Why a proposed hotel tax could pose trouble for Edinburgh investment

Edinburgh City

For years, cities throughout Europe and the Middle East have levied extra per-night charges on hotels (or their guests) as a way of raising revenue. The UK has bucked this trend so far, but that may soon change. In Edinburgh, cultural institutions are backing a call for a new tourism or visitor levy to fund major infrastructure projects in the city. Edinburgh City Council had previously estimated that it could raise up to £10 million per year by charging between £1 and £2 per hotel room each night. Berlin, Barcelona, Paris, Rome, Bruges, and Dubai and other cities all impose such taxes, the Herald Scotland notes. 

There are concerns about what such a tax would do not only to Scotland's tourism sector, but to hotel investment. In a Property Forum editorial, Nicholas Wallwork writes that "historically, hotel investments are very difficult assets from which to make significant returns, and this new charge is probably the last thing that hotel companies expected."

If the fee is adjusted for peak travel periods, it can have "a significant impact" on the return on investment hotels can generate if, "as many expect," hotels absorb the tax themselves rather than charging the guests directly. "The building of property assets such as hotels involves meticulous long-term planning to ensure that the figures add up," he writes. "Even the slightest change in income and individual room yields could make a previously viable hotel investment very difficult to justify."

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If the fee is passed on to guests, especially during peak times when prices are already traditionally high, it may affect average number of room nights booked, which could, in turn, reduce RevPAR and the overall value of hotels in the city. If value-savvy guests stay away from the cities that impose the tax, or opt for other forms of lodging that would not be affected (for example, Airbnb), potential hotel investors may also have to look elsewhere for more lucrative opportunities. 

"There are concerns that a tourism tax could hinder our tourism growth and damage one of this country’s most successful areas of economic activity," a spokesman for VisitScotland, the tourism agency, said. A spokesman for the Edinburgh Hotels Association echoed the sentiment: "As the only tourism segment singled out in the proposed Tourism/Bed Tax, Edinburgh’s hotels would resist any plans to impose this additional cost on their guests, especially while other forms of accommodation, restaurants, attractions and retailers, also closely linked to tourism, would not be included."

Robin Worsnop, chair of the Edinburgh Tourism Action Group and the CEO of tour company Rabbie’s, said that securing future investment for the tourism industry was one of the “greatest challenges for Edinburgh” in the future. The stance taken by ETAG—which represents more than 1,500 tourism professionals, businesses and organizations—mirrors that of the Scottish Tourism Alliance, the national industry body, which has warned that a tourist tax could “damage” and “hinder” one of Scotland’s best-performing industries.

He also told the annual Edinburgh tourism summit that the city’s global reputation could be adversely affected if it becomes the first in British to impose an additional charge on its visitors.

Time will tell if Edinburgh will be the first UK city to impose an extra tax on hotels or hotel guests, but as other cities have successfully implemented such fees without seeing immediate downturns, the concerns may be premature.

 

External Source : Herald ScotlandThe ScotsmanProperty Forum

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