Colliers International’s Hotels team has compiled a list of the top investment cities in the U.K.—and London is only number seven.
Colliers factored in variables like land value, room occupancy rates and construction costs to determine a score for each of the 36 locations under consideration. The scores were then consolidated into a single figure and ranked, offering a multifaceted look at the most desirable locations across the Kingdom for investors to acquire an existing hotel or develop a new one.
Cardiff, the capital city of Wales, was ranked at number one due to its low active pipeline, low build costs and strong hotel performance over the last three years, but the performance can be attributed at least partly to the city’s hosting of the Rugby World Cup in 2015. Cardiff also saw the biggest compounded annual growth rate over the reviewed period (2012 to 2015) with good growth reported year on year.
Manchester came in second, mainly due to its good investment and valuation parameters as well as its strong hotel performance, which is exacerbated by a relatively small number of recent hotel openings. Manchester also ranked highly in terms of rooms per population, reporting 37.5 rooms per 1,000 population, this is down to its reputation as a city popular for both business and leisure trade.
In fact, the report shows that the "Northern Powerhouse" is in a strong position for future hotel development as five out of the top six locations in the index are within this area, including Manchester, Leeds, Chester, Liverpool and York. All of these cities outranked London.
“High land prices in London are causing investors to look outside of the Capital for opportunities to spend their cash," Marc Finney, head of hotels & resorts consulting for Colliers International, said, but noted that the city is “by far the largest market with almost as much supply as all of the other markets combined.” London has also done well lately in terms of revenue per available room, Finney said—“however, given that our index punishes high land costs, high construction costs, sluggish growth in 2015 and a strong active pipeline, London only ranks seventh in our index.”
At the other end of the spectrum, Bradford and Hull rank lowest overall. Despite more affordable development costs, both record Average Daily Rates (ADRs) below the regional UK market average, thus contributing to an overall lower market appetite and valuation yield. It is important to note however, that these markets have been amongst the fastest growing in the UK.
Meanwhile, Belfast, Glasgow and Manchester come out on top for occupancy levels in 2015, each reporting levels above 80 percent, due to consistently strong week and weekend hotel demand. Cambridge, Hull and Belfast are the markets with the highest share of new supply entering the market, representing 29.4 percent, 22.7 percent and 21.1 percent, respectively. Coventry, Warrington and Sheffield offer a more affordable development proposition.
Colliers' Top Ten UK Hot Spots for Hotel Investment are:
The 36 locations analyzed for this report total a current supply of 286,966 hotel rooms. London accounts for the majority of these rooms taking a 47 percent share, whilst Manchester and Edinburgh are next in line with five percent of the market share a piece.