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Budget Hotel Market Bouncing Back in Aberdeen

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Alastair Rae  Bruce Collins  budget hotels  Dawn Schultz 

Budget Hotel Market Bouncing Back in Aberdeen

By - Monday 12 August 2013

The time to invest in Aberdeen's budget hotel market is nigh, with new figures showing the property segment is bouncing back. Data from accountancy firm BDO revealed a significant increase in both occupancy and revenue for the under GBP 40 market in the city, rising by 15.2 per cent and 11.4 per cent respectively. Alastair Rae, a partner at the firm, claims this is "indicative of individuals returning to the budget hotel market".

This is hardly surprising, with Aberdeen continuing to hold the title of the most lucrative city for hotel investment outside of London. This is thanks to the success of the oil and gas sector, ensuring a steady stream of business travellers come to the city. Consequently, serviced apartments in Aberdeen are performing well, while the hotel market at large continues to have a prosperous year.

BDO's study showed across the sector revenues per available room stood at GBP 77 in May - higher than the Scottish average of around GBP 59. Figures for England and Wales were even lower at GBP 44 and GBP 39 respectively, leaving no doubt that Aberdeen is where the activity lies.

Across Scotland, occupancy levels increased to more than 79 per cent in May - a four per cent rise year-on-year. This is higher than the 75.7 per cent UK average. Mr Rae said: "These figures are quite positive and indicate a return to form for the Scottish hotel sector, which has been going through a difficult period. However, this needs to be sustained over the summer for full confidence to return. It is an encouraging performance for the early part of summer."

Revenues increased by 16 per cent in Aberdeen in May, contributing to a 10.6 per cent year-on-year hike for Scotland. These figures are a continuation of a year of success for the Granite City. Figures from PwC revealed 2012 had been a vintage year for Aberdeen, increasing occupancy throughout the year by 6.4 per cent. Revenue per available room grew by more than 12 per cent, bringing the city's metrics considerably above the UK 2012  average of 4.5 per cent and 1.4 per cent respectively.

This hasn't gone unnoticed and more and more budget hotels are entering the market, indicating increasing confidence in demand levels. In fact, names like Novotel, Ibis, Premier Inn, De Vere and Radisson Blu are on the list for future projects.

The rise of budget hotels isn't just happening north of the border either. In their 2013 forecast, PwC said brands offering cheap rates and luxury hotels will squeeze the middle. A polarisation of buying behaviours is certainly starting to emerge, with high and low end brands increasingly populating key markets.

Yet there doesn't appear to be a risk of saturation in Aberdeen, ensuring stability in the near-term. Bruce Collins, director in PwC's Aberdeen office, said: "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."

Budget hotels will no doubt become more and more popular as leisure tourism increases in the area. In 2012, Aberdeen City and Shire declared that they would "go all-out" to raise the profile of the areas as an international holiday destination. City promotions manager Dawn Schultz said: “Aberdeen is a fantastic holiday destination which truly has something for everyone. The city boast a fabulous retail offering; a wide range of leisure activities including award-winning museums, theatres and performance venues; a burgeoning arts scene; strong cultural offering; golf courses and fantastic sports facilities; and a bustling night life.

"We’ve got fantastic hotels and guest houses, with rooms to fit every budget and attractions for all ages, including of course a beautiful beach two minutes from the city centre."

With efforts focused on increasing hotel exposure, investors should act now to capitalise on the growing market before prices become too inflated. The budget sector in particular will act as a "catch-all" purchase, ensuring steady occupancy levels and room rates.

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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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