Growing demand for Scotland hotels could drive price increase

Bonham Hotel Edinburgh
Bonham Hotel Edinburgh

As we noted last week, Scotland’s hotel sector has been doing well this year, in spite of concerns over last year’s Brexit vote. Overseas investors spent £51.3m on hotels in Scotland in the first six months of the year, a sixfold increase on 2016, according to Savills.

U.S. investors have been the most prevalent, spending £35.3 million since January, all of which was invested in Edinburgh. Key deals include U.S.-based PGIM’s acquisition of Safestay Hostel, British Virgin Islands-based International Hotel Properties buying Holiday Inn Express—the largest single transaction by an overseas investor at £17.7 million—and a U.S. investor group, led by fund manager Richard H. Driehaus, purchasing The Bonham hotel from Starwood Capital.

Indian investors have also been active, deploying £8.3 million so far. Key deals have included MGM Muthu acquiring both the Highland Heritage Portfolio and Newton Hotel in Nairn. Chinese group Creation Gem International Ltd acquired The Isle of Eriska Hotel and Spa while Singapore’s 7 Hospitality bought Dundee’s DoubleTree Hilton.

And just last month, Leonardo Hotels, the European division of Israel's Fattal Hotels Group, acquired a portfolio of properties from Portland Hotels that will increase the company’s presence in Scotland.

What's Ahead for Scotland

Best of all, investment is expected to continue, expanding out of the key markets of Edinburgh and Glasgow, with institutions also eying the market, encouraging owners to push for high prices.

Over the next three months there’s the potential for another tranche of transactions to go through before the end of the calendar year, between £4 million to £5 million,” Steven Fyfe, associate in the hotels team at Savills Scotland, told HOTEL MANAGEMENT. “It’s a mixture of single asset and portfolios—there are two UK portfolios of which there are assets in Scotland. There are a number of single assets owned by private individuals where we are seeing enquiries for off-market transactions, which is something we are seeing more frequently.

“There are certain sellers who have picked up on the interest and have higher expectations due to the overseas buyer pool and that can make things tricky. If there’s a motivated seller then they are more realistic.”

The brand demands of the purchasers vary, Fyfe said. “There are those targeting hotels where they would like to take the brand off and plug the hotel into their own management platform and there those where if they have a relationship with a brand they will go with that.

“It’s not just the major locations, like Edinburgh and Glasgow it’s the other tourist-driven markets too. Some of the risk-averse end of the spectrum, the ground-lease transactions, they have less operational risk. Then there is the Bonham transaction where they buyer has taken on all the risk. There are more ground-lease funds out there and volume is ticking over. They will also purchase dry investment income, like Premier Inns and Travelodges—they’re primarily on the radar.”

Intriguingly, the Brexit may not be having a significant effect on Scotland’s hotels. “We’ve had a pretty steady year,” Fyfe said. “When we speak to the operators and the investors Brexit is not frequently mentioned. It has not had a profound impact on performance or investment.”

Major brands are also looking to gain footholds across the country. Back in April, Marriott International announced plans to open seven new hotels in Scotland over the next four years. The new hotels will cover five of Marriott's 30 brands, including W HotelsMoxyAloftCourtyard and Residence Inn, with three Moxy hotels at as-yet-unannounced locations.

As long as supply keeps flowing, England’s northern neighbor looks set to benefit.

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