Edinburgh's hotel sector is booming, with a significant number of new hotels opening or under construction, adding to the quality offering from Scotland's capital city.
The city has never been busier. Edinburgh Airport has recently announced it is the first Scottish airport to handle over 10 million passengers in a 12-month period, and Edinburgh Waverley, the UK's largest train station outside London, has experienced its busiest ever month with nearly six million passengers travelling through the station in August. This record-breaking figure comes shortly after the Edinburgh International Festival announced its most successful programme, taking more than £3m at the box office for the first time.
The 65th Royal Edinburgh Military Tattoo sold out for the 16th successive year - its earliest sell-out in four years - while Edinburgh Castle saw its busiest July on record. This is coupled with the launch of Edinburgh's new tram route, linking the airport to the city centre, which carried 1.5 million passengers in its first 100 days of operation; and new air routes, connecting the capital to Philadelphia, Chicago, Toronto, Doha, Istanbul and Abu Dhabi (2015), making this an exciting time for Edinburgh's hotel sector.
Business tourism generates around £300m a year for the city region and continues to grow, driven by investment in facilities such as the Edinburgh International Conference Centre (EICC), the Assembly Rooms and the Usher Hall, which have all recently been upgraded at a cost of around £60m.
As a result, Edinburgh has just enjoyed its strongest ever quarter for conferences and events. The 41 future conferences and events that were booked during the first three months of the financial year will bring more than 16,000 delegates to the city and generate an estimated £21m for the local economy.
The current hotel market in the city continues to excite, with the opening of the UK's first Residence Inn by Marriott, the UK's first two Motel Ones, the arrival of the Edinburgh Waldorf Astoria, Malaysian-owned Tune Hotels, the Radisson Quorvus Brand and Ibis Styles.
Other significant developments in the sector include the opening of the Old Town Chambers, the Glasshouse hotel becoming the first Autograph Collection hotel (Marriott) in Scotland, the Roxburghe hotel rebranding as a Crowne Plaza and the city welcoming its first Double Tree by Hilton.
The first Premier Inn Hub outside London and Accor's aparthotel concept Adagio are also scheduled to open in the city, while announcements are expected soon on operators for new hotels in Market Street and the Old Royal High School.
Further hotel investment opportunities are available throughout the city region, including the new National Performance Centre for Sport, the planned £40m National Film Studio and the £850m Edinburgh St James development, which begins construction in 2015. The development by TIAA Henderson Real Estate will provide 43,500 sq m of prime retail floor space, along with 250 new homes and three new hotels.
Judy Law, senior economic development officer, City of Edinburgh Council
Recent market developments
Edinburgh is one of the UK's key tourism markets, thanks to its rich heritage and world-renowned attractions. Strong leisure demand and a thriving financial sector combine to make Edinburgh one of Europe's best performing hotel markets.
The recent downturn saw a net gain in bedrooms with a number of budget and limited service hotels opening. These included an Ibis, Ibis Budget and Ibis Styles, two Motel Ones, a Tune Hotel and several Premier Inns. Travelodge walked away from two hotels due to its recent CVA, both of which have new operators in Britannia Hotels and Cityroomz.
Within the full service market, many hotels have completed significant investment programmes. The Caledonian relaunched in 2013 as the Waldorf Astoria and the Point hotel reopened this year under the Doubletree by Hilton brand. The Royal Terrace and Roxburghe hotels were rebranded as Crowne Plazas, with the latter sold to Starwood Capital in the city's largest single-asset hospitality transaction since 2007. De Vere Urban Village Resorts, expected to be sold this year, is scheduled to open one of three new Scottish hotels in Edinburgh in 2015.
Edinburgh has also witnessed a number of new or proposed serviced apartments. Staycity, which already has several apartments in the city, has been secured for the Haymarket Goods Yard redevelopment. Chris Stewart Group opened 32 apartments at Old Town Chambers while Aparthotel Adagio is rumoured for a 146-apartment development at New Waverley.
Edinburgh has also benefited from the launch of the tram line, which links the city centre and airport. In May 2013 the Edinburgh International Conference Centre opened its extension, which can accommodate up to 2,000 delegates. With future capital projects proposed, Edinburgh is set to maintain its status as a global destination.
Kerr Young, director, JLL, Hotels & Hospitality Group
Edinburgh: transactions, supply and pipeline
Edinburgh benefits from a higher proportion of four- and five-star hotels, which tourists are prepared to pay a premium for. Indeed, this is translated into a 20% higher average room rate (ARR) compared with the rest of the UK (excluding London) over the past two years.
Recent notable deals in the sector include the purchase of one of Edinburgh's most prestigious hotels, the Roxburghe, based in Charlotte Square, by Starwood Capital, viewed as the largest single-asset hospitality transaction in Edinburgh since 2007, and also the inception of Scotland's first Waldorf Astoria.
Recent trends show that developers are looking to branch out and create hotel space in new environments too. Edinburgh-based developer Chris Stewart Group acquired the former RBS headquarters at St Andrew Square from UBIG Investments and is planning a mixed-use scheme expected to include a hotel and serviced apartments. Plans for a £850m overhaul of the St James Quarter are expected to include new hotel space.
Katie Corrigan, Head of Hospitality & Leisure, Tods Murray Solicitors
The hotel market in Edinburgh currently comprises around 12,700 rooms, making it the fourth largest in the UK. However, when it comes to hotel investment and development, Edinburgh consistently features on the radar of serious players whose desire to have a presence in the city ranks second only to London in the UK hotel market. This indicates investors were broadly unconcerned with the implications of the referendum vote.
The structure of hotel supply in Edinburgh is quite similar to other major UK cities. It has a slightly higher proportion of rooms in the four-star and five-star segments, but this dynamic is changing.
There has been a 13% increase in room numbers since 2012 and over 95% of the 1,500 new rooms added to supply over this period have been in the budget sector, where new entrants such as Motel One and Tune hotels have joined the fray.
Further budget hotels are in the pipeline, which will also see aparthotel/serviced apartment openings for brands such as Adagio and Staycity as well as brand debuts for Village Urban Resorts and Courtyard by Marriott.
In the next three years, another 1,350 rooms are confirmed to enter the market, but this will probably rise to 2,000 given current planning activity. The majority of new room supply will continue to be branded. Accor and Whitbread in particular are both in the midst of a very strong development push that will see them join IHG with 9% to 10% market share by 2017. Other major operators in the city include Travelodge, Hilton and Apex Hotels.
Alan Gordon, director, AM:PM Hotels
Looking to the future
Edinburgh's hotel sector is traditionally a strong performer when benchmarked against the rest of the UK. This is due to a combination of being the most popular destination outside London for bothtourists and conferences, and above average occupancy and revpar (revenue per available room).
On initial reading, the Edinburgh 2014 numbers might cause concern in that the year to date occupancy and revpar are flat compared with the same period last year and goppar (gross operating profit per available room) is down 3%. In July alone revpar was down 5% and goppar fell by 9%.
However, a number of factors are in play here, in particular that 2013 benefited from both the British Golf Open being held locally (Muirfield) and, after a quieter 2012 (the Olympic effect), tourists returned to Edinburgh in numbers.
The longer-term outlook is much more positive for the city than what is reflected in the figures. The fundamentals of being a tourist and conference destination make Edinburgh room rates and occupancy levels more resilient than many other parts of the UK.
As such, Edinburgh continues to be an attractive city for hotel investment and development with a number of substantial projects under construction, including two Premier Inns and a 120-room De Vere Urban Village Resort.
This will put pressure on occupancy levels and room rates, but with exciting retail plans around the 42,500 sq m St James Quarter, addressing a recognised weakness in Edinburgh's tourist offering, the city is hopefully well-placed to absorb the extra capacity.
Toby Rintoul, director and head of hospitality and tourism, Johnston Carmichael