Hotels can provide valuable revenue for cash-strapped Councils

Commentary by Andrew Renouf, Director in Retail, Hotels & Leisure


Type Perspective

Date 31/05/2018

Growth in revenue per available room in large cities like Edinburgh and Glasgow was above the UK average.

Hotel investment transactions exceeded £240m last year, whilst the 2017 growth in revenue per available room in Edinburgh, Glasgow, Inverness, Perth, Stirling and St. Andrews was above the UK average. Scotland’s two main airports continue to break their own records in passenger numbers and the announcement of a direct air link between our capital and China further unlocks a valuable tourist market.

At a recent conference hosted by GVA and Scottish Development International it became clear that, despite the sector’s stellar performance and robust health, serious challenges are upon it.

Though tourism numbers are on the up, the number of people taking ‘staycations’ in Scotland was down and there was also a decrease in the number of business trips taken. Construction costs continue to be an issue and may well be compounded by the fallout from the demise of Carillion. Full service hotels are not always commercially attractive to develop, and it can prove difficult to obtain institutional grade leases out-with Scotland’s two main cities.

The aim of the conference was not to bemoan the obstacles facing the hotel industry, but to outline how developers can work with local authorities in mutually beneficial partnership to unlock development and investment opportunities. In recent years, we’ve seen examples of forward-thinking councils establishing partnerships with the private sector to bring schemes to fruition.

At Dundee’s much-lauded waterfront regeneration, the City Council is acting as developer for a Sleeperz Hotel at Dundee Station, under operating lease, and an AC by Marriott opposite the V&A Museum of Design under management agreement. Aberdeen City Council is providing an income strip lease which will see a Hilton hotel at the new exhibition and conference centre, which is under construction. The City Council is also developing an Aloft hotel at the campus, with both hotels operated under management agreement.

In England, Stockton-on-Tees Council has funded the development and established an operating company for a Hampton by Hilton hotel, whilst a similar deal in Blackpool will see the Council funding the development of a Holiday Inn.

All these local authorities carried out due diligence and viability appraisals before progressing the schemes, but still deserve plaudits for having the bravery to try something new in a challenging climate. Local authorities arguably stand to benefit more than their private partners in such agreements, albeit they are also taking the bulk of the risk.

New developments help meet business and leisure tourism demand, stimulate regeneration and deliver on place-making objectives by creating attractive spaces for the community and visitors. The initial investment can also aid in stimulating the local economy and attracting private investment.

Whilst the place-making and regeneration arguments are compelling, councils also stand to generate revenue for years to come from hotels once they are up and running. This cash can be reinvested in the local area, and the ability to identify and generate revenue streams is massively important at a time of declining central funding.

For local people and visiting tourists, closer working between the public and private sectors make sense to maximise the potential on offer from hotel development opportunities.