Scotland Hospitality Industry: An update on key market performance part 2

Glasgow

Glasgow, with a population that surpasses Edinburgh, also attracts large scale events, concerts, conferences and festivals that create significant demand. The market’s popularity has also attracted investors and created an extensive pipeline of hotels that include notable new entrants to the market.

Over the past 19 months (2018-July 2019), eight new hotels have opened, adding more than 1,000 rooms. A variety of properties entered the market, offering an aparthotel, serviced apartments, and Midscale to Upper Upscale options to Glasgow’s broad spectrum of visitors. There are currently 2,204 rooms across eight pipeline projects that are scheduled to open between August 2019 and the end of 2020 - the majority of these will be associated with global hotel chains. If we look at the last ten years, Glasgow saw a 22.0% rise in room supply.

Hotel performance has been on an upward trend over the past ten years. From 2008 to 2018, occupancy has risen from 71.6% to 80.7% and ADR has moved from GBP60.00 to GBP76.00. However, the 2019 supply influx has added pressure to the market and led to declines in both occupancy (-3.9%) and ADR (-4.2%). The rate decrease can be attributed to driven by significant declines in metric in March and May 2019.

Dundee

In the space of just 12 months, the value of tourism in Dundee has soared by GBP16m and the industry is now worth 22% more than it was in 2015 (source: Scotsman).The V&A museum opened in September 2018, and has since been shortlisted for the Art Fund Museum of the Year - the world’s biggest museum prize (source: Art Fund). As a result, the museum is expected to bring an influx of tourists to the city.

Dundee has welcomed a significant supply increase in the past 18 months, following 21.7% inventory growth in 2018 that has continued into a 21.8% lift in the opening six months of 2019. However, with only one hotel in its pipeline, the market should stabilise by the end of the current year. Set to open in October 2019, the AC by Marriott will open opposite the V&A and contribute a further 150 rooms.

Demand has grown in both 2018 (+14.6%) and H1 2019 (+17.5%) but this hasn’t quite been enough to offset the supply increases. However, it will be interesting to see the impact of Dundee receiving a number of recent accolades that include ‘must-visit Scottish destination’. It also finished 15th in National Geographic Traveller’s U.K. ‘Cool List’ and was listed in Condé Nast Traveller’s Best U.K. City Breaks for 2019.

On another note, Dundee’s first Pride event took place on 22 September 2018 and occupancy reached 94.6% on this night. The event attracted 8,000 attendees and resulted in a 37.3% demand increase, 45.0% revenue lift and 9.9% jump in RevPAR, when comparing the event weekend with the same period in 2017.

The market appears to attract a mix of leisure and business travellers, with the highest occupancy nights being Tuesday, Wednesday and Saturday (holding firm with the most occupied rooms). This indicates a slightly higher level of business travellers, as Dundee acts as a hub for the region’s conferences.

Falkirk and Stirling

Tourism is a key economic driver in Falkirk, generating more than GBP110m, and is expected to boom in 2019 as the city becomes a ‘destination of choice’ (Source: VisitScotland). Falkirk has experienced significant growth in the last eight years, with visitor numbers rising 50% (source: Falkirk Herald). Hotel performance through June 2019 reflects this expected increase, with demand growing 7.8% in the opening half of the year. April, in particular, was a standout month and reported a 17.2% jump in the metric.

Easter 2019 produced a 14.1% demand increase compared to the prior year’s Easter period and this translated to a RevPAR premium of 115.2% on the corresponding weekend. Performance was not wholly positive, however, as hotels do seem to have dropped their rates and ADR fell by 4.2% across this period.

There was cause to raise a glass as Falkirk held the biggest gin event in central Scotland - the Falkirk Gin Festival organised by The Scottish Gin Society on 13 April 2019. Occupancy reached 91.5% on this night, which represents a 30.1% increase on 2018 levels.

While there are currently no hotels in construction, supply increased 4.1% in 2018 and appears to have caused a knock-on effect for occupancy (-4.6%).

Scotland Regional

Demand in regional Scotland remained relatively flat in 2018, enabling hotels to drive rates and culminating a 5.6% ADR increase that drove RevPAR growth of 4.6%. Interestingly, supply increased by 1.0% while occupancy dropped 1.0%, which suggests new supply entering the market drove occupancy decline.

Saturday produces the highest occupancy in the regions, at an average of 78.2% and this indicates popularity among leisure-based guests. A trend that is understandable given regional Scotland’s lack of large cities that would typically attract business travellers.

There are two standout cities in terms of participation of hotels which require further analysis.

St Andrews

Known as the home of golf, holding the Open Championship in 2015 had a significant impact on St Andrews’ hotel performance. The Open took place 13–20 July and RevPAR increased 258.8% during this period, when compared to the rest of the month. This increase was mostly driven by rate growth of 172.8%, while occupancy rose by 31.5%. In 2021, St Andrews will host the 150th Open Championship and it will interesting to see if there is a greater impact for this milestone event.

Supply growth has remained relatively flat since 2016, while demand has increased and continued to do so through the first seven months of 2019 (+2.6%). From an inventory perspective, there are nine hotels in St Andrews’ pipeline, representing 308 rooms, all of which are awaiting confirmed opening dates.

Perth

There has been no new hotel inventory in Perth since 2015, while demand has been on a downward trajectory since March 2018 and resulted in an occupancy decline in the same period. The new Heart 200 was launched on 1 July 2019, an initiative that is similar to the North Coast 500 and showcases visitor attractions as well as linking two national parks. Perth is a key city on its route, which may have driven the 1.3% demand lift in July. It will be interesting to see if this is a one-off or whether Perth will continue to enjoy demand and occupancy growth.

Missed part 1 of our Scotland series? Read all about Edinburgh, Aberdeen and Inverness hotel performance here.
 

The article has been created by Michal Rao (Business Development Manager – UK and Ireland) and Sophie Martin (Business Development Coordinator). If you have any queries, please feel free to contact them via: MRao@str.com and SMartin@str.com

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