Room2 merges niches to welcome ‘purpose-driven’ guests
 
Room2 merges niches to welcome ‘purpose-driven’ guests
24 SEPTEMBER 2020 8:04 AM

The founder of Room2 views the current unsteady market as the perfect time to combine shrewd, long-term investment with leisure and corporate guests’ requirements for hotel brands that prioritize a positive environmental impact.

LONDON—Room2 founder Robert Godwin believes a gap in the United Kingdom’s lodging market exists for assets that blend the design and feel of hotels with the convenience and flexibility of serviced apartments and aparthotels.

Despite—and because—of COVID-19, Godwin sees 2020 as the perfect year in which to expand his idea and brands, which he refers to as a “home-tels,” and move toward reaching national scale.

Room2, which has properties in London and Southampton, will be joined by a product called Room2 Lite that Godwin believes sits at the high end of the budget arena and will disrupt the budget space. He added that Room2 could even be a solution for properties that have until November to decide whether to stick with Travelodge (U.K.), following that brand’s recent reorganization and a court-mandated decision that its company voluntary arrangement triggers landlord’s break clauses.

“The last six months we have really pushed this,” he said. “We are going quite hard to capture some Travelodge assets, as well as having discussions with other landlords, going head to head with the big hotel brands. Our main limitation is a lack of open sites.

“Fifteen is the maximum I think we’d like to take.”

Godwin’s plans for Room2 include a footprint of 1,000 rooms by 2022 and 5,000 rooms by 2030.

Room2’s debut, a 15-room Hammersmith, London, conversion property, was joined by a 71-room flagship asset in Southampton.* A second London property in Chiswick, acquired in 2014, is due to open in June 2021 with 86 rooms. There are plans for yet another London asset as well as properties in Belfast, Liverpool and Manchester.

Room2 has big ambitions, but the problem in its segment is that the barriers to entry are low, requiring more effort to differentiate from the competition, Godwin said.

“We have always been inspired by hotels, rather than serviced apartments that are essentially flats,” he said, using the British word for apartments.

“Room2’s position in the 3.75-to-4-star product, the upper part of the market, and then we see an opportunity to create slightly smaller rooms in more suburban areas, our Room2 Lite product,” Godwin said. “The aparthotel model is not so understood (by most consumers). Some have F&B, some have small kitchenettes. We wanted a hotel experience but to add the benefits of a serviced apartment, and it is in the living, working and playing space we want to go further, to create a richer experience,” he said.

Towns and city sites are the goal via acquisition, leases and hybrid-leases as well as working with high-profile developers who don’t need additional capital, are willing to build and regard well the strong covenant between Room2 and its parent company, Lamington Group.

Lamington Group is a real estate company that has operated for more than 50 years. Lamington is a Godwin family business of which Robert Godwin is managing director and his brother, Stuart, a director.

Sticky season
Now the summer holidays and pandemic-era government initiatives are ending or being scaled back, Godwin experts to see churn beginning to develop.

He said investors who are looking to further balance their real estate and hotel portfolios increasingly realize the strength of Room2’s niche, even in the current environment of lessened occupancy.

“Investors have tuned into that,” Godwin said. “We’ve had a less bad experience of the pandemic than others. Since (the) March (lockdown), our guests’ exodus was far slower than the data was showing for the entire market, and since April, we’ve started building up occupancy at lower rates. Added to that, operational components have been tuned down to effectively manage and maintain margins.”

Godwin said that while Room2 was not designed for that model, ensuring that it could be adapted to reflect changing market dynamics was a key element, which has enabled its stability even when the overall market is down.

But all investments on the table now are subject to increased risk, he said.

“Before COVID, inevitably a small number of sites we’d look at were viable and all went through a competitive process,” Godwin said. “Now, margins have been squeezed, and the recovery is taking longer and longer, although I am seeing owners keeping to pre-COVID values.

“I’ve not seen a massive amounts of acquisitions coming to market that have been priced-adjusted.”

That will change, and soon, he said.

“There are no two ways about it. (Hoteliers) cannot forecast pre-COVID income levels, so a readjustment of land prices will, and is, happening,” he said. “Also, if there is less construction, that is inflationary, too, and might drive down costs.”

That said, there will be opportunities to be had over the next several years.

“A window is coming in the next few years. (Room2 is) stabilized, pushing to invest and making every making every opportunity to grow during this downturn,” Godwin said. “But there are also people out there who are a lot more opportunistic. They see that risk in the market and want returns that will match. In addition, banks are pulling mortgages from high-risk borrowers due to nervousness about the level of unemployment coming through.

“For partners who can see what is going on and have a longer-term view, this is the perfect time to make a move. Portfolio distress will feed through.”

While staff numbers at the Room2’s assets have always been lean, the firm is hiring key strategic roles at its corporate office, Godwin added.

Purpose-driven
Room2’s founders said the brand is intended to tread lightly in terms of its carbon footprint and cater to a purpose-driven guest who shares similar values. That environmental sensibility is something shared by the brothers and central to the Lamington Group ethos, Godwin said.

“We are passionate about rolling out industry-leading brands that aren’t just not doing harm but that are having a positive community and environmental impact,” he said, adding that the Chiswick property derives energy from solar panels and ground source pipes.

“We’ve spent £250,000 ($317,860) on this, and it is a commercial opportunity, too,” he added.

Such initiatives will diversify Room2’s guest list, Godwin said.

“Functionally, we’re a hotel with a kitchenette, but one going deeper with experiences and atmosphere,” he said. “We allow guests to be who they want to be, which I do not believe is possible in a typical hotel.”

The brand also permits 24-hour stays.

“I think we are the only brand worldwide that does that,” he said.

Other lifestyle initiatives include a mattress menu, pet-friendly stays and four F&B offerings, such as a bar with a menu, grab-and-go, a pantry and all-day dining.

“Our social lounge is our living heart. We wanted to create a brand with communal areas as its heart, and this is inspired by Hoxton (Hotels), who have done that very well,” Godwin said.

Adding to the glow of the segment, Room2 is targeting the brand’s “excellent” online guest reviews, wider appeal across both leisure and corporate and length-of-stay options, he said.

“One-third of our guests stay seven nights and under, and then there is a big spread above that,” Godwin said. “Hotels are perfect for three nights, I feel, but we can attract those who stay at hotels for most of their trips.

“That will build occupancy, and produce less volatility. Income is more steady.”

*Correction, 28 September 2020: This story has been updated to specify Room2's debut property and clarify the segment for Room2 Lite.

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