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RevPAR growth across the majority of UK cities, but how long can this continue?
Wednesday, 27th May 2015
Source : HVS

Revenue per available room (RevPAR) increased on average by 7% in Q1 2015, Bath hotels’ RevPAR growth of 20% is highest across 12 cities reviewed, Valuation increases causing investor focus to shift towards secondary regional cities and Europe and This edition’s city focus is on Aberdeen, where RevPAR decreased by 10% in Q1 2015 v Q1 2014.

AlixPartners, AM:PM and HVS have published the Q1 2015 Hotel Bulletin. The Hotel Bulletin analyses demand, supply pipeline and transactions in the hotel market in 12 cities across the UK. This edition includes a city focus on Aberdeen.

RevPAR growth
This quarter’s figures show an average increase in RevPAR of 7% across the UK. Bath recorded the highest RevPAR increase of 20% as the city benefitted from the loosening of Chinese visa requirements for Chinese tour operators and for business visa requirements. The city expects a 40% increase in Chinese tourists this year. Aberdeen was the only city reviewed this quarter to record a decline in RevPAR, with a 10% fall on Q1 2014. This suggests there may be a short-term imbalance in demand and supply.

Is growth sustainable?
Major cities including the 12 cities reviewed have enjoyed greater resurgence of growth since the downturn. However, there are signs of maturity in the market. Occupancy is beginning to plateau and rooms supply has increased on average by 8%. With an active pipeline of 11% this could put additional pressure on future performance.

As the economy continues to grow there may be scope for further growth, although there are a number of factors that may impede this. An increase in interest rates, for example, may limit disposable incomes, which in turn could temper demand for hotels.

Transactions
£1.7 billion of transactions were concluded in the UK in Q1 2015, the majority of which were portfolio sales (£1.2 billion). A buoyant market is set to continue in 2015 with a number of new portfolios entering the market this quarter.

City Focus: Aberdeen
Aberdeen’s hotel market flourished in the mid-20th century due to North Sea oil. The city’s hotel market predominantly caters for those working in the gas and oil industry. The city has broadened its offering in the last few years by increasing its conference and leisure offering. The city’s leisure market is also sustained by the golfing industry (there are more than 50 courses located in and around Aberdeen).

The city has recorded strong performance in the past two years with RevPAR growth peaking at 25% in Q3 2013. During this period, the number of hotel bedrooms has increased by 12%. The city’s performance is now stagnating, which suggests an imbalance between supply and demand.

Recent oil price decreases have contributed to the UK’s North Sea oil and gas industry incurring heavy losses in 2014. Fears that oil prices will not increase in the near future has prompted oil companies to reduce their investments. In January 2015, BP cut 10% of its workforce and annual investment in its oil projects is expected to fall.

Despite the city’s efforts to broaden its offering, it is still reliant on the global oil market. With companies scaling down work forces and delaying projects, the demand for bedrooms will be impacted and we expect hotel performance trends to decline further in the medium term before recovering, especially as the number of hotel bedrooms is set to increase by a further 11% in the next three years.

Click here for a copy of the full bulletin or visit www.hvs.com.

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