IT MAY not be much more than a very large hole in the ground at the moment but it means a lot to City Inn chief executive David Orr. The successful chain of affordable, urban hotels launched by a family of Scottish hoteliers has just started work on its first European project, a £100 million development in the heart of Amsterdam.

The result of five years of negotiations, the 550-room City Inn will open in mid-2010, giving the privately owned company a foothold in mainland Europe. It plans to expand that with more new-build projects in Rome, Madrid, Barcelona and other major European cities as soon as it finds the sites. As such, it fulfils what Orr describes as the "international fantasies" of City Inn's founders when they conceived the model a decade ago.

At the same time, City Inn is expanding further at home. A 285-room hotel opened in Manchester in late May and another is under construction in Leeds. In London, a 1960s office block is being dismantled on a site near the Tower of London in preparation for the second, 584-room, City Inn in the capital - the first opened in Westminster in 2003. Prospective sites are also being identified in Edinburgh.

It has been eight years since the first City Inn opened in Bristol, the result of a series of discussions around the family dinner table between Sandy Orr, veteran hotelier, corporate financier and now chairman of the group, and son David, property consultant and now chief executive. Since then it has adroitly exploited a gap in the highly competitive hotel market.

By the time the second London and Amsterdam projects open in 2010, City Inn will have mushroomed from one hotel in Britain to a nine-strong international chain.

Since the beginning, the Bank of Scotland has bankrolled the business. The company is a joint venture between the family shareholders including Donald MacDonald, Orr senior's long-time business partner, and the bank. "The big benefit of a joint venture is you have a partner who understands what you are doing and adds value as a commercial provider of funds," Orr explains.

Along the way, most of the proceeds have been ploughed back into the business. As a private company, City Inn does not release profit figures but its revenue is rising steadily, up from £4m in 2001 to £34m in 2007 to date.

It was the success of the 460-room Westminster hotel, with its 16 suites for the premium end of the market, that got the partners thinking about venturing further afield. Speaking on the deck of the Glasgow hotel the morning after flying in from Moscow, Orr said: "We've always harboured these international ambitions. But London City Inn was a material breakthrough for us. London is our local market, but it is of course an international market."

The City Inn format is based on contemporary-styled, own-built, riverside hotels - most of them designed by the London-based firm of Scottish architect Rab Bennett - that put the emphasis on bright public areas such as the trademarked City Café restaurant and bar with its open, Clydeside deck that pulls in non-guests in summer.

The rooms are modest in size but comfortable and most overlook the water. All have broadband connection as standard and, in the new City Inn in Manchester, iMacs in the rooms. City Inn's catch phrase is "affordable excellence".

The chain certainly has no aspirations to be five-star. The gym has just three items of equipment - treadmill, stepper and multi work-out machine - and no supervisor, towels or shower, let alone a pool. But this practical approach helps keep down prices.

Although the founders have stuck to the original format, they have refined it with each new hotel. As Orr explains: "Every part of this business has got to remain appealing every day of the year. It has to be sustainable and we are constantly future-proofing it."

As an example, the private dining rooms that proved so popular in Westminster have been expanded in the Manchester hotel and rooftop gardens added. The bar and dining areas with the alfresco touch have been steadily developed in a strategy to turn City Café into a "destination restaurant". The new London hotel, meanwhile, will feature two rooftop gardens and a bigger Sky Lounge, smaller versions of which proved a hit with the first generation of City Inns.

An ethical hotelier, Orr believes the industry plays a civic as well as a commercial role. "If you go to a city and you are disappointed by the hotel, that's not good for the city," he says.

The Amsterdam location looks like the kind of plum site that will give City Inn every opportunity to interact with the community. Flanked by a new city library, music conservatory and a concert hall, it will overlook Amsterdam's picturesque network of canals (the chief executive got himself hoisted up in a crane to test the view available from the higher rooms).

Although the founders are ambitious, they know when to apply the brakes. "We do not want hundreds of these hotels," Orr says. "We are not confused by the notion that every time you turn a corner in a city you will see one of these things. In theory, we could develop in many cities but we believe we should concentrate on relatively few."

An obvious impediment to further expansion is how to maintain standards. City Inn's employees have quadrupled in number from 200, when the Glasgow hotel opened in mid-2000, to 800 today. The chief executive insists he is not a particularly talented administrator and relies on Scot Lynn Hood, director of operations, to attend to the multiple strands of running a hotel chain. As he explains it: "If you're too responsible for the delivery, you can't continually test the business."

While it looks like a prime target for private equity buyers - given the interest in chains such as Malmaison and Hotel du Vin, both owned by London-based MWB property group and jointly valued late last year at £337m - City Inn's shareholders insist the business is not for sale and there are no plans for a public listing. "We genuinely believe in the long-term value of what we are doing," says Orr. "This is an incredibly enjoyable thing to do. Why stop doing it?"

Orr retains faith in the hotel business. He is convinced that despite the current problems in the financial market, City Inn will not be seriously affected and that hotels in general will continue to prosper. "This is an industry that has weathered these challenges very well. It's a resilient business."