Expansion outside London picks up

Expansion in the regional cities is picking up pace, as regions outperform London in terms of occupancy and rate growth.

19 November 2014, words by Marie Hickey


■ The constrained supply in the regional cities, relative to their overnight corporate market, looks set to be resolved.

■ Graph 1 details the percentage increase in stock across a number of UK cities expected by the end of 2017.

Click image below to enlarge

Graph 1

■ Birmingham leads with a 65.7% increase, reflecting growth off a low base with c370 new units to be added to the current stock of 600. This is closely followed by Aberdeen, whose oil industry is attracting developers and operators.

■ Unlike London where stock growth is being driven by a relatively wide variety of operators, in the regional cities it is the Aparthotel brands that are the most active.

■ Union Hanover's Urban Villa concept leads with just over 400 units in two proposed schemes in Aberdeen and Portsmouth. This is followed by Staycity with their planned Birmingham and Edinburgh properties. Adagio are delivering c250 units across the same two cities. Roomzzz is expected to deliver over 280 units across four regional cities.

■ The difficulty of securing sites at the 'right' price for large purpose built development in London has meant regional expansion, particularly for new international entrants, has been the initial route to developing scale in the UK. For example, Accor's Adagio brand and IHG's Staybridge Suites both had their first sites outside London before securing locations in the Capital. However, the ability to secure London sites has been improving as developers and investors have become more familiar with the concept and its brands.

■ While the regional cities lead in percentage growth terms, London continues to dominate in quantum of new units. Approximately 1,700 new purpose built units are expected to be delivered in Central London by 2018 - a 16.7% increase on current stock levels.

■ Bucking the previous trend of entering the UK via the regional cities, Starwood Hotels & Resorts is expected to open their first UK Element branded property in London's Tobacco Dock in 2017.

■ The traditional Serviced Apartment operators will also be instrumental in driving stock levels in London, accounting for approximately 30% of the development pipeline, many with their own aparthotel type offer.

Regions outperforming

■ Expansion in the Scottish markets of Aberdeen and Edinburgh is being supported by strong trading performance. Year-to-date Revenues Per Available Apartment (RevPAA) are up 16.2% in Scotland compared to the same period last year. The other UK regions have also reported strong RevPAA growth on the back of improving demand and uplift in nightly rates. However, this was not universal across all cities particularly those that have recently seen a significant increase in stock.

Click image below to enlarge

Graph 2

■ Despite a strong growth in occupancy of 3.3%, exceeding the UK regions, year-to-date average daily rates in Greater London have fallen 7.4% compared to same period in 2013. As a result RevPAA is down 4.4%.

■ Central London is likely to have outperformed the Greater London average. Yet, the downward pressure on rates, as operators have looked to boost occupancy, has been a common theme. We expect that rate increases will return in the final quarter meaning that annual RevPAA growth for 2014 should remain in positive territory.



Key Contacts

Marie Hickey

Marie Hickey

Commercial Research

Margaret Street

+44 (0) 20 3320 8288


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