The "Staycation" effect – the rise of the Regional Hotel Sector


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Whilst overall investment in the UK hotel sector has taken a significant dip this year, interest in well-placed regional assets remains high. Could the rise of the "staycation" provide new long-term opportunities for investors?

It has undoubtedly been a tough time for the UK hotel industry, with businesses being forced to close completely between March and at least July this year. However, while investment in UK hotels has suffered as a result, overall interest levels remain robust and there are signs that the appeal of regional locations is on the rise.

Savills has reported a continuing rise in interest levels from private investors in coastal and country UK hotels; it reported "receiving multiple offers above guide price on well-situated regional assets". This is due, at least in part, to UK holidaymakers looking at alternative domestic travel options as international travel restrictions, and related isolation measures, remain in place.

Areas which have experienced robust recovery since the initial easing of the national lockdown include seaside locations in the South-West, such as Brighton and Bournemouth (which boasted, in general terms, over 80% occupancy rates in August this year) as well as Cornwall and Devon. Rural Scotland is also proving popular and many coastal and country UK hotels are already experiencing high demand for summer 2021.

Conversely, what used to be popular city locations are currently struggling with the continuing restrictions on both international travel and domestic business travel. Lambert Smith Hampton reported that major cities such as London, Manchester and Birmingham are seeing occupancy levels as low as 30% in many of their hotels. The recovery of corporate-reliant markets is inevitably likely to be slower due to the decline in work-related travel.

Overall UK hotel investment volumes as at the end of September 2020 were down 54.4% compared to 2019, but more than 77% of recorded deals since April 2020 relate to locations outside of London. Previously, some international investors were focused solely on the London market or on big cities generally, but there has been growing movement towards looking at the regions for investment into the UK hotel sector. There have also been some encouraging signs in respect of development opportunities in UK regional destinations, such as Dalata's planned development of a new 221-key Maldron hotel in Brighton, and major projects (including for the new five star Sands View Resort hotel) continuing in Blackpool.

The coming months will continue to challenge the UK hotel sector, with further domestic travel restrictions being brought in by the Government's new tier system and social distancing measures remaining in place for the foreseeable future. However, research has suggested that the UK regional hotel market will see increasingly popularity in 2021. This, in conjunction with an anticipated increase in availability of distressed hotel assets across the UK, should provide attractive investment opportunities for cash-rich investors looking for long-term real estate investment and/or development opportunities in the UK hotel sector.
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