Edinburgh still by far UK’s top hotel investment location outside London - Deloitte

The Scottish capital is still out in front of Manchester by quite some distance, according to the annual survey of senior hospitality industry leaders carried out by Deloitte.

Almost half of the respondents identified Edinburgh as the most attractive hotel investment destination in the UK outside of London.

Manchester (39 per cent) retained second-place, with the university towns Cambridge (30 per cent), Oxford (29 per cent) and Bath (13 per cent) completing the top five.

According to the survey, hotel investors are broadly optimistic about 2018 growth prospects in the Regional UK hotel market, with the majority of respondents expecting RevPAR growth to be between 1-3 per cent.

Growth is expected to be highest in the larger cities, including Edinburgh, according to 32 per cent of respondents, and Manchester (28 per cent of respondents). However, when asked about 2018 expectations for gross operating profit per available room (GOPPAR), respondents were more pessimistic, with a quarter (25 per cent) expecting no GOPPAR growth in the Regional UK.

Nikola Reid, director and head of UK hospitality at Deloitte, said: “The Regional UK market remains in good health and continues to attract overseas investors, particularly those looking to take advantage of the recent currency devaluation and flourishing leisure demand.

“Edinburgh and Manchester are robust hotel markets with strong occupancy levels and have a track record of absorbing new supply. Appetite for hotel investments in the UK university towns of Bath, Oxford and Cambridge is not surprising due to high barriers to entry and their strong leisure appeal in the wake of tourism from overseas while the pound remains weak.”

More than two-thirds of respondents (69 per cent) cited Brexit as the biggest risk to the UK hotel industry, followed by slow economic growth (48 per cent) and a shortage of skilled labour (38 per cent).

When asked about the current UK hotel investment cycle, more than a fifth (23 per cent) believe that we have already passed the peak, with a quarter (26 per cent) believing that the peak will occur within the next 12 months. However, 47 per cent of respondents felt that there was more than a year to go before we reach the peak in the investment cycle.

Ms Reid added: “Hotel investors are anticipating RevPAR growth in the Regional UK market, but rising costs, driven by inflation and recent payroll increases, are clearly at the forefront of investors’ minds. Hotel owners will need to think about how they can offset these increasing cost pressures whilst growing top-line growth in 2018 and beyond.

“Several private equity houses are coming towards the end of their holding period and are therefore assessing their exit strategies, and this could be impacting investors’ views of where we are in the investment cycle. Nevertheless, we are continuing to see interest in single asset and portfolio deals, indicating that we may have some time to go before the cycle peaks.”