Top Five UK Cities for Apart-hotel Investment

News by IPINGlobal.com

As business has become more globalised, apart-hotels have emerged as one of the world’s hottest property investment classes. Although the trend hasn’t taken off in the UK as significantly as in the US and Asia, budding hoteliers are increasingly starting to unlock the potential of the sector. Apart-hotels have already enjoyed an average occupancy rate of around 87 per cent in Britain over the last three years, compared to just 81 per cent for hotels.

Combined with low operational costs, it is unsurprising that apart-hotels are becoming more and more attractive. However, as with all things, return on investment depends on location, location, location and cities with high numbers of business travellers and strong economies are the prime targets for market activity.

So just where should you invest? Here is a rundown of the top five cities for apart-hotels.

London

As the business hub of the UK and arguably the world, London is a prime candidate for apart-hotel investment. Recent data from the Office for National Statistics showed that the city’s economy has been outperforming other regions since 2007, with nominal output increasing at a much quicker pace and unemployment considerably lower. Growth in active business stock has also helped to create a over 250,000 jobs, while driving up average incomes.

Despite economic and business conditions making London – particularly central areas – well placed for a thriving apart-hotel sector, currently supply is tight when compared to other global financial centres. While geography plays a huge part in this, as many domestic workers do not have far enough to travel to constitute overnight stays, there is still considerable unexploited opportunity in the city.

Aberdeen

The Aberdeen apart-hotel market has been bucking the trend for sporadic growth in the hotel sector for some time and is continuing to attract investors. Stephen Gow, chair of the Aberdeen City and Shire Hotels Association, explained that the city has strong mid-week demand from business travellers and long-stay requests. This is thanks to Aberdeen’s thriving energy market and the North Sea has received considerable tax breaks in recent times, encouraging fuel companies to exploit the region.

Lewis Anderson, from Scottish Enterprise’s infrastructure team, explained: “Any speculative development in the city centre would likely be rewarded with high demand from numerous blue chip covenants that are currently unable to procure existing stock. The out-of-town market will continue to thrive, with both pre-lets and speculative schemes absorbing some of the take-up from occupiers not requiring a city centre location.”

Bath

London isn’t the only city in the UK enjoying a period of prosperity and Bath has proven itself to be in its own cocoon. In the South West Market Review, Jones Lang LaSalle identified that the city has one of the highest growth rates outside of the capital and the south east.

In 2013, 13 per cent growth is expected, with new sectors and trends emerging. John Mulholland, director at the Bath office, explained: “The Bath economy has always behaved differently from other UK cities in times of recession. Its strength in the retail, leisure and education sectors means it has made itself comparatively resilient to the economic downturn. It continues to punch above its weight, ensuring that this relatively small city remains a genuine national and international destination.”

With a thriving economy, the city is a clear target for apart-hotel investment, as more and more businesses flock to Bath in search of growth areas.

Exeter

Exeter already has a strong hotel sector and demand is now so high that the city does not have the supply to keep up with demand, according to John Kinsey, director of hospitality and hotels group Jones Lang LaSalle.

“Around six years ago, Jones Lang LaSalle boldly predicted that Exeter would need up to 700 new hotel rooms in the coming five to seven years in order to retain its commercial edge in what would be a tough economic climate,” he said.  In fact, the firm had significantly underestimated demand.

A further 200 to 300 rooms will be needed for Exeter to be commercially successful in the future and apart-hotels can play a significant role in ensuring the city has adequate stock. Opportunities certainly abound, but competition will be fierce.

Leeds

Leeds is widely considered the business and legal hub of the North and the city is rapidly growing. To cater for rising numbers of business travellers, apart-hotels are beginning to spring up in the area, including Roomz and the Greenhouse. However, there is still potential for new investment, both in the city centre and in peripheral locations.

What’s more, the market remains relatively stable, despite the financial crisis. This can be seen in office uptake in the area. The full year take-up figure for 2012 reached a high of 405,648 square feet and was up on the 2011 total by 3.2 per cent, according to Knight Frank.

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