Colliers International’s Hotels team has launched its inaugural UK Hotels Market Index, an analysis of 36 locations across the UK, ranked to determine the ‘hot spots’ for hotel development and acquisition across the country.
The report uses nine Key Performance Indicators (KPIs), including; land value, room occupancy rates and construction costs to give each of the 36 locations a score from one to five (one being the lowest and five being the highest). These scores are then consolidated into a single figure and ranked to show which markets are hot and which are not 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: “High land prices in London are causing investors to look outside of the Capital for opportunities to spend their cash. As such, we are increasingly being asked by our hotel investor and operator clients which UK regional cities offer the best development opportunities. Together with our regional experts, who know the local UK markets exceptionally well, our Hotel Market Index gives us something more than anecdotal evidence through which to advise our clients. With the Index we are able to couple our on the ground expertise with a more scientific formula to demonstrate the key performance indicators which should be influencing an investor’s decision making process and rank the opportunities according to their own investment criteria.”
Cardiff has reached the top of the index table and this is mainly due to its low active pipeline, low build costs and strong hotel performance over the last three years – this performance can be attributed at least partly to the city’s hosting of the Rugby World Cup in 2015. Cardiff also saw the biggest Compounded Annual Growth Rate (GAGR) over the reviewed period (2012 to 2015) with good growth reported year on year.
Manchester ranks second in the list, mainly due to its good investment and valuation parameters as well as its strong hotel performance, which is exacerbated by a relatively small number of recent hotel openings. Manchester also ranked highly in terms of rooms per population, reporting 37.5 rooms per 1,000 population, this is down to its reputation as a city popular for both business and leisure trade.
In fact, the report shows that the Northern Powerhouse is in a strong position for future hotel development as five out of the top six locations in the index are within this area, including: Manchester, Leeds, Chester, Liverpool and York.
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The 36 locations analysed for this report total a current supply of 286,966 hotel rooms. London accounts for the majority of these rooms taking a 47 per cent share, whilst Manchester and Edinburgh are next in line with five per cent of the market share a piece.
Marc Finney continues: “London is by far the largest market with almost as much supply as all of the other markets combined and has recently been a star in terms of revenue per available room. However, given that our index punishes high land costs, high construction costs, sluggish growth in 2015 and a strong active pipeline, London only ranks seventh in our index.”
At the other end of the spectrum, Bradford and Hull rank lowest overall. Despite more affordable development costs, both record Average Daily Rates (ADRs) below the regional UK market average, thus contributing to an overall lower market appetite and valuation yield. It is important to note however, that these markets have been amongst the fastest growing in the UK.
Meanwhile, Belfast, Glasgow and Manchester come out on top for occupancy levels in 2015, each reporting levels above 80 per cent, due to consistently strong week and weekend hotel demand.
Cambridge, Hull and Belfast are the markets with the highest share of new supply entering the market, representing 29.4 per cent, 22.7 per cent and 21.1 per cent, respectively.
The locations which offer a more affordable development proposition are Coventry, Warrington and Sheffield.