Edinburgh saw the highest level of investment in hotels of any UK city outside of London last year, with 11 deals valued at around £260 million, according to new analysis from Knight Frank.
The independent commercial property consultancy’s annual UK Hotel Capital Markets report found that Scotland’s prime cities and destinations[1] were the most active regional and devolved nations markets for hotel transactions in 2021 – excluding London and the South East – with £335 million of transactions. This was a 28% increase on the £260 million registered during 2019.
Edinburgh accounted for 78% of 2021’s figure and a 15% share of the total volume of hotel deals outside of London. Glasgow saw 21% of hotel investment in Scotland’s prime cities – approximately £70 million – and 4% of the total figure for the regions and devolved nations.
Three deals in Edinburgh accounted for nearly half of the city’s total investment volumes: the long leasehold of the 240-bedroom Courtyard by Marriott Edinburgh, acquired by Marathon Asset Management; Pandox AB’s acquisition of the 146-apartment Adagio Aparthotel Edinburgh; and Zetland Capital Partners’ purchase of the 157-bedroom Macdonald Holyrood Edinburgh.
Hotel deals in Scotland’s prime cities and destinations also achieved the highest average price per room of any market outside of London at £170,000 –ahead of Northern Ireland’s £152,000 per room, which came second. The Scottish capital also achieved a premium of almost 50% compared to the regional UK average transaction price per room of £114,000.
Knight Frank’s research draws on location analysis of more than 170 hotels transacting outside of London during 2021, excluding hotel developments and ground-lease transactions.
Alasdair Steele, head of Scotland commercial at Knight Frank, said: “Despite the obvious challenges of the Covid-19 pandemic – and notwithstanding the current situation in Ukraine – the level of investment in hotels in Scotland points towards growing investor optimism for the hotel sector and confidence in its long-term prospects. Despite the setback of the Omicron variant, Scotland’s prime cities have performed strongly since Covid-restrictions began to ease. Hotel demand in the central belt was also further boosted by the staging of the COP26 summit.
“Although the geopolitical situation is fluid, as travel restrictions continue to be lifted we would hope to see a robust recovery in demand. Prime Scottish cities and destinations should benefit from a wide base of domestic and international visitors, with longer length of stays, and higher-spending guests in return for quality, richer, and more sustainable experiences. In turn, the long-term appeal of Scotland’s prime gateway destinations, makes deal-making one of the most attractive European markets, from an investment perspective.”
Philippa Goldstein, senior analyst, head of hotel research at Knight Frank, said: “The appetite for hotel investment witnessed during the final quarter of 2021 is testament to the level of interest and capital available from well-funded investors eager to establish a presence in a sector that has proven its resilience. Looking ahead, investors must remain increasingly alert to the various headwinds affecting the hotel sector.
“The pandemic forced owners and operators to properly understand the cost structure and manage a hotel’s cashflow effectively. With the current inflationary environment, this will further encourage operators to think creatively about increasing efficiency to help maintain or improve margins.”