Wake-up call

for B&Bs The rise of low-cost, quality hotels and letting appartments is pulling the mattress from under bed and breakfasts, which are struggling for trade.

Graham Ridout reports Are bed and breakfasts an endangered species?

Kevin Casserly of Fleurets thinks so.

He explains: "The B&B sector, as with almost every other area of the hospitality trade has been hit by the downturn in trade since 9/11.

Occupancy levels and achieved room rates have declined and it looks unlikely that we will see a return to the good old days', in the immediate future."

Casserly says that traditional B&Bs and guesthouses have also come under attack from the lowcost, good-quality hotel sector, which is epitomised by the success of the Travel Lodge brand and the like.

"In my opinion," says Casserly, "the B&B market will still exist, with potential growth in traditional seaside towns, but during this decade we will see the gradual demise of the familiar landlady throughout the rest of Britain."

Town and city B&Bs are especially under threat and not just from low-cost hotels, but also from the advent of more, self-contained letting apartments coming on to the market.

Casserly explains: "Nowadays, everyone fully expects to have en-suite accommodation and not wander down the corridor to the bathroom."

Fleurets is predicting that the strength of the residential property market will lead to more B&Bs being converted into housing, which is not an overly expensive exercise as many started life as residential properties.

There could well be a move to convert two or three adjacent B&Bs into a single trading unit.

Says Casserly: "We will see more small developments where two or three units are knocked together to become a small hotel, simply because of the economies of scale."

He adds that if the property is run as a managed outlet, then it has to be of sufficient size to absorb the additional costs and overheads.

While the future might look gloomy for B&Bs, guesthouses and smaller two-star hotels, Fleurets says the outlook for large four-star hotels is brighter.

Casserly adds: "They have their own niche market and business people will still use them on expense accounts during the week.

While at the weekend, there are wedding receptions and the like."

Fleurets has just been instructed by De Vere to sell two Village Hotel and Leisure Clubs in Prestwich, Manchester and Swindon, Wiltshire.

The 40-bedroom Prestwich outlet has a turnover of £1.6m and Fleurets is asking for offers in excess of £2.25m. The 60-bedroom Swindon site has a turnover of £3m and offers above £4.25m are expected.

The move to convert adjacent properties into a larger single hotel unit has been fuelled by a shortage of suitable properties.

The lack of properties coming on to the market has been reflected by an overall rise in selling prices of 11.5% in 2003, according to property agent Christie & Co's analysis of deals done last year.

Christie says it is ironic that, although the best time to sell a hotel is when demand exceeds supply and values are rising, owners appear less inclined to sell.

Director Jeremy Hill comments: "With interest rates at historically low levels and trading stable, hotel owners are content to watch the value of their investment rise while, at the same time, the business continues to generate an acceptable level of income."

The lack of available properties on the market in 2003, which affected all types of hotels across the UK, meant there were many disappointed buyers.

He explains: "It is difficult to get people to sell.

Last year's upward price movement was reflected across all of the country and into Scotland."

He says the lift in values reflected what was happening in the domestic market and that buyers should expect tough bidding for good quality hotels.

The most popular size of property is between 10 and 40 bedrooms and competitive bidding is the norm.

Despite these difficulties, the lure of running a B&B or hotel is as high as it has ever been.

A surprising 50% of all the deals undertaken by Christie were with first-time buyers.

What Christie also noticed was a high percentage of people trading up.

"Someone who has bought a 10-bedroom hotel and made a success of that will go for a 25-bedroom property to see if that works," adds Hill.

His advice to anyone thinking of entering the hotel business is: "Undertake thorough research.

Go and see a poor hotel, an average hotel and a good hotel, so that you go into business with your eyes open."

Graham Timmins of Miller Commercial's hotel division, which specialises in properties in the West Country, reports a reasonably buoyant market in Cornwall.

He says activity is good on the B&B front, especially premises comprising four to six letting rooms with owner's accommodation of one or two bedrooms.

This size of property is proving popular, especially with semi-retired couples who are looking for a home as well as the opportunity of earning an income up to the VAT registration limit of £56,000.

He reports that between one-third and one-quarter of all enquiries are for B&B or small hotels.

Another indicator that the West Country still lures would-be hoteliers is that Miller has 5,000 people on its database looking for the right property.

Timmins concurs with Christie's assessment that hotel prices are increasing and reports this movement as generally being in line with residential price increases.

Miller recently sold an eight-bedroom property in St Ives for £525,000.

Timmins thinks 2004 might see more activity than last year and remarks: "A lot of owners who have weathered the effects of 9/11 have had a good two or three years."

Fellow West Country property specialist Stonesmiths is another reporting signs of a pick up in activity.

The firm recently sold the Great Western Hotel in Exeter, following numerous offers tendered above the asking price of £1.35m. Christie's Hill also predicts that 2004 will see a slight, but not dramatic easing of supply.

But notes: "Demand will continue to outstrip supply, ensuring that hotel values remain robust.