Aberdeen’s diversifying ‘post-oil’ economy set to benefit city’s hotel market -CBRE

A Granite City with a more diverse economy in the wake of the plunge in oil prices may make the Aberdeen hotel market more attractive to investors, according to property consults CBRE.

The firm said investor demand for hotels in oil and gas hub has grown substantially in recent years, which CBRE said reflected “exceptionally strong trading growth and remarkable pace of profit recovery for operators post-recession”.

The firm expects this to be “further reinforced” by the UK government’s recent announcement to cut tax on petroleum revenue from 50 per cent to 35 per cent.

According to CBRE, which is the world’s largest commercial property services and investment firm in terms of 2014 revenue, the Aberdeen hotel market leapfrogged other regional UK cities in terms of total revenue per available room (TrevPAR) last year as hotel profits experienced double digit growth of 10.3 per cent year-on-year.

But corporate and conference demand accounted for nearly 50 per cent of the market and, given Aberdeen’s economy is largely centred around the oil and gas industry, CBRE said there was “little surprise” that hotel owners and operators were fearful about the impact of lower crude prices.

CBRE’s own research shows revenue per available room and TrevPAR for hotels in Aberdeen have been closely linked to the price of Brent crude over the past 14 years.

But hotel profits and investor returns are much more loosely linked, the firm said, adding: “This is mainly due to the impact of oil value on wider commodity prices, such as energy costs and foodstuffs, which are often two of the most significant operating expenses for a full service hotel.”

Aberdeen’s reputation as “the intellectual centre of the global energy industry” was leading to diversification supported and possibly increased hotel demand, CBRE said.

Joe Stather, hotels intelligence manager Europe, the Middle East and Africa, CBRE, added: “A decade ago we may have seen a much higher impact on hotel performance as a result of falling crude prices as Aberdeen’s e c o nomy hinged almost solely on the extraction of oil.

“But the development of wider complementary industries in the interim has attracted a wider array of companies capitalising on the city’s pro-business credentials. Hotel development is a long-term game, and those investors who have committed to new-build hotels and extensions and comprehensive upgrades to existing hotels understand the cyclical nature of the northeast’s economy.

“Consequently, hotel supply increases in the mid-term will be nominal and as a result will reduce the dilution of future hotel revenues and allow for better performance growth in the market.

“Several new developments are under way, with the new Holiday Inn Express at Aberdeen International Airport due to open in May, the Courtyard by Marriott committed to a 150-bedroom extension beginning in July.

“This has increased the diversity of demand for hotel rooms and reduced the oil dependent nature of Aberdeen’s economic output.

“Within Aberdeen’s oil industry there is also potential for the expansion of this market. The decommissioning of the Brent field could take 30 years, pioneering a new sector for which Aberdeen would most likely be the epicentre.

“Headwinds from the oil industry might not be so damning for the hotel market and the city’s outlook presents multiple opportunities for owners to drive returns on their investment further down the line.”