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Could Aberdeen Supplant London as Hotel Hotspot?

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Could Aberdeen Supplant London as Hotel Hotspot?

By - Thursday 16 May 2013

London is known as a business and tourism hotspot in the UK, and has long enjoyed the buoyant hotel market that comes along with such a title. However, it could soon find itself supplanted by Aberdeen. New figures from PricewaterhouseCoopers (PwC) revealed that 2012 was a vintage year for hotels in the Scottish city and the sector is now challenging the British capital for pole position

Analysis of hotel performance across 24 UK cities found that Aberdeen outperformed most other locations. While average hotel occupancy fell by 1.5 per cent in the year to December 2012, the sector enjoyed a collective 6.4 per cent rise.  The only city to outperform Aberdeen was Belfast, which saw a 13 per cent increase in occupancy. However, this has been attributed to the opening of the Titanic Belfast visitor experience and the MTV awards.

In Aberdeen, hotel sales generated from room revenues (room rev) increased by 14 per cent, while revenue per available room (RevPar) grew by more than 12 per cent. The cities' metrics are now considerably above the UK average for 2012 - 4.5 per cent and 1.4 per cent respectively. These figures are even higher than London, not to mention popular cities like Manchester, Birmingham and Edinburgh.

Bruce Collins, director in PwC's Aberdeen office, commented: "In most key metrics – such as daily rates, the percentage of rooms let and average revenues – Aberdeen outperformed most of the other UK cities. Even in London, with the advantage of the Olympics, hotel occupancy declined by close to two per cent year-on-year, although average room rates and revenues kept pace with inflation."

The performance of Aberdeen's hotel sector is thanks in part to its buoyant oil and gas industry, which ensures there is a steady stream of people heading to the city. However, Aberdeen also has pull in Scotland's tourism industry and has become a "strong visitor destination", according to Mr Collins. Combined with Aberdeens two well-respected higher education establishments, it is expected that the trend for growth will continue in the city.

This will occur across multiple segments, with conference and convention activity earmarked for expansion. Consequently, off-season demand will improve, ensuring the hotel sector thrives throughout the year.

Conversely, London could be set for tough times ahead. Not only is the UK's spate of bad weather putting many holidaymakers off British destinations, but the economic climate is creating barriers for the capital's hoteliers. While the PwC forecasts suggests international tour operators have put the city back on their programmes - it was left out last year amid fears of overcrowding from the Olympics - they expect occupancy rates to continue their decline. Average revenues and RevPar will also take a hit.

This is partly due to saturation in London - there has been a 6.5 per cent increase in the number of hotel rooms in the capital in 2012, equating to an additional 7,700 rooms. A further 4,600 rooms are set to open this year, reducing demand for existing hotels and affecting revenues.

Luckily for Aberdeen, this isn't the case. "There is no substantial pipeline of new rooms to increase competition and shrink margins in 2013 across Scotland, so there is every hope that we will see steady growth in this sector across all three cities," Mr Collins explained. Aberdeen is certainly set to continue its ascent, capturing the corporate market and hopefully a greater number of leisure visitors. However, with Glasgow set to be the site of the 2014 Commonwealth Games, demand could potentially shift.

Only time will tell if the oil and gas capital will be able to truly give London a run for its money. Nevertheless, it is important not to underestimate the power of the capital. Despite profit declines in February for the second month in a row, demand levels started to increase. The latest HotStats survey showed occupancy increased by 1.4 percentage points in the second month of the year to 75.9 per cent. Total revenue per available room also increased by 0.8 per cent. This is underpinned by a 2.6 per cent increase in non-rooms departmental revenue performance.

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.

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