UK hotel rooms boom expected to continue: KF report

London attracted 60 percent of investment volume. Photo credit: Pixabay/David Mark

The United Kingdom’s hotel industry saw the opening of 15,500 new hotel rooms in 2018, representing a 2.4-percent increase in hotel-rooms supply, according to the UK Hotel Development Opportunities 2019 report from real estate consultants Knight Frank. It's expected 2019 will see this development continue, with 19,300 new rooms forecast to open, an increase of 2.9 percent.

The report revealed the composition of new supply is changing. While the development of new-build hotel rooms constitutes the greatest proportion of new supply, during 2018 there was a significant rise in hotel conversion, with a 42 percent year-over-year uplift.

According to the report, hotel conversion comprised 34 percent of new rooms supply, as developers capitalized on increased vacancy rates from other asset classes, resulting in the greater availability of assets deemed suitable for hotel conversion. In 2019, hotel conversions are set to make up 20 percent of new supply, KF indicated. Hotel extensions and refurbishments will constitute a further 17 percent of the U.K.’s new hotel supply, while new-build hotel rooms are expected to continue to form the majority of construction projects, making up 63 percent of the new supply.

The budget-hotel sector continues to dominate the market, with 7,500 new rooms expected to open by year's end, which equates to a 5-percent increase on the previous year. However, the continued rise of both branded and independent midscale and upscale hotels, partially as a result of the growing trend for lifestyle hotels, has led to a continued decline in the market share of new budget-hotel rooms, the report indicated. As such, the market share for new hotel rooms opening in the budget sector accounted for 49 percent of total new supply in 2018, which is set to decline to 39 percent for the full-year forecast 2019, noted KF.

Additionally, there was more than £1.1 billion of investment in hotel development projects in 2018 owing to increased investor confidence and the desire for long-term secure income, according to the KF report, with London attracting 60 percent of investment volume, which is fueling its future pipeline, with supply set to increase by 4.2 percent in 2019, comprising 38 percent of the total U.K. pipeline.

Top 5 Markets

The Knight Frank UK Hotel Development Index identifies which major U.K. towns and cities pose the best prospects for hotel investment and development. The index has named Edinburgh, London, Brighton, York and Birmingham as the top five most attractive cities.

Edinburgh topped the rankings while London leap-frogged the Index, climbing 10 places up the rankings to second, owing to its solid fundamentals and long-term market strength, the data showed. Brighton retained its place in the top three while York represents this year’s rising star, jumping up 15 positions to enter the top five as a result of its growth of supply and high occupancy rates of 80 percent. Birmingham, which ranked fifth, is set to host the Commonwealth Games in 2022.