Commercial property: Scottish hotel sector boom shows no signs of flagging

The Grade A listed Buchan House on St Andrew Square.
The Grade A listed Buchan House on St Andrew Square.

There’s no denying that the Scottish hotel sector is going through a period of significant growth. Tourism is booming in many parts of Scotland and Edinburgh is certainly benefiting from the upsurge in visitors, most visible this month for the festivals.

Despite concerns over Brexit, UK tourism is set for record highs this year after a strong performance in 2017.

And, along with increasing visitor numbers staying in UK hotels, there has been a surge in investment in the sector from both domestic and overseas funds.

But according to a recent report by GlobalData, Scottish destinations are faring particularly well.

In early April, First Minister Nicola Sturgeon revealed during a visit to Beijing that the number of Chinese visitors flocking to Scotland had soared by almost 200 per cent in a decade, and with the recently announced direct flights to China from Edinburgh, links with the country are set to strengthen even further.

A report this summer from Savills highlighted that investment activity in the Scottish hotels market in the first quarter of this year totalled £105.85 million – a 90.3 per cent increase year-on-year – but it also revealed that much of the demand was driven by overseas investors.

It is Edinburgh that is increasingly on investors’ wishlists. Not only is its tourist industry boosting the economy and supporting thousands of jobs, its year-round visitor numbers are attracting notable interest from large hotel and serviced apartment operators.

The heightened appetite for space in Edinburgh doesn’t just stop at hotels, though; the story remains the same for retail, leisure and office accommodation.

The number of overseas investors and tourists turning their attention to Edinburgh has resulted in the city responding.

Keen to make prominent returns, hotel room rates have increased, with a recent PwC survey finding that prices in Edinburgh’s are growing at three times the speed of the UK’s, and revenue per available room is significantly ahead of the national average.

A recent Edinburgh transaction has also highlighted the appetite among investors to be part of the city’s hotel scene. It was announced this month that the Grade A listed Buchan House on St Andrew Square would be turned into the city’s second Malmaison.

The story remains as sweet at a UK level. A 37 per cent rise in new-build hotels is contributing to a significant boost in the sector, according to analysis by Knight Frank.

The same research found that, of the UK cities presenting the best prospects for hotel investment and development, Inverness, Brighton, Edinburgh, Cardiff and Liverpool were the UK’s top five most attractive cities.

It’s also interesting to look at the areas in UK hotel investment that are experiencing the most growth.

Knight Frank’s report discovered that it’s the budget hotel sector that continues to dominate the market, representing 69 per cent of all new-build hotel stock and 65 per cent of all hotel extensions, with around 8,300 new branded budget hotel rooms planned to open this year.

Whatever the budget, tourism in Edinburgh certainly shows no signs of slowing, but investors will need to be quick off the mark to secure prime space. It is encouraging to see the spotlight fixed firmly on the city and that Edinburgh, and all it has to offer, is recognised and sought-after by investors from around the globe.

Addi Spiers is a partner at international law firm Addleshaw Goddard