Zolfo Cooper, the leading independent provider of advisory and restructuring services, has published its Q2 2014 Hotel Bulletin which analyses demand, supply, pipeline and transactions in the hotel market in 12 cities across the UK. This quarter the bulletin includes a special focus on Edinburgh, assessing recent trends in the city’s hotel market and examining possible outcomes from the forthcoming vote on independence.
RevPAR growth across the UK
This quarter’s figures show average increases in RevPAR of 10% across the UK, with Belfast, Leeds and Glasgow scoring highest with RevPAR growth of 26%, 16% and 12% respectively. London achieved 4% growth. RevPAR growth in the majority (eight out of 12) of the cities reviewed has now recovered to pre-downturn levels.
Budget hotels 50% of pipeline
The bulletin includes analysis of current supply against active pipeline for the next three years. An estimated 36% of the UK’s hotels are categorised as ‘budget’ and this is set to grow as 50% of the active pipeline comprises budget hotels. Traditional three star hotels make up 30% of the current supply but only 3% of the active pipeline is three star, indicating that this sector of the market will shrink in relative terms.
At the other end of the spectrum, 32% of current supply is categorised as four or five star and will grow as a proportion of rooms as the active pipeline is at 38%.
Pre-downturn levels reached
Graeme Smith, Partner at Zolfo Cooper, comments: “The continued growth in the UK hotel industry is positive news. Reaching the benchmark of pre-downturn levels is cause for optimism and will hopefully give some hoteliers the confidence to invest in the sector.”
Transactions toward £2 billion
Transaction values in 2014 are progressing toward £2 billion, with £411 million in Q2 2014 alone, £250 million more than Q2 2013. The majority of transactions in the second quarter were for single assets. However, we believe that this trend is likely to change during the remainder of the year. Four major hotel portfolio transactions have already taken place in Q3 with others, including the sale of two De Vere portfolios, in progress.
Budget sector dominates
“Among investors and developers the budget market continues to grow, as does the high end. The middle is being squeezed out by innovative budget operators” said Smith.
The budget hotel sector dominates the UK hotel sector: the top two hotel brands in the UK are both budget hotels – Premier Inn with 9.4% of all hotel rooms, and Travelodge with 6.2% of all rooms. The third ranked hotel brand is Holiday Inn which trails at 3.3% of all hotel rooms, while Holiday Inn Express takes third position in the budget hotel brands with 2.5% of all rooms.
These leaders continue to drive expansion in the sector, with Premier Inn stating that it will open a new hotel every 10 days this year, with the emphasis on expansion in London.
The Bulletin also includes ‘investment indicators’, which provide a high level assessment of the demand, supply and pipeline data. It is designed to highlight cities which may attract or concern investors.
City Focus: Edinburgh
Edinburgh’s hotel market benefits from strong leisure and corporate demand due to its position as a major UK financial centre and technology hub, together with its many cultural attractions. Occupancy levels of 78% over the last four years are the highest outside London.
RevPAR has grown each month with a 30% surge in July, when Muirfield hosted the 143rd Open Championship golf. In addition, visitors to the city seem to be prepared to pay a premium for hotel accommodation as room rates are 20% higher than the average for the UK outside London.
The city’s aparthotels account for 25% of the active pipeline, which is significantly higher than the national average of 9%. This may partly be due to the high level of corporate demand in the city.
Some parts of the Scottish hospitality industry consider the upcoming independence vote may put investors off due to uncertainty surrounding the economy. However, there has been no noticeable sign of hotel investment slowing. Others see independence as a possible benefit to Scottish tourism as the country could be marketed as a separate entity. Regardless of the outcome, Edinburgh is likely to remain an attractive city for global investors.
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About Zolfo Cooper
Zolfo Cooper LLP is a leading independent provider of advisory and restructuring services. Headquartered in London, with offices throughout the UK and affiliations in North America, the Caribbean, Continental Europe, Asia and Australasia, we have extensive experience of assisting companies and their stakeholders across a wide range of situations from complex cross-border cases through to mid-market engagements.
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