Leased hotels are currently on the majority of investors’ shopping lists, and as a result there are some questions being asked around supply and demand, according to JLL.
Over the long-term, hotel income growth has kept pace with inflation and recent performance has shown that the U.K. hotel market can absorb any operational squeeze. Furthermore, with Brexit uncertainty and the devaluation of sterling, inbound tourism to the United Kingdom is booming. Going forward, hotel performance will be underpinned by the growth of the travel and tourism sector. The U.K. is well positioned to benefit from this trend and especially London, given its status as a leading global financial, business, cultural and education center.
Edinburgh is the largest hotel market in the United Kingdom after London. In 2017, Edinburgh attracted more than 4 million visitors, which generated just over £1.46 billion ($1.85 billion) to the local economy, according to Visit Scotland. The city went from strength to strength in 2018 with the number of international visitors to Edinburgh increasing by 10 percent and spend by 20 percent, according to Visit Britain. The city is also considered the world’s festival capital, hosting 12 international festivals throughout the year.
The world-renowned Edinburgh Festival takes place across a pivotal six-week period in the summer, where hotel operators benefit from particularly high average room rates and occupancy. According to latest projections, the Scottish capital is set to attract a record level of visitations in 2018 with increased international visits supported by favorable exchange rates. Well over a third of visitors to Edinburgh are from outside the United Kingdom, second only to London, according to Edinburgh Tourism Action Group.
The continued weakness of sterling in currency markets, coupled with the very high profile of Scotland as a destination, is likely to enhance Edinburgh’s tourist levels even further over the coming years.
Over the past five years, the Edinburgh hotel market has consistently achieved occupancy above 80 percent, which (when taking seasonality into account) illustrates that demand far outweighs supply. As a result of the robust occupancy performance and strong average rate growth, Edinburgh has benefitted from strong RevPAR performance growth.
In June 2018, as a result of average rate for the entire Edinburgh market breaking the £100 ($127) barrier, RevPAR for the latest 12 months has increased by 4.4 percent. This is further supported by statistics produced by Hotstats, which show that RevPAR in Edinburgh achieves a 64 percent premium above the U.K. Regional average. Underpinned by robust levels of both corporate and leisure occupancy and the positive outlook for the city, demand is likely to continue, which will further drive RevPAR performance to new heights.
Hotel investment transactions in Scotland exceeded £240 million ($304 million) in 2017, rising 69 percent against the £142 million ($180 million) recorded in 2016, according to Insider.co.uk. Due to the impressive tourism statistics and the strength of the occupational hotel market, investor appetite for the city remains strong from U.K. and foreign institutions and private investors alike.
