Commercial property: Capital books in for hotel development top spot

Colliers International's latest UK Hotels Market Index shows continued year-on-year growth for the sector, significantly ahead of the growth in gross domestic product.

The annual report, which is in its third year, paints a positive picture for the hotels’ sector, particularly in Scotland’s capital.

Regional markets have continued to catch up to London in terms of their attractiveness to investors, with cities such as Hull and Plymouth entering the list of top 10 hot spots for hotel development and acquisition in the UK for the first time in 2017.

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But Edinburgh topped the index, moving up four places in 2017 from the previous year, with its high position mainly attributed to strong occupancy levels and average daily rate growth in 2017 resulting in a four-year upward revenue-per-available-room trend, combined with constrained new supply.

Alistair Letham, a director in the UK hotels agency team at Colliers in Scotland said: “Apart from London, Edinburgh is the most popular city for visitors in the UK.

“It is therefore of little surprise that this is also reflected in the popularity of Edinburgh as a hotspot for hotel development.

“This is further augmented by Edinburgh’s role as an important commercial, financial and political centre, which helps drive demand.

“The continuing growth in passenger numbers at Edinburgh airport, alongside the ongoing worldwide popularity of Edinburgh as a festival city is a further indicator of its strength.”

The index is an analysis of 34 locations in the UK, ranked to determine the most attractive for hotel development and acquisition.

After Edinburgh, Bath ranks second and Belfast is positioned third.

To score each of the locations, the analysis uses key performance indicators including land prices, build costs, market appetite, valuation exit yields, room occupancy, average 
daily rates, occupancy rates, revenue per room, active 
pipeline as a percentage of current supply and construction costs.

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The ratings are then consolidated into a single figure and ranked to show which markets are hot in terms of a desirable location for investors to acquire an existing hotel or develop a new one.

Marc Finney, Colliers’ head of hotels and resorts consulting, said: “The data reveals the ever-changing nature of the UK hotels’ market.

“Cities such as Bath and Belfast have really upped their game in the last year to make it into the top five, despite failing to feature in the top 10 last year.

“Our index is formulated in such a way that high land and construction costs and sluggish hotel market growth are penalised. That’s why some markets will rank lower than expected.

“Of course, this is a general market index and site-specific factors will lead to significant variances but the data demonstrates which cities investors should be watching and offers a credible indication to influence their decision-making process.”

Glasgow, the only other Scottish city to make the list, ranked tenth with a good ratio of hotel performance in relation 
to the costs of development.

Finney added: “This year’s index shows the usual suspects and many of the top ten will not be a surprise to those from the sector.

“However, it does also reveal a number of markets which offer good opportunities but which may not yet feature on everybody’s target lists.”