Budget hotels drive growth of the UK hotel sector

The UK hotel industry saw the opening of 16,000 new rooms in 2016, constituting a 2.7% growth in total hotel supply and a 20% increase in the volume of new hotel rooms opening year-on-year. This has been bolstered by the dramatic growth in the budget hotel sector which now equates to over half of all new hotel supply with 8,000 new rooms opening in 2016, new analysis by Knight Frank reveals.

According to Knight Frank’s UK Hotel Development Opportunities 2017 report, the budget hotel sector now accounts for 25% of the UK’s total supply and will continue to drive the growth of new hotel supply, with a further 11,600 rooms due to open in 2017. Representing 57% of the forecast new bedroom supply and 64% of all new build properties, Knight Frank’s research reveals that the budget hotel sector is set to stand at over 165,000 rooms by the end of 2017.

Despite London’s hotel supply increasing by over 10,000 new rooms since the start of 2015, scarcity of available sites in the capital, rising land values driven by competitive alternative uses, and strong regional trading performance has resulted in the UK regions leading the development in 2016 with 67% of the new hotel supply. This presents opportunities for investors to capitalise on as major hotel operators seek a nationwide presence.

Knight Frank has launched its inaugural Knight Frank UK Hotel Development Index which identifies the UK cities considered to present the best prospects for hotel investment and development. The index illustrates that there are compelling reasons for investors to confidently seek out viable investment opportunities in UK regional markets, with Bath, Brighton, Edinburgh, Cambridge and Belfast ranked as the UK’s top five most attractive cities for hotel development for 2017.

Julian Evans, Head of Healthcare and Hotels at Knight Frank, said: “In the context of market uncertainty following the EU Referendum, combined with rising costs in the sector and developers and investors adopting a ‘wait and see’ attitude surrounding development, we are continuing to see a change in investor appetite and we are witnessing a flight to assets with long-term secure income.

“We expect to see a further growth and diversification of the budget hotel sector and predict that the brands which adapt to the current market conditions and refine their offer will be the success stories. We also believe that the regions will continue to present good prospects for investors to seek viable hotel development and investment opportunities in the UK.”

Despite the budget hotel sector powering the growth of the overall UK hotel sector, Knight Frank has identified a contrasting trend nationally as 61% of central London’s new-build hotel openings in 2016 were in the four star hotel sector, in comparison to 13% in the regions. This contrasts with 73% of new hotel bedroom stock in the regions opening in the budget sector whereas in London this number stands at 25%.