Across Europe, there is a tide of luxury approaching the hotel industry. Of the 60,000 new rooms under construction, a whopping 45% are in the upmarket sector, as developers seem confident to aim their sights so squarely on high-yield, high-margin projects. But what does it mean for the budget and midmarket sectors that so many swish new four and five-star properties will be pitching up on their doorstep? If the immediate future of the industry is gilded with luxury, what exactly does this luxury look like in the 21st century? And more importantly, how much of it can economy brands appropriate?

For Michael Levie, chief operating officer of CitizenM, the locations of these new upmarket hotels tell him everything he needs to know: "Take a look at where they are being built – it is in primary cities. In the Londons and Parises and Moscows of this world, there is always space for an upmarket option. But go to secondary and tertiary cities and it becomes very tough, and when it comes to investment versus return, I’m not sure they will work."

Meanwhile, Elie Younes, head of development at Carlson Rezidor, warns not to be fooled by the numbers: "I think that, statistically, if you look at the number of rooms this is the reality, but if you look at the number of hotels the percentages may change. Budget hotels often tend to have fewer rooms, so once you start looking at that it may paint a different picture."

Budget and luxury both come with their different risk profiles, continues Younes, and the timing of this surge in upmarket appears to coincide with the upturn: "From an investment perspective, upmarket hotels have more clear risk than budget – from a development perspective they are more complicated, and there is much more volatility in their cash flow. As soon as there is a downturn, budget hotels are more recession-proof. The risk profile is certainly higher in the upmarket sector. However, the obsolescence risk of budget hotels is much higher – something happens to that real estate after ten, 15, 20 years that means it becomes obsolete in the market."

Niche appeal

It’s no coincidence that as the perils of the recession reside, Carlson Rezidor recently announced that it will launch a new brand of mid-market hotels called Radisson Red. With its youth-orientation and emphasis on design, the group has plans to open 60 of these hotels around the globe by 2020. This comes hot on the heels of the likes of CitizenM and Qbic Hotels – both Dutch-owned groups that aim to revitalise the sector for the 21st century, in a bid to attract a new breed of traveller.

With strong design and identity, they are a limited breed attempting to offer a very modern form of hospitability, without the price tag of the upper sector – and for this they are almost unique in the current market place. "When we started in London we needed to find out what the competition was, but we couldn’t find a comparable product – CitizenM is the closest but with a bit more luxury," says Paul Rinkens, founder and chief executive of Qbic Hotels. "Price-wise we are between a Travelodge and a Premier Inn. If you compare those with Qbic there is a huge difference, yet we service the same market."

Much of this has to do with this idea of obsolescence – that budget and mid-market hotels have failed to keep up with what the 21st century traveller wants, says Rinkens. And many at both ends of the market still underestimate how willing people are to trade down, so long as the product is right: "My background is in aviation and I remember when Ryanair came in, experienced people said that their customers will never travel Ryanair. Yet a decade on and those people now just view it like another airline. Our questionnaires show us that we have guests who earn £200k a year and more but stay with us. Four or five years ago, they would have stayed in upmarket hotels."

Five years ago, in the midst of the recession, many people did actually trade down, says Levie, but found hotels that didn’t quite cut the mustard: "Throughout the recession there was a tendency for people to be wise with their money, and look at other solutions. But most of the mid-market and upper mid-market hotels that could provide a good alternative to luxury hotels simply haven’t been updating their products."

Well connected

The strongest factor in play as the mid-market and budget sectors take a long look in the mirror, is the rise of the millennial traveller. Defined as those born between 1980 and 2000, the millennial generation is expected to account for nearly 50% of business-flight spending by around 2020. Brought up surrounded by technology, their demands of a hotel differ hugely from older generations. Describing such a model of traveller, Younes says: "He’s more tech savvy, he wants to be able to choose a hotel that is a place to socialise, and connect, that has flexibility in its use. He wants to be able to use it as an anchor for his social life."

With them, the traditional hallmarks of a quality hotel are becoming less and less important, says Levie: "I’d say luxury has changed; it’s no longer chandeliers, but being able to open your laptop and have instant, high-speed Wi-Fi with no landing page. Hotels still have huge lobbies, restaurants that sit empty for 18 hours a day, bars that sit empty for 20 hours a day, and meeting rooms that don’t inspire anybody. That is what is missing from so much of the mid-market – spaces that inspire people. And if you can do that at a sharp price, even better."

CitizenM bases its core principles around style and flexibility, aspects that today’s frequent traveller wants from a space. "Affordable luxury" are the buzzwords, with none of the stiff procedures and stuffiness of old-school hotels. Meanwhile, Qbic’s USP is its pod-style living. Each room contains a Cubi, a cube-shaped living space in which 25 elements of a hotel room are included – from bed to bathroom to table. The ability to assemble a flat-pack Cubi at low cost and in little time and to fit it into buildings such as old office blocks, means that Qbic can offer ultra-competitive prices while still keeping a heavy emphasis on design. "What we are trying to do is offer a hotel with the minimum of investment but maximum character," says Rinken. "Our main market is 18 to 25 year olds, leisure and corporate. The way people are travelling at the moment is different to three or four years ago. A main principle for us is that if you go to a hotel you want a good suite: good bed, good shower, free Wi-Fi. These are very basic things but if you have a look at the hotels around it can be difficult to fulfil that."

Life’s littler luxuries

CitizenM, like Qbic, has tailor-made its product to fit the new expectations travellers place on hotels. But elsewhere in the industry, it is an inability to do this that defines a lot of mid-market hotels: "Other industries are so much better at looking at a niche audience and creating for them. For example, ten years ago if I said I had an electric car, you would have laughed. Today, you’d ask what model it is – is it a sports or a coupé. They have created something for a niche market."

Instead of creating something afresh for an audience, hotel chains are guilty of trying to give their mid-market and budget products mere face lifts, Levie goes on to say: "I see a few make an attempt at going into lifestyle, but I find that our industry is repeating itself without thinking too much. They think that if they give their architect an assignment – copy this or do more of that or create this kind of feel – it will work, but they don’t think about the business processes that come with it. So it is a little better, but once you use the product it is not that much different."

As many in the mid-market sector bid to keep pace with the game changers, imitation may be flattering, but a few licks of paint and some funky furniture do not a modern hotel make: "When we opened at Bankside there was an old, mid-market hotel next to us that charged huge rates," says Levie. "They must have sent their architect into our lobby and said ‘Give us one of these’. And he did a pretty good job. But what he couldn’t change was the yucky breakfast buffet and restaurant setting – they couldn’t incorporate the idea that people might want to be in their own space and just grab a snack from a pantry. If you keep the old straight-jacket uniforms and business processes then it might look different but it feels the same as soon as you use it. What they don’t do is try to break the mould."

As a new glut of hotels come off the drawing boards and into construction across Europe, Rinkens admits that he is prepared for far more competitive products to enter the mid-market. And of course, the wave of upmarkets will also be hoping to convince many to upgrade to their new products. However, for those getting it right and delivering what today’s traveller wants from the mid-market and budget sector, there is nothing but confidence: "Let them build as many five-star hotels as possible!" says Levie. "Because we know we are a great, affordable-luxury alternative."