The Dunstane Houses, a five-star boutique hotel in Edinburgh, has been sold on behalf of a private owner operator to Roseate Hotels after being marketed at a guide price of £7.5 million.

Dating from circa 1851, the hotel in the city’s West End has 35 guest bedrooms and suites in two facing buildings in West Coates and Hampton Terrace

The sale, by Savills, follows £25 million of Edinburgh hotel transactions already traded in 2022. These include Apex Haymarket, Fountain Court Apartments and Travelodge Edinburgh Learmonth.

Steven Fyfe, associate director in the Hotels agency team at Savills Scotland, said: “The Dunstane Houses is a prime investment opportunity that presented a luxury boutique hotel recognised as one of the finest in Edinburgh with significant potential for ongoing success.

“Edinburgh continues to outperform as a tourist and business destination that maintains a buoyant hotels market and we expect these robust fundamentals to support further transactions. 

“Furthermore, the recent openings of the Gleneagles Townhouse and Virgin Hotel, as well as the upcoming entrants of the W Hotel & Roomzzz at St James Quarter, Red Carnation, will bolster the city’s hotels product and broaden the appeal of the city to travellers. 

“Live sales are generating strong interest, but price the of debt will challenge higher lot sizes. ”

Hotel over-supply warning

Hotels in Scotland, which count ‘staycationers’ as a key market, could be particularly impacted by a predicted softening in UK domestic leisure demand in 2023, according to PwC.

A consumer survey conducted by the firm in October 2022 suggests just 21% of people who expect to cut back on holiday spending would switch to the UK instead of going abroad, with 17% revealing plans to take fewer shorter breaks.

With more than 2,700 rooms set to open in the coming years across Glasgow and Edinburgh, there is a risk of oversupply in the short term given the forecast fall in occupancy levels in the regions for 2023.

This risk is particularly prevalent for Glasgow, which is set to see 2,200 rooms enter the market – 64% of which are due to open during 2023-24 – representing the largest increase in room supply to the city since 2018.

The report confirms research earlier this year by property analysts Co-Star which noted that in the five years up to 2024 more than 3,000 rooms will have been added to the Glasgow hotel market, a 25% increase to supply prior to the pandemic. It said the city was dependent on big events and without them there was a risk of over-supply.