As the capital struggles to find new development space, adaptive re-use is a hot topic, especially for the hospitality and leisure sectors. Does this present an opportunity for the UK regions to capitalise on this lack of space, or do regional cities also face the same issues?
In most regional markets, hospitality is in a state of vibrant growth, and it’s a catalyst for economic development and job creation. It is difficult to predict the effect of political and economic factors on travel and tourism, and while fears about terrorism are not derailing travel globally, certain markets will see pressures.
The industry is still trying to understand the consequences of the UK’s decision to leave the EU. Current opinion would suggest there may be a short-term weakness in occupier demand, but this is likely to be followed by an upturn as opportunities re-emerge in the UK’s core markets, especially as tourists and travellers benefit from a weak pound.
What are the stats showing us?
The London hotel market saw net room growth of over 25% between 2008 and 2015, which was largely driven by growth in the four star and budget hotel sub-sectors. Looking ahead, above average supply growth in the London hotel sector is currently forecast for 2017.
The development of new build hotels, especially in London, is increasingly constrained by the availability and cost of land. As a result, many hotel chains have recognised the importance of converting existing buildings - notably offices - into hotels in order to maintain portfolio growth.
Attention is also now turning to regional markets. In the UK regions, the figures show that overall hotel capacity could expand by 9,000 new rooms in 2016, and for 2017, there are currently over 13,000 rooms in the pipeline, suggesting a growth of 1.7%.
Which are the cities to watch?
The research is not conclusive, but northern cities are tipped to dominate future UK hotel development in England, with Manchester, Leeds, Chester, Liverpool and York all key markets for hotel investment.
Across the UK predicted growth varies, but Scotland could see around 3% growth compared to 1.3% in the East Midlands. Developers look to be busy in Edinburgh and Glasgow with a healthy pipeline including the first Hampton by Hilton in Scotland. Manchester continues to see a resurgence in retail, hotel and leisure development, led by the completion of two major leisure destinations within the city centre and 14 new hotels. Cambridge and Birmingham are also tipped for new development opportunities.
The key to placemaking is to provide places where people feel they can live, work and play, and tends to imply that mixed-use schemes need to be prioritised.
There is evidence that our major cities are getting this right. City centre populations are now rising again with an influx of millennials (born 1981-2000). Placemaking also attracts tourists and other visitors, such as business conferences, and the success of our regional cities is partly reflected in the performance of the hospitality sector.
Hotel provision outside London has been a success story in recent times, with revenue per available room passing the last peak by 8% outside London, and profitability has increased by nearly 7%.
Hotels are supported by infrastructure projects in many key UK cities, which gives developers the confidence to take on projects beyond the perceived security offered by the budget hotel sector. Manchester is a good example with MediaCityUK, Spinningfields and Airport City developments attracting global blue-chip companies and also high-end hotels such as the five-star Gotham Hotel.
Salford City Council has just been given the green light for plans that will bring a new phase of development to MediaCityUK. The proposals will see £20m of investment by The Peel Group to deliver 54,000 sq ft of creative office and studio space as well as a new 112-bed Premier Inn.
Liverpool has also been a key target for redevelopment in recent years. ISG constructed the new £66m+ Exhibition Centre Liverpool and Pullman Hotel project on the city’s waterfront, increasing ACC Liverpool’s event offering and enhancing the King’s Dock. We are also the main contractor on the Lime Street regeneration project; a mixed-use development which will feature a range of commercial, retail and leisure premises, including a new hotel.
Adapting to the age
The lack of available sites, plus increased build and land costs, especially in London, means that developers have been steered towards refurbishing existing properties or converting other buildings, such as office premises. There remains significant opportunities for refurbishment and rebranding for those larger chains and upmarket independents with access to appropriate funding.
Whilst regional cities are not at the same capacity level as London, there are limitations on space in city centres and adaptive re-use is now commonplace across the UK.
The direction of travel is clear to us with our £13m contract to transform Manchester’s historic Grade II listed Corn Exchange into a four-star boutique hotel. This is closely followed by our appointment to a 145-bed hub by Premier Inn hotel - the company’s second hub site in Edinburgh - remodelling the former Hanover building’s office premises.
In London, we are building our portfolio of adaptive re-use projects. We recently converted one of London’s oldest banks into the capital’s first wine members’ club, 67 Pall Mall (pictured).
So, while the UK regions are facing space issues in some city centre locations, there are still opportunities available. Further investment is encouraged via mixed-use schemes on the city’s outskirts. These, along with area regeneration initiatives, provide confidence and longer-term security to investors. While the impact of impending Brexit must not be ignored, along with an uncertain political and economic climate, the future is bright as our regional cities entice more people to live, work and play.