The three 'L's
Location, location, location is the most important thing to remember
It’s time to approach the old adage of ‘location, location, location’ a little differently.
My colleagues in the parallel discipline of retail consulting talk inscrutably about the importance of the ‘Three L’s.’ Outsiders not in on the joke scratch their heads to guess which words might fit the acronym — is it perhaps leadership, liquidity and logistics? No, it’s nothing more intellectual than location, location, location. Translation: You can have the greatest shop (or restaurant) concept in the world, but if nobody ever goes near the place, you’re in trouble.
Does the same apply to hotels? Well, yes and no. It is certainly true that hotels in the front row next to the beach, the main road or airport have better visibility. They can expect not only to catch more of the walk-in business, but also to be chosen by punters booking on the internet — especially in these days of Google maps, etc.
To take an extreme example, when it comes to proximity to the Haram in Makkah, a matter of tens of metres’ distance from the Holy Mosque can make hundreds of dollars’ difference in achieved room rate during the peak season. This is because the further away Hajjis stay from the Haram during this virtually car-free period, the longer they have to spend jostling through the crowded streets to reach their goal.
Logically, hotels in the second or third rows back from said attractions generally earn somewhat lower room rates. Walking distances in the scorching Gulf sunshine become an issue. Even long covered walk-ways leading to the metro line of the type now seen in Dubai can put people off.
For drivers, complicated road access can also be a major negative factor. If you have to drive a mile up the road and do a U-turn to get to your hotel, or if you find yourself hurtling past it with no clue as to how to get to it, then there really is a problem.
I can think of a number of hotels in the region that fare worse than they should for such reasons, with the local municipalities being unreceptive to their pleas to create dedicated turnings.
Clear signage can go a long way, yet it is amazing how few hotels manage to get that right as well, by failing to put themselves in the shoes of first-time drivers and, wherever there is a doubt, erecting a sign.
Developers of hotels or hotel apartment buildings are obviously well-advised to take note of such basic issues and build location-appropriate properties. Secondary locations should have secondary lodging products, four- or three-star hotels, standard rather than luxury serviced apartments. There is nothing pejorative about my use of the word ‘secondary.’
Remember the old adage that the lower the star rating, the higher the profit margin in percentage terms. This is one of the first considerations that hotel chains with multiple brands take into account. Limited service brands, for example, are rarely seen in prime locations.
The formula for such properties works backwards from the type of room rates that can be expected. If you are expecting to earn say, US$100 in ARR, then you have to build more cheaply to earn a reasonable return on investment than you would if the figure were $300.
Equally, you should spend less on buying, leasing or otherwise occupying the land on which the hotel will stand, meaning that a second or third row site can work perfectly, since these are typically more affordable than first row plots.
By the same token, however, a quiet, possibly residential back street can sometimes be preferable to a noisy main road for certain lodging types, for example, serviced apartments or villas in which some of the guests are effectively long-term residents.
Cheaper land in more remote out-of-town locations can allow creation of more human-scale, resort-style complexes with gardens, ground level pools and other leisure or business amenities that would be impossible in the city centre. Such hotels do well to offer on-site attractions that allow them to be more self-reliant in terms of demand such as golf clubs, equestrian centres or marinas.
About the Author:
Guy Wilkinson is a director of Viability, a hospitality and property consulting firm in Dubai. For more information, email: firstname.lastname@example.org