EDINBURGH remains the most attractive UK hotel investment destination outside London, research has found. The capital retained its position for a fourth successive year in Deloitte’s European Hotel Investment Survey.
Amsterdam retains the crown as the most attractive European city for hotel investment after being ranked top by 32 per cent of respondents. Barcelona and Dublin (both 25 per cent) followed, while London slipped to from second to fourth (32 per cent down to 23 per cent. Madrid (22 per cent) completed the top five.
More than two-thirds (67 per cent) of investors said terrorism was the main risk to the European hotel industry over the next five years.
When it came to the UK hotel industry, 69 per cent cited Brexit as the biggest risk, followed by slow economic growth (48 per cent) and a shortage of skilled labour (38 per cent).
Almost half of the respondents identified Edinburgh as the most attractive hotel investment destination in the UK outside of London, followed by Manchester (39 per cent), Cambridge (30 per cent), Oxford (29 per cent) and Bath (13 per cent). The survey found hotel investors are broadly optimistic about 2018 growth prospects in the UK hotel market outside London, with the majority of respondents expecting revenue per available room (RevPAR) growth to be between one and three per cent. Growth is expected to be highest in the larger cities, including Edinburgh, according to 32 per cent of respondents, and Manchester (28 per cent).
However, when asked about 2018 expectations for gross operating profit per available room (GOPPAR), respondents were more pessimistic, with a quarter (25 per cent) expecting no GOPPAR growth.
Nikola Reid, director and head of UK hospitality at Deloitte, said: “The UK market outside London remains in good health and continues to attract overseas investors, particularly those looking to take advantage of the recent currency devaluation and flourishing leisure demand.
“Edinburgh and Manchester are robust hotel markets with strong occupancy levels and have a track record of absorbing new supply. Appetite for hotel investments in the UK university towns of Bath, Oxford and Cambridge is not surprising due to high barriers to entry and their strong leisure appeal in the wake of tourism from overseas while the pound remains weak.”
Asked about the current UK hotel investment cycle, more than a fifth (23 per cent) of respondents said they believed the peak has passed, while a quarter (26 per cent) believe it will occur within the next 12 months. However, 47 per cent of respondents felt that there was more than a year to go before we reach the peak in the investment cycle.
Reid added: “Hotel investors are anticipating RevPAR growth in the UK market outside London, but rising costs, driven by inflation and recent payroll increases, are clearly at the forefront of investors’ minds. Hotel owners will need to think about how they can offset these increasing cost pressures while growing top-line growth in 2018 and beyond.
“Several private equity houses are coming towards the end of their holding period and are therefore assessing their exit strategies, and this could be impacting investors’ views of where we are in the investment cycle. Nevertheless, we are continuing to see interest in single asset and portfolio deals, indicating that we may have some time to go before the cycle peaks.”
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