Property Focus: Rooms at the inn
Demand for pubs with letting accommodation, or inns, as they are traditionally termed, has increased year on year for some considerable time.
There are many reasons for this, prime among which is the increased flexibility and depth in the business proposition as well as the addition to the main pub business of a high-profit-margin revenue source.
In fact, once the letting accommodation has been provided, apart from the cost of ongoing repairs and renewals, linen and cleaning costs, the margin on accommodation sales can be pretty much 100 per cent. Accommodation income generally requires very little stock purchases or staff costs.
The provision of letting bedrooms can be an important tick in the box against a business buyer's purchasing criteria. In some cases it is a prerequisite, particularly for niche country inn operators and private equity-backed chains that need a certain number of letting rooms in order to qualify for highly tax-efficient Enterprise Investment Scheme funding.
Typically, inns will have between three and eight letting bedrooms, all of which will have en-suite bathrooms or showers, tea and coffee-making facilities, and televisions. Those wishing to attract certain rating assessments from, for instance, the English Tourist Board or the AA, will require additional room facilities such as hairdryers, trouser presses and internet capability. Smarter operators will also seek inclusion and accreditation by recognised guides such as Alistair Sawday, Johansen and Michelin.
Room tariffs vary tremendously depending on the specifics of room furnishings and finishing touches as well as the standard and reputation of the rest of the host business - particularly the food offer. They range typically from around £50 per room, per night, inclusive of VAT and breakfast, to well over £100 per night, with some shading for single or double room occupancy.
Accommodation sales can be drawn from neighbouring businesses that attract visitors and create a demand for rooms which they cannot provide, so it may not simply be a case of looking only at your own business to determine the potential.
For publicans looking to reconfigure or extend their property to provide letting accommodation, there are some important considerations that you need to explore fully before reaching for your cheque book and bringing in the architects and builders. Here's my checklist of the most important issues to think about:
Demand
What is the demand for rooms in your immediate area, irrespective of the room sales you expect to achieve purely on the back of your existing trade? Will there be sufficiently high occupancy for the number of rooms you are considering adding?
SWOT analysis
What are the strengths and weaknesses of other accommodation providers in the area? Carry out an objective SWOT (strengths, weaknesses, opportunities, threats) analysis to determine the opportunities opened by what's around you.
Size matters
Not only the size of the letting rooms you will be able to provide, but also the number of rooms.
Be aware of the criticisms levelled at corporate travel lodge providers in terms of room sizes and densities.
Private accommodation
Will the provision of letting accommodation compromise your own accommodation in the premises? Don't fall into the trap of creating letting rooms at the expense of owner's accommodation - it can affect the ultimate saleability of your business.
Business plan
Sensibly plan revenue from the project based on realistically achievable room tariffs and occupancy rates, which can vary tremendously from unit to unit and location to location.Future value
If you are considering providing letting accommodation purely with a sale in mind, take advice from a business agent or valuer first to determine the implications of your plans on the future value of your business.
Paul Davey is managing director of licensed property agent Davey & Co
