Hotel Operator Beat H1 2023 - UK & IE

• Increasing confidence among operators paves the way for portfolio expansion
• Assets with strongest ESG credentials will command premium prices
• Fears of rising debt and constructions costs could hamper pipeline opportunities

London - London, Edinburgh and Dublin top the list of locations most sought after for hotel openings, according to a new piece of sector research from Cushman & Wakefield.

The real estate services firm’s annual hotel operator survey saw international and regional hotel operators – all which are active in the UK and Ireland markets – give their views on sector opportunities and challenges in these geographies. The respondents are responsible for more than 1,300 hotels with over 220,000 rooms already operating in the UK and Ireland, with a collective pipeline of 230 proposed hotels comprising over 37,000 rooms.

The operators were asked to rank their interest regarding demand for space in 20 key markets in the UK and Ireland. London came out on top with more than 88% of respondents saying they had a very high interest in opening a site in the capital. Edinburgh, Dublin, Oxford, and Manchester made up the rest of the top five most in-demand locations. Comparing the data with previous reports, Cork had the highest growth in market attractiveness, increasing by 8% since the second half of 2021.

In London, which tops the list, an array of upcoming hotel openings from hospitality giants that demonstrate this appetite, such as:

• 1 Hotel Mayfair, which opens this month on Berkeley Street as the UK flagship from Starwood Capital Group’s 1 Hotels brand
• Hyde Paradox Hotel London City, is also set to open later this year as the first hotel in Europe under Hyde Hotels, Resorts & Residences brand, part of Ennismore, a joint venture with Accor – it has most recently been used as an office space
• Raffles London at The OWO that is opening later this year in the converted Old War Office building in Whitehall
• The Peninsula London, located on Hyde Park Corner, which will be the brand’s second hotel in Europe.

The UK hotel market has largely recovered from the impact of the COVID-19 pandemic, principally driven by strong average daily rate (ADR) growth. Demand in virtually all regions continues to improve towards pre-pandemic levels. With such continuing growth in performance, operators are once again keen to expand their portfolios and the survey showed that luxury and upper upscale hotels were expected to have particularly strong growth in the next 12 months. Equally, the budget end of the market is also anticipated to increase in the months ahead.

Due to the fast rate of performance recovery in the hotel market it is perhaps unsurprising that hoteliers are once again seeking to expand their portfolios and London and Edinburgh’s history and culture make them extremely attractive cities for international tourists.

Additionally, owing to the rising cost of debt and construction, traditional hotel ground-up developments have become increasingly difficult to deliver. Therefore, the more viable option of repurposing office buildings into hotels is becoming a key focus for investors in the sector. This market dynamic presents hoteliers with the chance to enter prime markets that had previously been inaccessible, and we are seeing hotel values on par or higher than offices.

Despite the sector’s generally positive sentiment the delivery of hotel schemes in the pipeline, across the country, is impacted by rising costs and we anticipate that many confirmed projects will be further delayed, and some will unravel as they are or will be become unviable. This is drawing the focus for hotel growth on the strongest, most robust opportunities, typically in high-rate markets and with enduring demand. This is certainly reflected by operators’ intent in our list of top 20 locations in the UK and Ireland. Richard Candey, Head of Investor & Developer Services in the EMEA Hospitality team at Cushman & Wakefield

The report also stated that hotel operators have reported that over a quarter of pipeline projects are either currently delayed or on hold (26%). Given the continued uncertainty in debt markets, the cost of debt and the rising cost of construction, it is highly likely that the percentage could rise to be significantly higher. This presents an opportunity for those schemes that are well-funded and can open in a less crowded environment. Overall, the report concludes that the UK hotel market is polarised but does remain agile and looks to adapt.

The rising importance of ESG comes out strongly from operators. Around two-thirds of respondents said they were likely to offer more key money for hotels with the highest ESG certifications. A similar number were prepared to offer higher rents for hotels with the highest ESG credentials. Looking ahead, we see these current and future obligations will play an increasingly important role in determining the attraction and pricing of assets. Borivoj Vokrinek, Head of Hospitality Research EMEA at Cushman & Wakefield

About Cushman & Wakefield

Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In 2023, the firm reported revenue of $9.5 billion across its core services of property, facilities and project management, leasing, capital markets, and valuation and other services. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), sustainability and more.

For additional information, visit www.cushmanwakefield.com

Richard Candey
Head of Investor & Developer Services Hospitality EMEA
Cushman & Wakefield