London has dominated media coverage of the UK hotel market for the past year, and for some very good reasons. Its excellent performance, building on from the 7/7 recovery, makes good headlines. However, hotels outside the capital also have good stories to tell, with some markets matching London's achievements.
Latest results for the first nine months of 2006 from the HotelBenchmark™ Survey show some cities have seen double-digit increases in revenue per available room (revPAR) while the average growth rate across the UK regions stands at 4.1%, compared to the same period last year. Assuming the picture remains the same for the rest of the year, this will add up to the regional UK hotel market's third year of growth.
Of the 20 cities tracked by the UK survey (excluding London) Aberdeen, Belfast, Liverpool and Reading are particularly strong; with Aberdeen and Belfast experiencing double-digit growth. And in markets where hotel performance has not been so hot, several initiatives are underway to encourage more visitors to spend more time and money in regional Britain. Visit Britain and Ukinbound, for instance, have joined forces to present British Tourism Week next March; and a campaign to entice more French visitors to the East Midlands is gaining ground.
Meanwhile, the continuing strength of the UK hotel industry is attracting investors, and this year has been a dynamic one for acquisitions. As the UK's tourism infrastructure looks forward to considerable investment in the run up to the 2012 Olympics, we take a look at the current strengths of the home markets.
View across Britain Latest UK indicators confirm a healthy and expanding tourism industry. According to Visit Britain, arrivals during the first eight months of 2006 were up 7% on the same period last year. This has been good news for the regional UK hotel market, and most cities have enjoyed revPAR growth. However, as shown below, it's not all good news. While some cities recorded growth of more than 10%, others struggled to improve on last year's performance.
Belfast hotels mean businessBelfast continues to perform well with hoteliers reporting the strongest revPAR growth in the UK year-to-September – up 15.9% to £52. As shown on the map below, Belfast's revPAR outshone most of northern Britain.
Continued political stability, increased demand from the Meetings, Incentives, Conventions and Exhibitions (MICE) market, more air routes and investment in the city are all helping to drive Belfast's hotel performance. Additionally, the city's Visitor and Convention Bureau is promoting Belfast as the ideal choice for conferences and other major events through a Destination Showcase road show, which was staged in London and Amsterdam earlier this year. In April 2006, hoteliers achieved their highest ever revPAR at £66 when the city hosted several major events, including the Rotary International in Great Britain and Ireland conference and the World Irish Dancing championships.
The expansion of low-cost airlines is also making Belfast more assessable. easyJet now flies into Belfast International Airport from 17 destinations, while Zoom Airlines, a low-cost long haul Canadian carrier, has introduced direct flights from several Canadian airports. Continental Airlines also launched a daily direct flight from New York City to Belfast early this summer.
RevPAR performance across UK cities
Source: HotelBenchmark ™ Survey by DeloitteOil industry drives Aberdeen's success Strong weekday business demand as a result of North Sea oil activities resulted in Aberdeen achieving a close second place to Belfast with revPAR increasing 13.4% to £50. This was driven by a 9.3% improvement in average room rates, with occupancy up 3.7%. If this performance continues, this will be the third consecutive year of growth for the city - and the second at double-digit levels.
The city's airport is benefiting from the booming oil industry too, and according to BAA, passenger traffic during the first nine months of 2006 was up 9.7% compared to the same period last year and its commercial heliport is reportedly one of the busiest in Europe.
Low-cost airlines continue to add more flights from Aberdeen, including direct routes to Southampton, Belfast City, Stornoway, Malaga, and Amsterdam. There are also two new direct flights to Norway.
These extra visitors need somewhere to sleep, and two hotels are on the way. An 86-room Holiday Inn in Aberdeen West is due to open in November, while plans for a four star 200-room hotel at the Aberdeen Exhibition and Conference Centre have been approved and is expected to open in 2008.
According to the Department of Trade and Industry, applications for North Sea and gas exploration and production are at a 35-year high, so Aberdeen is likely to be a business magnet for some time. As long as there is black gold to be found, the hotel industry will continue to thrive.
Liverpool's appeal Liverpool has seen revPAR increase by 8.7% this year, which although good, cannot compete with its 2005 performance. Then, it topped the UK regional chart with a massive 25.5% growth, due to increases in both average room rates and occupancy. During the first nine months of 2006, average room rates have been growing at a stronger rate up 8.5%, while occupancy grew at 0.2%. Cities like Liverpool, which offer visitors an exciting range of tourist attractions, continue to do well, and as the city prepares for its European Capital of Culture role in 2008 its appeal will undoubtedly continue.
Reading on the ball Reading has enjoyed a strong increase in revPAR during the first nine months of 2006 up 7.9%. If improvements continue through to the end of the year, it will match figures across the rest of the UK, giving hotels their third consecutive year of growth. Because of its location and proximity to major multi-national companies, Reading has traditionally been driven by corporate demand; but the MICE and leisure markets are now expanding. Reading, promoted to the FA's Premier League earlier this year, is enjoying a run of good fortune, both on and off the pitch. Fans piling in for the big games at the Madjeski Stadium are filling up the hotel rooms, and as seen in the map above, assisting Reading to achieve one of the highest revPAR's in the UK at £60.
The French connection Unfortunately it's not been a good year for every city. Nottingham, Leeds, Sheffield and York have not done so well. There are several factors behind this; of particular concern is the issue of new room supply, which is impacting all markets.
As seen in the map above, Nottingham not only has the lowest revPAR in the UK at £33, it has also seen the largest fall during the first nine months of the year – at 7.4% compared to the same period last year. New openings in 2005 and early 2006, including the Nottingham Belfry and the Jury's Inn Nottingham, among others, have added 500 new hotel rooms which the city is struggling to absorb.
To combat this problem, East Midlands Tourism is running several programmes, including a joint scheme with the airline bmibaby and Nottingham East Midlands Airport, to attract more visitors from Paris, a key source market. The campaign was launched to coincide with the airline's direct link between Paris and Nottingham, launched in March this year.
Campaign aims to reverse trend Several Yorkshire cities recorded weak results, with York, Leeds, and Sheffield generating some of the UK's lowest revPAR levels. All three have experienced declines in revPAR so far this year.
In York, revPAR was down marginally by 0.3% during the first nine months of 2006. In Leeds, the drop was similar at 1.5%. If business doesn't pick up considerably, hotels will see their second consecutive year of revPAR declines. Over-supply of rooms is still an issue, as several hotels have opened over recent years. Bewleys Hotel, for instance, offers more than 300 city centre rooms at a flat rate of £69 per night every day of the week. As consumers have become used to this rate, other hotels are finding it hard to compete at higher prices.
Sheffield, meanwhile, has seen a turning point in its performance in 2006. If the market continues at the same pace, this year will be the first of significant revPAR decline since 1997, when HotelBenchmark ™ began to track the market. Although average room rates grew, occupancy dropped by 6.5%, leading to the second greatest revPAR drop in the UK at 3.1%. New supply continues to cause problems, as Macdonald St. Paul's added 161-rooms at the end of 2005 and another 144 will become available this December, when the Travelodge Central opens.
As we have seen in Nottingham, tourism organisations are taking action to help hotels. Councils in Sheffield, Barnsley, Rotherham and Doncaster have formed a partnership to co-ordinate tourism activities through a Destination Management Partnership (DMP). This collaborative marketing and promotion effort has two specific objectives. First, to encourage UK visitors to increase their spending by 6% a year by 2008; and second, to drive up overseas visitors' spending by 7% a year. If the DMP succeeds, the region's tourism industry will pick up considerably.
Attractive assets 2006 has been another good year for transactions. A variety of portfolio and single asset transactions have taken place across Europe, with the UK leading the way.
The most widely reported deal so far this year has been the acquisition of Hilton International by Hilton Hotels Corporation for £3.3 billion in February. This was a milestone in the company's history, as the Hilton brand was re-united internationally after more than 40 years. This provides the company with the opportunity to bring a plethora of new brands into Europe.
Recently the company sold two of its largest assets in the UK - the Hilton London Metropole and the Hilton Birmingham Metropole. The hotels have been acquired by the family-owned company Tonstate for £417m. Hilton will retain the long-term management contract on both hotels.
Whitbread exited the four-star hotel sector for good in April, when it sold 46 hotels to Royal Bank of Scotland for £951m. The sale began in March 2005, when Whitbread set up a 50:50 joint venture with Marriott International, named Condor Overseas Holding. Condor Overseas Holding held the 46 hotels until the buyer was found. Marriott International retains the long-term management of the hotels, which are under the JW Marriott, Marriott and Renaissance brands.
In August, Permira sold Travelodge - including its 279 budget properties throughout the UK for £997m - to Dubai International Capital. One month later, Permira re-entered the hotel market by acquiring Principal hotels. Principal, which is being sold by Royal Bank of Scotland, has six four-star hotels in the UK, including The Russell in London and The George in Edinburgh. Earlier in the year, Permira had also tried to acquire the De Vere Group, but was out bid in the £767m deal by Malmaison and Hotel du Vin chief, Richard Balfour-Lynn.
In September, London and Edinburgh Swallow Group went into administration, and the fate of its 146 hotels and inns throughout the UK remains uncertain. More recently, Piccadilly Hotels, a joint venture between Iranian businessman Robert Tchenguiz and aAIM, the property fund backed by Sir Alex Ferguson, has bought the 16-strong Menzies Hotels chain for £180m from Nikko Principal Investments. While Piccadilly Hotels also plans further asset and corporate acquisitions, transactions during the rest of 2006 and 2007 will remain a hot topic.
A positive outlook Analysts are predicting the UK economy will stay buoyant for the remainder of 2006, which bodes well for the hotel industry. The outlook is the same for early 2007, with further growth continuing to be driven by average room rates.
To ensure the UK remains a favoured destination for the world's travellers – as well as domestic tourists - the first British Tourism Week will be staged in March 2007. This joint venture between Visit Britain and Ukinbound will encourage collaboration across the sector as the image of British tourism is brought up to date and re-defined for the future.
Central to the week will be two events in Birmingham; VisitorBritain's British Travel Trade Fair and Ukinbound's 30th Anniversary Convention, which will be supported by other national, regional and local events. Meanwhile, detailed planning for the tourism infrastructure needed to support the 2012 Olympics is moving ahead rapidly, and we can look forward to some exciting developments across the hotel industry.
Laura Baxter
HotelBenchmark
+44 (0) 20 7007 1099
Email: lbaxter@deloitte.co.uk
