Commercial property: Positive outlook for Granite City’s hotels

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Oil price recovery and major infrastructure projects are boosting Aberdeen’s hotels sector with a resurgence of investor demand and the arrival of new hotel operators, according to Savills.

In its Aberdeen Hotel Spotlight, Savills suggests the Granite City will see revenue per available hotel room, year on year (RevPAR) move into positive territory in the second half of this year for the first time since 2014.

The firm describes RevPAR as hitting rock bottom in the first quarter of 2016 as a result of a fall in both average room and occupancy rates which followed the oil crash.

However, the city’s hotel industry is now set to benefit from the steady recovery and a positive outlook for further oil price growth.

The figures show a close correlation between the price of Brent crude oil year on year and the RevPAR rises and falls.

Oil is up around 20 per cent on its price six months ago, with the strong assumption that hotel return per room is likely to follow suit.

However, oil price is no longer the only contributor to the success of Aberdeen hotels, according to Steven Fyfe, associate director in the hotels agency at Savills.

He says: “While there has been a historical dominance and reliance on the oil industry, there are efforts to diversify Aberdeen’s economy and this will prove positive for hotel operational performance over the longer term.”

The city has turned its attention to sustainable investment in renewable energy through the development of the £335 million Aberdeen offshore wind farm.

Fyfe says that such diversification means the hotel industry will not longer rely so firmly on oil and hotel returns may become more stable.

There are also major infrastructure projects underway in the city that hoteliers are prospering from.

Plans are also in place to increase Aberdeen’s conference and leisure offering.

There are already 50 golf courses located in the area and the new exhibition and conference centre, the AECC, due to open next year, is expected to attract 4.5m visitors in its first six years. Complementing this is the £20m expansion to Aberdeen airport, increasing terminal capacity by 50 per cent on its completion next year, and the £350m expansion of Aberdeen harbour.

As a result, room count in the city is expected to increase by 10 per cent by the end of next year, up from 6,867 rooms, according to figures from property asset manager, AMPM.

A number of hotel openings are scheduled and, in particular, the city will welcome branded hotels in a market largely formed of independent operators.

Offerings include Sandman Signature Hotels opening a third UK hotel on St Andrews Street at the end of this month and a 200-room Hilton Hotel.

The improving outlook for Aberdeen is attracting more investor interest, particularly from overseas with investors reporting recognising a window of opportunity to acquire assets at a discount.

Hotel investment volumes in the city totalled £12.25m in 2017 across three deals, following a year of inactivity in 2016, and Savills suggests this trend will continue to build momentum this year.

Key deals include the sale of the ground lease investment of the Marriot Moxy hotel, next to the airport, to British Steel for £5.7m, and the Holiday Inn in Westhill and Holiday Inn Express on Chapel Street to Cairn Hotels for an undisclosed sum.