The regenerative effect of hotels
As the UK hotel sector began its road to recovery from the COVID-19 led downturn earlier in 2021, investors and other stakeholders looked to the potential for hotel developments to facilitate urban regeneration.
Given that the Government have indicated that further restrictions will not be put in place again, this continues to be the case and may particularly ring true in the regions outside of London where the popularity of 'staycations' are driving demand from tourists and investors alike.
The COVID-19 pandemic and the restrictions on trading put in place to mitigate its impact over the past 20 months have taken a disproportionate toll on the hospitality industry, particularly with respect to hotel and leisure businesses. However, the ongoing successful rollout of the vaccination and booster programme provides hope for a brighter future for the sector, with the UK being the most liquid hotel market in Europe in Q1 2021.
The development of new hotels or refurbishment of existing assets can play a fundamental role in the success of a regeneration initiative. A hotel will service burgeoning businesses and tourism in the area which will, in-turn, drive guests towards the hotel, leading to a sum greater than the parts. The SoHo Grand Hotel in New York is an excellent example of the introduction of a hotel which spearheaded and accelerated the gentrification of an area, resulting in the world famous arts district New York is now proud to house.
Closer to home, the Hoxton Hotel in Shoreditch provides an example of the regenerative effect of hotels which have assisted with driving the local economy and led the shift in the perception of the area to the artistic and commercial hub it is known as today. Both the SoHo Grand and Hoxton hotels demonstrate a crucial component of the potential for hotels to regenerate an area; the ability to utilise existing properties to incorporate the architectural stylings of its locale. The repurposing of a car park to create the Hoxton Hotel and the emphasis placed on the cast iron architecture of the SoHo Grand allowed each of the hotels to incorporate the culture of their surrounding areas, ensuring they act as unique destinations for visitors. Upon this foundation, regenerated areas are able to flourish, exemplified in Shoreditch by its increasing popularity as a destination for the offices of technology start-ups and the appearance of luxury hospitality venues, like Nobu Hotel.
Cities like Bath and Bristol epitomise the ability of hotels to become embedded in the culture of a city through the preservation of architectural stylings and historical elements. However, it is not only renovations of existing properties that allow hotels to become part of the fabric of regenerated areas. Hotels like the Marina Bay Sands in Singapore demonstrate the potential for hotels to stand at the forefront of major regeneration initiatives, providing the base around which thriving centres of commerce and tourism can develop.
We considered last year the rise in the popularity of the 'staycation' in the UK which should provide ample investment opportunities for those in the hotel industry in the near future, particularly outside of London. Larger players in the hospitality industry have also expressed confidence in the domestic holiday market, as evidenced by Blackstone's acquisition of Butlin's parent company, Bourne Leisure in early 2021 or more recently, Arora Group's acquisition of Luton Hoo Hotel. UK coastal towns have a proven track record for leisure led regeneration schemes, for example, the Gunwharf Quay development in Portsmouth which revitalised the city in the early 2000's and still stands as a commercial hub today. The hospitality industry in the regional parts of the UK may therefore prove to be an attractive choice for investors looking for lower costs of entry than they may otherwise find in the UK's gateway cities, which will continue to be hampered by diminished business and international leisure travel in the near future. Investors may be attracted by the much greater returns often available if a hotel can be linked to a wider regeneration initiative.
The hospitality industry has faced an unquestionably challenging environment since the outbreak of the COVID-19 pandemic but it is clear that this has, and will continue to, create new opportunities for investors in the industry. Mounting debt obligations and a slow projected road to pre-COVID occupancy rates will likely present further opportunities for cash-rich investors as the owners of current assets look to exit the market or dispose of assets to release liquidity. Of these asset sales, perhaps those most enticing for investors will be those in newly appreciated domestic leisure destinations. New and refurbished hotels in these areas may well serve as a catalyst for regeneration, capitalising on the popularity of staycations and driving the success of the area as a tourist destination and, in-turn, the success of the hotel.