Colliers International’s latest UK Hotels Market Index shows continued year on year growth for the sector, with revenue per available room (RevPAR) increasing by 3.8 percent; significantly ahead of GDP growth. The annual report, which is in its third year, paints a positive picture for the hotels sector. Regional markets have continued to catch up to London in terms of their attractiveness to investors and we saw cities such as Hull and Plymouth enter the list of top 10 ‘hot spots’ for hotel development and acquisition in the UK for the first time in 2017.
The UK Hotels Market Index is an analysis of 34 locations across the UK, ranked to determine the ‘hot spots’ for hotel development and acquisition across the country.
Edinburgh topped the Index, moving up four places in 2017 since the previous year with its high position is mainly attributed to strong occupancy levels and average daily rate (ADR) growth in 2017, resulting in a four-year upward revenue per available room (RevPAR) trend combined with constrained new supply.
Bath ranks 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.
The analysis uses nine key performance indicators (KPIs) to score each of the 34 locations with a figure from one to five (one being the lowest and five being the highest). 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.
Marc Finney, Head of Hotels & Resorts Consulting, Colliers International said: “The data in our third annual report reveals the ever-changing nature of the UK hotels market. 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 penalised. 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.
Top 5 markets with highest ADR in 2017: 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).
Total number of rooms expected to enter the market over the next two years as a % of total existing room supply as at 31st December 2017: London (11,120 – 8.1%); Edinburgh (2,111 – 14.5%); Manchester (2,073 – 11.6%); Glasgow (1,525 – 14,4%); Belfast (1,352 – 33.9%) and Liverpool (1,170 – 14.3%).
Top 5 markets that have shown the most significant compound average annual growth in terms of RevPAR over the past four years: Belfast (12.6%); Hull (9.7%); Plymouth (8.4%); Sheffield (7.6%) and Edinburgh (7.5%).
Development/RevPAR Index – The top 5 markets with regards to hotel performance in relation to the costs of development: Belfast (4.38); Edinburgh (4.31); Bath (4.27); Cardiff (4.08) and Glasgow (4.08).
Top Ten UK Hot Spots for Hotel Investment and Development:
Marc Finney continues: “This year’s index shows the usual suspects and many of the top ten will not be a surprise to those from the sector. 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.”