More than £1.1b was invested in UK hotel development projects in 2018, driven by increased investor confidence and an appetite for long term secure income.
That's according to Knight Frank's annual UK Hotel Development Opportunities 2019 report, which said that London attracted 60% of investment volumes. Supply is set to increase by 4.2% in 2019, constituting 38% of the total UK pipeline.
The UK hotel sector opened 15,500 new hotel rooms in 2018, marking a 2.4% increase in supply. The growth trend is expected to continue in 2019 with a further 19,300 rooms forecast to open this year, up 2.9%.
The reported also revealed a shift in the composition of new room supply. New build hotel room development made up the bulk of new supply in 2018.
But hotel conversion – which accounted for 34% of new bedroom stock – increased by 42% year-on-year as developers capitalised on increased vacancy rates from other asset classes considered suitable for hotel conversion.
For the full year 2019, the proportion of hotel of conversions is expected to be around 20% of new supply, while asset management programmes – such as hotel extensions and refurbishments – will constitute a further 17% of new supply.
The majority of construction projects are expected to continue focusing on new build hotel rooms, making up 63% of the new supply.
Budget hotels continue to dominate the market, with 7,500 new rooms expected to open by the end of 2019, up 5% year-on-year. But market share remains on a downward trend as the growing trend for lifestyle hotels continues to drive both branded and independent mid- and up-scale hotels.
The report forecasts that the budget sector's market share of new hotel room supply will be 39% for the full year forecast 2019, down from 49% in 2016.
Shaun Roy, head of hotels at Knight Frank, said: "The hotel sector is undergoing robust levels of development activity, despite the continued uncertainty that Brexit brings. This is occurring both in London and the UK more generally and is particularly evident in those markets which have a diverse business mix, with a thriving leisure market such as Edinburgh, Birmingham and Brighton.
"There are clear opportunities for investors in the hotel sector nationwide at the development stage, which presents a long-term strategy providing a guaranteed stream of secure income."
The Knight Frank UK Hotel Development Index named Edinburgh, London, Brighton, York and Birmingham as the UK's top five most attractive cities for hotel investment and development.