Appetite growing in sector
Investor uplift in hotels and student residences
Investment in hotels and student accommodation in Scotland’s central belt is expected to enjoy another uplift this year with investor appetite at record levels.
Research by real estate consultancy Knight Frank predicts that investment in specialist property (hotels, healthcare, student accommodation and automotive) across the UK will reach £14.3 billion in 2016, up 10% on last year.
In 2015, the sector represented nearly a fifth (18.3%) of a record 12 months for spending in UK commercial property – its largest-ever slice of total funding.
Edinburgh and Glasgow have seen investment in hotels and student accommodation in the past year – with strong occupancy figures in both property types. According to a recent study from business advisory firm PwC, Edinburgh is projected to overtake Dublin with an occupancy rate of 83% in 2017, replacing it as the second highest in Europe.
Among a number of hotel developments announced in Edinburgh this year, Hilton confirmed in February that it is building a 228-room offering in Fountainbridge, while Premier Inn announced a £35 million investment in the capital with three new premises and ongoing refurbishments. According to STR Global, there were 12,315 hotel rooms in Edinburgh by December 2014 (the latest available figures).
Several high-profile student accommodation projects have also started in 2016, adding to 2015’s new-builds. These include Crosslane Student Developments and Unite UK Student Accommodation Fund’s (USAF) 237-bed property at Lutton Place, representing an investment of £6.2 million.
Alasdair Steele, partner and head of Knight Frank’s Edinburgh office, said that a unique blend of factors meant Edinburgh was an attractive proposition for investment in specialist property, particularly in the hotel and student accommodation sectors.
Mr Steele said: “The market for hotels in Edinburgh remains very strong. It’s a UNESCO World Heritage site, which places a limit on the amount of supply coming onto the market, and attracts in excess of 3.5 million visitors per year – the most in the UK outside of London.
“On top of that, the city has a strong business traveller demographic and the small matter of the world’s largest arts festival every summer.
“Student accommodation has been another strong investment opportunity in Edinburgh. Out of a total population of 487,500 we have 56,415 students, meaning more than one-in-ten people in the city are undergrads or postgrads – compared with 3.6% across the UK.
“The demand for student flats in the city shows no sign of abating, as anyone walking around Fountainbridge would attest. We only see more hotel and student accommodation occupiers taking up space in the capital, with investment to match.”
Glasgow’s first Dakota Deluxe, in Pitt Street, will offer 83 rooms. Travelodge has invested in a 171-room venue on Queen Street.
Investment in, and demand for, student accommodation in the city remains ‘buoyant’, as indicated by Select Property Group’s purchase of a 2.9-acre site on Beith Street, near the University of Glasgow, for a £67 million development.
Empiric Student Property was also prolific in the city last year, striking a £9.6 million deal to acquire the freehold of a vacant office building near the University of Strathclyde’s John Anderson campus. The investment house also snapped up the Ballet School development in Glasgow’s west end for £12m in March 2015.
John Rae, partner and head of Knight Frank’s Glasgow office, added: “The student accommodation market in Glasgow has been absolutely buoyant, with a number of developments going up this year – particularly around the city’s west end. Although supply is picking up, we’d predict investment levels will continue to grow in 2016.
“The story for hotels is similar, which anyone walking through Glasgow city centre can see. A number of buildings are going up, or being refurbished – with demand in the city being driven by the overall increase in tourism across the country; up 5% to more than 15 million in 2014. With London prices high, more overseas investors are looking to the UK regions for opportunities – and Glasgow is near the top of the list.”
March figures for new car registrations in Scotland showed continuing growth with a 2.73% increase on 2015 – albeit slower than the rest of the UK’s 5.52%. Knight Frank predicts 2016 will see the strongest-ever investment yield for rack-rented leases outside of London.
The care home market continues to mature, with occupancy rates reaching 88.3% across the UK in 2014/2015. Yields have hardened, but should hold with stable returns expected for investors, the real estate consultancy’s report added.