UK hotel sector: land-use planning

You can't go here, you can't go there, you can't go up, and you can't knock it down and start again. David Blackman looks at how the land-use planning regime shapes the UK hotel sector

"It takes forever, it's very long-winded and it almost discouraged us from carrying on," says David Hunter, general manager of Matfen Hall Country House Hotel in Northumberland. He is talking about his two-year-long wrangle with local planners to secure a spa extension to the Grade II-listed hall.

Matfen Hall - recently voted Large Hotel of the Year in the Enjoy England Awards for Excellence, presented by EnjoyEngland.com, the official website for tourism in England - succeeded in overturning the local council's rejection of its plans, but its experience is typical of the difficulties faced by many businesses, according to a study by Bank of England economist Kate Barker into the impact of land-use planning on the economy.

The analysis, commissioned by the Treasury and published last month, says that planning acts as a brake on competition by restricting the supply of sites. It shows that the number of planning appeals is rising, and the number of major schemes turned down since the late 1990s has doubled.

Pettifogging
The report also finds that Government attempts to streamline the planning system have not yet led to speedier decision-making.

Evidence submitted to the review by the British Hospitality Association gives examples of the pettifogging restrictions imposed by planners on the sector. They include an instance of a hotel prevented from erecting a canopy and seating restaurant diners in an internal courtyard when the weather was poor.

The report points to the Government's 1998 McKinsey report, which showed that UK hotels are relatively old, fewer are owned by international companies than in other countries, and there is less penetration by chains. The report suggests that these factors contribute to the UK's high occupancy rates compared with other European countries, and it says that this indicates high demand relative to supply.

Martin Taylor, director of planning at consultancy Humbert Leisure, argues that planning restrictions are undermining the industry's productivity by making it hard to get rid of poor-quality hotel stock. "We need to allow new hotels with modern operators to get rid of the old ones," he says. "Unfortunately, the old stock won't go unless it's replaced by new stock."

Taylor argues that councils should make it easier for the Basil Fawltys of this world to convert their crumbling premises into more-lucrative flats. Many small operators would welcome such an opportunity to cash in their assets, he believes. He also argues that hotels suffer from particular problems stemming from the interplay of market forces, and from restrictions designed to regenerate town centres, enshrined in a document called Planning Policy Statement 6 (PPS6).

He says: "Hotels suffer because values are not as high as offices and residential, and yet PPS6 says that most leisure uses should be located in town centres, where they can't compete and sites are pretty cramped. You can't put them in town centres, and PPS6 stops them from being developed out of town. We are left with trying to build hotels on green-belt locations where you fall foul of Government guidance."

John Kinsey, a hotel expert at property agent King Sturge, says that a residential site will typically fetch 50-60% more than a similarly sized plot zoned for hotel use.

Peter Dixon, a partner in planning consultancy Hepher Dixon, agrees. He says: "The inevitable consequence of having everything in town is that you get to the point where there is not enough town centre to accommodate everything."

Distorting market
He adds that the impact of town-centre-first policies is distorting the market against operators in out-of-town sites, which are now finding problems extending their premises. "Budget hotels on the edges of retail or business parks are now having to make a special case," he says. He should know - his firm handles Travelodge's planning applications and has just secured consent for a four-star hotel in Bristol.

Kinsey cites Exeter, where there is an outstanding requirement for at least 600 beds, as an example of a town-centre site that is very hard to develop. "International operators are going to want 150 beds to make it work," he says, "and it's hard to get the sites. To get the amount of bed spaces that are required to run a hotel economically, you have to increase the height."

But in a historic city centre such as Exeter, where plots are cramped, that means building up to six or seven storeys, when four or five storeys tends to be the permitted limit. Listed-building rules, which restrict the changes that operators can make to a building, add another layer of complexity by making it difficult to alter room sizes and add IT connections.

If operators are not allowed to build out of town and have trouble finding central sites, how about in between? Even here, though, there can be problems from residents bothered by the prospect of intoxicated revellers coming and going at all hours of the night. "When you move into edge-of-centre sites, you get concerns from local people," says Taylor. "There's a lot of misunderstanding about hotels. People always think the worst."

Overprotective
Kinsey believes that one solution is to locate hotels on industrial estates, which are facing falling demand from their traditional manufacturing occupiers.

But he says that planners are often overprotective of such sites. "Many local authorities have still to accept that a development by any major hotel operator probably produces more jobs than established employment use," he says. "You can have the equivalent of 50-60 full-time jobs on two acres of land. That can't be produced by a normal employment operation. If somebody had a garage or a distribution facility, you would get four or five."

Puneet Chhatwal, Radisson SAS's vice-president of development, says that planning is now the major source of delays, particularly now that construction times have been slashed. He believes UK operators shouldn't grumble too much; planning restrictions are no more onerous in the UK than elsewhere in Europe, he notes, and are no disincentive to inward investment.

International chains control a bigger share of the UK market than in any other European country, Chhatwal points out - 70% in the UK compared with 10% in Italy, for example.

And he says that Radisson SAS treasures the listed buildings in its stewardship as a source of competitive advantage. "It's our responsibility to protect the environment," he concludes. "We have to do business in a responsible way."

Case study: Park Plaza Hotels For years, the Westminster Bridge Road roundabout has been one of London's worst eyesores. A grime-streaked 1970s office block squats atop the roundabout. But now, the Channel 4 viewers who last year voted to demolish the long-vacant structure are set to have their wishes granted.

Last month Lambeth council approved plans by Park Plaza Hotels to knock down the block and build a 953-bedroom hotel on the roundabout site. The hotel will also offer conference facilities for up to 1,200 people and will have two restaurants, an espresso bar and a gym.

The scheme will be 14 storeys high and is due to open in 2010. But it has been a long battle to get the scheme, designed by architect BUJ, approved.

Park Plaza bought the site two years ago from the site's previous developer, Frogmore Estates, which had been battling for several years to gain consent to redevelop the sensitive site.

Taking on a location where Government ministers had previously blocked two redevelopment schemes was a calculated risk. In the event, the hotel has proved uncontroversial. "They [Frogmore] were informed by the planners that this was something that would be acceptable on the site," says Park Plaza president Boris Ivesha.

But Ivesha says planning remains a headache for the company, which has developed another three hotels in London. "When you put in a planning application," he says, "you have to go through quite a few hurdles. There are a lot of departments and offices that you have to convince. It's time-consuming, lengthy and expensive."

And the delays are important for the company's bottom line. Ivesha estimates the interest payments on the Westminster Bridge Road site, for which the company paid £50m, at £3m-£4m a year.

"London is the most expensive place to build, because of land costs, getting planning permission and labour," he says. "It costs 30-40% more than to build in Berlin or Amsterdam."

For the time being, however, the returns still outweigh the costs. But with cities such as Paris and Rome offering equivalent returns to London but lower costs, how many more eyesores like Westminster Bridge Road roundabout will benefit from hotel makeovers?