According to research by Booking.com, 2020 will see the continued growth of second cities, with over half (51%) of global travellers stating they would swap their original destination for a lesser-known but similar alternative. We spoke with Asli Kutlucan, Chief Development Officer at Cycas Hospitality, to discuss what’s driving this trend, the opportunities it presents the industry and development versus investment.
Click.: What’s driving the rise of development and investment in second cities?
Kutlucan: Firstly, the majority of European first-tier cities are now untouchable because of industry dynamics: the housing and office market is booming, and this makes it much more difficult for hotels because of the scarcity of available deals. Secondly, we are observing that many local authorities are encouraging initiatives and regeneration programmes in second cities to help grow and spread the economy. Having these programmes and investing in developing all sorts of commercial businesses in these areas makes secondary cities more attractive to travellers.
Development costs are also more reasonable in secondary cities. Additionally, taking the Netherlands as an example, we’ve also seen campaigns launched that encourage tourists to explore beyond Amsterdam in a bid to manage overtourism.
Click.: You mentioned overtourism, which is top of mind as people become increasingly eco-conscious, what elements make a lesser-known destination a more desirable option for travellers?
Kutlucan: It differs from country to country, but if the travel networks are well designed then tourists don’t really mind staying in a second city because they know they can easily be in the heart of the main city within 20 minutes. So, accessibility is key. Also, staying further out is generally more affordable, with average daily rates sometimes 40-50% less when compared to the first-tier city.
With immersive travel also becoming increasingly popular, tourists see staying in a second city as a positive because they get to experience new locations while combining many different activities. That type of traveller doesn’t mind staying outside the heart of the capital city. Those who do mind usually come from a higher income background and aren’t part of the mass tourism that we’re seeing at the moment.
Tour operators are also more attracted to second cities because they often pay lower overheads per person and can stay in locations where the bus can be easily parked. And from what I’ve so far observed, Chinese visitors - one of the fastest-growing traveller markets today - and those from other Asian countries prefer travelling with guided tours or on bus tours because of the lack of language barriers and they feel more safe and secure. They also don’t mind staying in locations further out because they have those dedicated buses to transport them.
Click.: What opportunities do second cities present brands and investors, and how can they tap into this trend?
Kutlucan: There’s a huge opportunity for us to grow the branded hotel segment in these areas, either by developing them or by converting properties that have fulfilled their lifespan and now need a new image and delivery system. Especially if you look at European second city hotel inventory, the majority of it is still very much unbranded. If you compare that to the US, Europe is way behind America in terms of branded inventory in second cities and I think investors and operators can really capitalise on the opportunity.
All of the hotel chains now see the opportunity that second cities offer and are trying to expand, but I suppose what we need to look at is a ground-up approach. A second city is never going to have as strong of a RevPAR as a primary city. When you convert that to the bottom line, which drives how much you can invest into a hotel, it’s difficult to justify building a very high-end hotel in a secondary city. The chains that have easily convertible brands in their portfolio or cheaper-to-build brands will have the upper hand when it comes to capturing the second city market.
Click.: How do you envision the future of second city hotel development and investment?
Kutlucan: I think it’s going to be split 50/50 between development and investment. We will see quite a lot of rebrand and relaunch programmes alongside new developments - especially in new regeneration areas where whole hubs are being created to help attract tourists. As an example, we recently signed a convert property in Darmstadt, Germany. Known as the ‘City of Science’, this second city is home to Germany’s two largest technical universities and major research institutions, so there is a lot of potential there. We took over a three-star unbranded hotel which we will be converting to Accor’s new lifestyle brand, Greet.
Moving forward, I think we will definitely continue to see more movement in these second cities and it will remain a big growth area for the industry.
- Second cities are becoming increasingly popular, with over half of global travellers stating they would swap their original destination for a lesser-known alternative
- Second cities are an attractive option for developers as development costs are generally more reasonable
- The chains that have easily convertible brands in their portfolio or cheaper-to-build brands will have the upper hand when it comes to capturing the second city market