UK HOTELS BY DAVID CHURCHILL
At the turn of the year the UK led the way in Europe for the most hotels and rooms currently under construction
NOTE OF CAUTION
But set against this upbeat picture of the health in the UK hotel market, there needs to be a note of caution. Although the UK economy continues to benefit from near-zero inflation and interest rates, as well as the second strongest (after the US) GDP growth among the G8 group of leading nations, there are still a number of uncertainties ahead which could derail demand for UK hotels. China’s economic slowdown, for example, is creating concern about a new global financial crisis, while the pending referendum on European Union member- ship could affect business confidence, not only in the UK but also on the continent. Plus there is the ever-present threat of terrorist attacks. Aberdeen is a salutary lesson of how
rapidly it can turn from boom to bust for UK hoteliers. The Granite City became Scotland’s oil capital in the 1970s when
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the massive potential from North Sea oil was starting to become reality. But it was the spike in the oil price that developed after the 2008 financial crisis – Brent Crude rose to nearly US$130 a barrel (reached in 2011) – that sparked off the speculative bout of hotel building in the city to meet demand. When the bubble burst in mid- 2014, wiping US$100 or so off the oil price and leaving it languishing at around US$30 a barrel, the result was inevitable. Aberdeen’s hotel occupancy level last December fell to 51.6 per cent, compared to 71.3 per cent for Glasgow and 80.4 per cent for Edinburgh, according to new data from Scottish consultancy LJ Research. Moreover, for Aberdeen the 16.9 per cent year-on-year fall was the 15th consecutive month of shrinking room occupancies. Not surprisingly, the average room cost in the city fell by nearly a fifth in 2015, to just over £72.
Even London, not only the premier UK hotel market but also one of the strongest in the world in terms of performance and stability, is not immune to nasty surprises. The eurozone’s financial woes last year hit occupancy levels in the first half, although the capital’s hotels were saved in the final quarter by a strong boost from the Rugby World Cup held in the UK last autumn. Three of the 13 stadia used for the tour- nament were based in the capital and the extra visitors who came from all over the world to watch the games pushed average London room rates in October up 7.3 per
cent year-on-year to just over £160 a night, according to property consultancy CBRE. As a result, it reported that London’s hotels overall were able to post a 2 per cent increase in 2015 profitability instead of anticipated losses for the year. Yet London’s appeal to hoteliers and
investors remains strong. “London has absorbed significant new hotel supply in recent years and continues to attract serious attention from UK and international hotel groups looking to extend their presence,” points out Alan Gordon, director of hotel data consultancy AM:PM. “The footprint of the hotel market in London continues to expand and this has opened up op- portunities in locations such as Aldgate, Shoreditch, Vauxhall and Whitechapel for new hotels, many of which are from brands making their UK debut.” Figures compiled by AM:PM and the
capital’s marketing agency, London and Partners, suggest that the London hotel room supply will grow by 12 per cent over the next three years – adding 17,769 rooms to the current figure of 138,769.
PROVINCIAL RECOVERY Yet while London (and by association the South East) is expected to do well because of its international reputation, probably the real narrative for the UK market last year was the continuing recovery for provincial hotels. Badly affected by the financial and economic crisis post-2008, the recovery in the provinces started in late 2012 with three years of continuous year-on-year occupancy growth to reach an anticipated record 77 per cent this year. Although the rate of growth in the provinces is slowing, it is, nevertheless, still growth. Provincial cities that have done particu- larly well over the past year, according to PWC’s analysis of the data, include Belfast, Bristol, Birmingham, Coventry, Liverpool, Nottingham, Plymouth and Southampton. Cardiff, moreover, also benefited signifi- cantly from last October’s rugby tourna- ment with matches held at the Millennium Stadium: the key metric, revenue per
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