Colliers International’s latest UK Hotels Market Index shows continued year-on-year growth for the sector, with RevPAR increasing by 3.8 percent; significantly ahead of GDP growth. Regional markets have continued to catch up to London in terms of their attractiveness to investors, and cities like Hull and Plymouth entered the list of top 10 "hot spots" for hotel development and acquisition in the UK for the first time in 2017.
Top 10 UK hot spots for hotel investment and development are, in order, Edinburgh, Bath, Belfast, Cambridge, Bristol, Cardiff, Plymouth, London, Oxford and Glasgow.
At the top of the Index, Edinburgh moved up four places in 2017 since the previous year. Its high position is mainly attributed to strong occupancy levels and ADR growth in 2017, resulting in a four-year upward RevPAR trend combined with constrained new supply.
Bath came in second, moving ten places up, as a result of strong ADR performance, combined with a lower active pipeline.
Belfast is positioned third, improving its ranking by a significant 16 spots due to the city’s robust and positive four-year RevPAR trend together with relatively low land site prices.
“This year’s index shows the usual suspects and many of the top ten will not be a surprise to those from the sector,” Marc Finney, head of hotels & resorts consulting at Colliers International, said in a statement. “However, it does also reveal a number of markets which offer good opportunities but which may not yet feature on everybody’s target lists. It is noticeable how markets like Plymouth and Hull have started to catch up on lost ground during the last cycle. Cities such as Bath and Belfast have really upped their game in the last year to make it into the top five, despite failing to feature in the top 10 last year.
“Our Index is formulated in such a way that high land and construction costs and sluggish hotel market growth are penalized. That’s why some markets will rank lower than expected. Of course, this is a general market index, and site-specific factors will lead to significant variances, but the data demonstrates which cities investors should be watching and offers a credible indication to influence their decision-making process.”
London has climbed back into the top 10, mainly because of the capital city’s recovery in ADR performance for 2017. The capital continues to be the largest market and in terms of RevPAR, it is still the top performing market.
Manchester has fallen out of the top 10, having experienced minimal RevPAR growth in 2017, as well as a relatively large development pipeline and increasing land costs.
The top five markets with highest ADR in 2017 were London (£143 in 2016 vs £149 in 2017); Bath (£116 in 2016 vs £122 in 2017); Edinburgh (£94 in 2016 vs £103 in 2017); Oxford (£99 in 2016 vs £102 in 2017) and Cambridge (£92 in 2016 vs £95 in 2017).
While London has the largest number of rooms in its hotel pipeline for the next two years at 11,120, as a percentage of existing room supply (8.1 percent), the city is well behind Edinburgh (2,111 rooms and 14.5 percent, respectively), Manchester (2,073 rooms and 11.6 percent), Glasgow (1,525 rooms and 14,4 percent), Belfast (1,352 rooms and 33.9 percent) and Liverpool (1,170 rooms and 14.3 percent).
The top five markets that have shown the most significant compound average annual growth in terms of RevPAR over the past four years are Belfast (12.6 percent); Hull (9.7 percent); Plymouth (8.4 percent); Sheffield (7.6 percent) and Edinburgh (7.5 percent).
The analysis uses nine key performance indicators to score each of 34 locations. The determining indices include land site prices; build costs; market appetite; valuation exit yields; room occupancy; average daily rate; room occupancy rates; four year RevPAR trend; active pipeline as a percentage of current supply; and, construction costs. The ratings are then consolidated into a single figure and ranked to show which markets are hot in terms of a desirable location for investors to acquire an existing hotel or develop a new one.