much in demand with trade purchasers and hotel groups who have significant financial backing - older facilities or those with limited bedroom numbers are more likely to appeal to alternative use markets such as healthcare / assisted living, special needs education or residential development."

Gary Witham Savills Commercial Research Steven Lang +44 (0) 20 7409 8738 slang@savills.com Anneli Svensson +44 (0) 20 7409 8768 asvensson@savills.com Key facts



The UK meetings market is worth around £15 billion per annum.



1.6 million conferences held annually, which lasted 1.7 days on average.



Average conference size is around 50 delegates.



Corporate sector accounts for around two-thirds of conferences.



Average daily delegate rate is around £45 per day including VAT.



Average 24-hr residential delegate rate is around £136. Source: British Association of Conference Destinations

References

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