Whilst the hospitality industry can be notoriously changeable, due to its reliance on both local market conditions and the wider domestic economy, it has been enjoying somewhat of a renaissance, says Hugh Anderson, director and head of LSH hotels, North West.
At present, the North West’s alternatives sector, especially the hotels market, is offering increasingly attractive investor returns, and as the sector is able to demonstrate robust trading fundamentals, investors appear to have confidence in its future performance.
Despite a lack of stock, investor appetite for hotels is expected to remain strong. Hotels have made significant gains as an asset class over the past few years, with developing investment structures and a diminishing view that hotels are “niche” investments.
In the last three months alone there has been £147m of hotel transactions, which accounted for a quarter of the region’s total property investment. Key to the investment volume were the sales of the 298-bedroom Holiday Inn, Aytoun Street, Manchester and the 165-room Lowry Hotel, Salford, which sold for £54m and £53m respectively.
Whilst the Brexit referendum has introduced uncertainty in the transactional and lending markets, with a higher level of perceived risk, and potential future problems with regards to the sector’s ability to recruit and retain skilled staff, it has also brought positive influence.
The referendum and subsequent fall in the value of the pound have resulted in a significant rise in demand for ‘staycations’, and an increase in overseas visitors visiting the region to take advantage of the UK’s weakened currency.
Despite the rising demand, the North West’s ever-changing hotel market will doubtlessly meet it. Back in 2007 the city had 11,400 bedrooms. This has now grown to more than 17,360 bedrooms within 157 hotels. By the end of 2017, an additional 1,056 rooms will have been added to this number. Of these, 21% of the bed supply is four star and 37% are in budget hotels (Source AM:PM).
The increasing bedroom supply has been well absorbed by the Manchester hotel market, which has also seen an increase in accommodation demand generators such as conference and meeting facilities, food and beverage, spa offerings and other leisure & tourist attractions.
Liverpool’s hotel market is just as active with 53 new hotels proposed, which would take the city’s current total of 116 to 169. If all those in the pipeline are successfully developed this would add a further 4,366 bedrooms to the city’s existing 8,708 bedrooms.
As with Manchester, the key market segments in Liverpool are four star at 21%, and budget at 27%. According to data published by Liverpool City Council, the city’s hotel market is also experiencing continued positive growth in demand and strong mid-week business, despite increasing supply.
As such, it isn’t hard to see why investors are interested in either city’s strong and growing hotel market. Occupancy in Liverpool has risen by 5% over the last three years to stand at approximately 78% with an average room rate of £74. In Manchester the average occupancy is 80% and the room rate is £79.
Whilst the vital signs in both of the North West’s big city hotel markets remains strong, it is also worth remembering that nearly 600 hotels across the North West have closed in the last 10 years. This has been largely due to chain budget hotels raising the standards of lower cost hotel accommodation. However, there is no telling of the longevity of the current popularity of increasingly dominant budget or four star chain hotels or whether a new concept, like Airbnb, will emerge to replace it. As such, the sentiment within the hotels market remains that of cautious optimism.