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Scotland Hospitality Industry: An update on key market performance part 1

Scotland’s hospitality industry has undergone change in recent years, with some markets experiencing success as others have declined. But what are the factors and stories driving these changes? We’ve taken a look at 2019 performance and recent trends in a number of key markets in order to answer these questions. 

From Aberdeen’s oil crisis to the rapid rise of Dundee tourism, this two-part series is your key to understanding Scotland hotel performance and market development. 

Edinburgh

The Scottish capital was crowned the U.K.’s second-most visited city in 2015, surpassed only by London, as approximately 4.05 million visitors headed to Edinburgh - domestic and international combined (source: Edinburgh Tourism Action Group)

Increased popularity among both domestic and international visitors has, unsurprisingly, created investor demand in the Edinburgh hotel sector. A decade ago, an average of 11,070 rooms were available daily, and as of July 2019 the city offers 16,170 hotel rooms – a 46.1% increase in supply.

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Increase in Edinburgh hotel supply 2009 - July 2019

In the opening 7 months of 2019, we’ve seen 5 new hotels open in Edinburgh and contribute an additional 828 rooms. Further, there are 12 new projects and 1,370 rooms in the under construction phase of the hotel pipeline, which are due to open across 2019 and 2020, and span all hotel classes from Economy to Luxury. These numbers do not account for Airbnb properties, hostels or any temporary accommodation (i.e. student accommodation becoming available to the public over the summer months).

From a hotel performance perspective, both occupancy and average daily rate (ADR) have reported growth over the same 10-year period. Annual average occupancy has increased 15.6%, rising from 75.0% in 2009 to 82.8% in 2018. ADR produced an even greater lift (+34.0%) as it rose from GBP77.08 to GBP103.29.

With similar occupancy levels reported in 2019, hotels are feeling the effect of new supply and experienced a 0.3% decline year to date through July, while ADR fell 0.9% in the same period. July was the only month to report notable growth, following flat performance and decline across the opening half of the year. 

Looking towards Edinburgh’s future, STR predicts a revenue per available room (RevPAR) decline in 2019, driven by a drop in occupancy. ADR, on the other hand, is projected to experience growth in both 2019 and 2020, driving performance towards an upward trend in the latter. The weakest period in 2019 to date has been between January and May, with March to June projected to experience similar results in 2020. The rest of the year is expected to report minor increases or relatively flat RevPAR.

Edinburgh’s busy and varied event calendar also plays a part in visitor demand and hotel performance. Hogmanay, a Scottish word used to describe the last day of the year, is synonymous with New Year’s Eve and one of the city’s most dominant celebrations. Its popularity attracts visitors in their thousands and ticket sales have risen year over year in recent times. The 2017/18 festivities attracted almost 1 million people to Saint Andrew Square, 1.3 million to George Street and 3.4 million people to Edinburgh’s Christmas sites and attractions (source: Edinburgh Reporter)
 

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Hotel RevPAR premiums reported during Hogmanay celebrations

The subsequent demand increase typically enables hotels to yield more effectively. Hogmanay 2018 produced a 216.1% RevPAR premium on 31 December, when compared to performance for the rest of the month, as it rose from GBP68.70 to GBP217.13. This is a slight dip on the 2017’s 221.6% RevPAR premium.

Current forward hotel demand highlights that that the market is pacing slightly behind last year. On 3  September 2019 Edinburgh had sold 40% of total inventory, compared to 43% at the same time last year. A similar trend is evident in the days leading up to New Year’s Eve.

Aberdeen

The U.K. oil capital has experienced good and bad periods in recent years. Aberdeen hotels struggled following the 2014-15 oil price crisis, yet there were signs of recovery in 2018 performance data. 

Annual occupancy levels remained in the high 70s in the years preceding 2015, while ADR reached GBP97.40 in 2014. However, the oil price crash sparked a decrease in demand as the mining industry slowed. Double-digit RevPAR decreases were reported in 2015 and 2016, improving slightly to a single-digit drop in 2017. In light of this, it is easy to understand why 2018’s 0.4% growth has been so well received. Despite the market conditions, supply has increased in the past two years. 
 

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The effect of Aberdeen oil crisis on hotel RevPAR performance

Recovery can be partially attributed to Aberdeen’s conference and meeting facilities. The new Event Complex Aberdeen (TECA) is designed to attract large-scale events, offering 48,000 sq metres of event space alongside arena capacity for 15,000 attendees and a conference capacity of 5,000. The new complex also led to the introduction of two internationally branded hotels, offering 350 rooms. An additional two hotels are set to open over the remaining months of 2019 and through 2020. 

As seen in Edinburgh and Glasgow, events and conferences can drive significant hotel demand. Aberdeen is all ready to host to the biennial SPE Offshore Europe Conference & Exhibition, also referred to as Oil Week, and the most recent events (2017 and 2015) have brought great yield to local hoteliers. 

Performance for the event days, when compared to the rest of the month, led to RevPAR premiums of 178.5% in 2017 (growth from GBP41.50 to GBP115.6) and 186.9% in 2015 (GBP59.30 to GBP170.00). It will be interesting to see the effect the 2019 has on Aberdeen’s hotel market.  

Inverness

The North Coast 500, launched in 2015, has played a significant role in boosting Scottish tourism and led to a 26.0% rise in tourist numbers over the course of two years (source: The Guardian). The tour, which starts and ends in Inverness, has recently been ranked number 37 in the Lonely Planet’s Ultimate United Kingdom Travelist guide. 

Unsurprisingly, the summer offers Inverness’ busiest months due to the improved weather conditions. August has produced the highest occupancy level over the last decade, 93.8% on average, while ADR increased 78.2 over the same period (rising from GBP70.00 to GBP126.00). Over the past 3 years, Monday to Saturday occupancy has remained above 80%, with Tuesday and Wednesday the most popular days. This could be a sign of the high level of leisure travellers who extend their stay beyond work commitments. 

Supply growth in the city has remained relatively stable (an average of +2.2% from 2009-2018) compared to other Scottish cities. The Ness Walk, opened in the summer of 2019 and contributed 47 rooms, while the Courtyard by Marriott is set to introduce an additional 130 rooms when it opens in October 2019. Inverness has produced year-over-year demand increases since 2008, a trend that has continued in the opening 6 months of 2019 and enabled demand growth to surpass supply. 
 

Our Scotland series continues here. Read part 2 for insights into Glasgow, Dundee, Falkirk and Sterling, and regional Scotland hotel performance.
 

The article has been created by Michal Rao (Business Development Manager – UK and Ireland) and Sophie Martin (Business Development Coordinator). If you have any queries, please feel free to contact them via: MRao@str.com and SMartin@str.com