When it comes to a decent night’s sleep, it is not always about luxury these days. Although consumers are more discerning, they are also less willing to pay for anything that does not reflect true value. They may be willing to scrimp on space and even natural light, but they will not scrimp on quality.
Or at least that is what the team at Z Hotels have based their business model on.
The hotel group was launched three years ago by former Thistle Hotels chief operating officer Bev King, Jonathan Raymond, who used to run the family office of one of property’s shrewdest investors, “Black Jack” Dellal, Rich Meehan, formerly Thistle’s financial director, and property finder Jamie Goldstein.
The hotels, says King, offer value for money but also high quality. Rooms are small, typically 100-120 sq ft, some have no windows, none have baths, but all promise a good night’s sleep.
King says that at Z Hotels they like to spend on quality to ensure visitors’ stays are the best they can be. Mattresses are from Devon and made with natural products; each bed is dressed with a luxurious duck down duvet that Z Hotels spends £75 each on. “Most hotel duvets,” says King, “cost little more than £5 each.”
A little extra spending on luxuries, on the things that the average – but now discerning – tourist/business guest wants, goes a long way for Z Hotels. Rooms come with 48-inch LED TVs, with every Sky channel at no extra cost; wifi is free throughout the hotel – and not just for 30 minutes.
You get free bottled water in your compact room. You even get free wine and cheese. And ice cream. And not just any cheese and ice cream. The cheese is sourced from the Cheddar Deli in Ealing, west London, and the ice cream is handmade in Kent.
“We look for quality and value for money,” says King. “These extras don’t cost us a lot of money but the perceived value to the customer is high.”
So high, in fact, that Z Hotels boasts an average occupancy of 98-99% and a room rate of more than £100 a night. That is more than £100 a night for a room that might not have any natural light.
King says that the windowless rooms are actually among some of the most requested, with guests specifically asking for dark rooms so as not to be awakened by the rising sun.
With five properties now operational, Z Hotels is embarking on its next phase of growth. But, like its hotel rooms, growth for Z Hotels is not about size, it is all about location.
“Location is everything,” says King. “Sites have to be in popular areas. They have to be micro-destinations. We try to pick areas that have a big volume for both tourists and businesspeople.”
So far those locations have included London hotels at Moor Street in Soho, Lower Belgrave Street in Victoria and Orange Street in Piccadilly, and city centre locations in both Liverpool and Glasgow. Z Hotels will go tech cool next with a Shoreditch hotel at Helical Bar’s The Bower development near Old Street, due to open next month.
Z Hotels is also opening sites at Gloucester Road and Fleet Street that will take its total room numbers to more than 800.
King says growth of the portfolio will be London centric but good regional towns and cities will not be ruled out. Oxford and Brighton are both on the list of potential locations, he says.
For the most part, the firm and its expansion is funded privately – King and his partners all have personal stakes in the business. A number of private investors – widely reported to include a couple of Premiership footballers – also provide capital for Z Hotels. Debt comes from long-term banking partner Santander, largely on a property-by-property basis. Last April the bank provided £4m to help fund the acquisition of both its Glasgow and Piccadilly hotels.
Z Hotels will usually spend between £4m and £6m on each property it launches.
This year, expansion plans will help to boost the firm’s workforce from 140 employees to more than 200. The firm has already achieved its ambition to double revenues to £18m and should top £20m in 2015. Over the next four years, the group has ambitions to grow to a portfolio of 15 hotels and has mooted a float or partial sale of the company to continue its growth. King says there is no firm agenda set, however, and any sale would have to be with the right partner.
“It’s not about ruling the world. It’s about location and quality. We’ve started being more selective about the properties we take.
“Four-star hotels are often poor value for money. The future of hotels in London is affordable luxury. Growth has to be driven around quality.”
Z Hotels’ real estate profile
The Z Hotels portfolio currently comprises 499 bedrooms, with 316 more on the way through planned London projects at Shoreditch, Gloucester Road and Fleet Street.
Hotels are owned leasehold, with 25 years being the shortest lease, but most between 35 and 50 years. The group
says it is now at a point in its life where it has the financial clout to be buying freeholds and is on the hunt for opportunities.
Z Hotels prides itself on being able to occupy buildings that others cannot. Founder Bev King says the group can take a 15,000-20,000 sq ft building and turn it into a 110-bedroom hotel. Premier Inn, he says by way of example, would be able to fit only 50 bedrooms into that space.
In Victoria, Z Hotels took a former office building off Grosvenor that would have cost the landed estate around £5m to upgrade and bring back into office use. Z Hotels turned it into a 106-bedroom hotel, with 70 of those much-requested windowless rooms.
