The Subplot | Hotel hotspots, planning woes, people power

Welcome to The Subplot, your regular slice of commentary on the business and property market from across the North of England.

THIS WEEK

• Will spring bloom for the hotel sector, or will frost kill the green shoots?
• Elevator pitch: your weekly rundown of who is going up, and who is heading the other way

SPRING BLOOMS FOR THE HOTEL SECTOR

But beware late frosts

Investors cold-shouldered the North’s hotels; now some say the mood seems to be warming. Are we about to witness the return of Big Money or is spring still a long way off?

Does one swallow make a summer? Does one daffodil make a spring? A lot is being made to hang on Aprirose’s decision to offload the 232-bed Queens Hotel in Leeds to Swedish investor Pandox for £53m. For sure, it’s a sign that the Aprirose makeover was successful: a tired provincial roost now looks a lot swankier. Whether Aprirose made much of a return on the investment is another question entirely: it acquired Queens as part of the £525m QHotels deal in 2017, an eye-wateringly expensive buy that Aprirose has been in the process of unwinding since 2021.

The case for sunshine

Cheerful people suggest the deal heralds a return of hotel investment and say the usual cheerful thing, which is that a lack of stock is holding the market back, not a lack of investor will or firepower. They point to the Leeds deal and some others in the South East. But is it true? The volume of transactions hasn’t picked up since the pandemic. Total North West and North East hotel transactions reached £537m in 2019, then fell off a cliff to £204m in 2022, according to CoStar data. In other words, we’re going to need a lot more evidence of activity before the market hits pre-pandemic levels.

Swollen pipeline

Can a legacy of optimistic pre-pandemic development and investment decisions really be shaken off so easily? Take a look at the Manchester hotel scene and you see a market growing like dandelions in the sun: Deloitte figures show 1,504 new city centre hotel rooms delivered in 2022, as much as the years from 2019 to 2021 combined. That’s a lot of reasons for investors to slow-peddle.

Revenue issues

Medium-term hotel spend is estimated to grow by an average of 2.6% a year through to the end of 2028 across the major Northern cities, Savills predicts. However, the firm’s analysis adds that “on a year-on-year basis there will be a fall in real terms,” which isn’t such good news. Revenue per available room – in other words, price adjusted for occupancy rates – is up on pre-Covid levels, particularly in the generally lower-rated markets such as Bradford and Sheffield. Of course, that is growth from a low base. But let’s not be mean: Leeds RevPAR compared to 2019 is up 28% for economy beds, which isn’t bad.

Seasonal chill

It sounds promising which makes it puzzling that corporate investors – those buying into the hotel businesses rather than, or in addition to, the real estate – are so sluggish. A total of 38 global deals (mergers and acquisitions, venture financing and private equity deals) were announced in the sector in January 2023, down 42% when compared to the previous month, said GlobalData. That’s a chilly start to the year.

Weather: mild

So what’s the medium-term forecast? Tom Cunningham, director in the hotel capital markets team at Savills, has a try. “There’s been a big reduction in the transaction volumes. There have been so many reasons not to invest, plus issues in the debt market, but the Queens Hotel sale is positive and there’s more out there. We’ve got £21m-worth of hotels under offer or in exclusivity. It feels steady, but it’s true we’re not pulling up trees,” he tells Subplot.

Green shoots

For now the tone is set by cash buyers on smaller transactions, and investors buying at the bottom because competition for the top lots is still super-strong in the rare circumstances an owner wants to sell. Moods are lifted by a strong return of concert, football and event trade, which floats many city centre hotels. But moods are firmly down for bland mid-market hotels with no unique selling point.

In other words, this isn’t the start of spring for hotel investment. It’s still very much the winter. Beware frosts.

ELEVATOR PITCH

Going up, or going down? This week’s movers

It may be some time before you can stroll safely down the middle of Manchester’s Deansgate. In the meantime, there’s an opportunity for Liverpool’s planning function to recover. Doors closing, going up!

Liverpool planning

Liverpool City Council will have a new chief executive early this summer. Current Cheshire West and Chester Council chief executive Andrew Lewis is set to replace interim chief executive, Theresa Grant, who replaced Tony Reeves. The move comes – if it comes – as the depleted development side of the council’s paid hierarchy is replenished. At the top, Nuala Gallagher from Limerick replaces Mark Bourgeois, who replaced Mark Bousfield, who replaced Nick Kavanagh, who was sacked in 2021.

One tier down, Sophie Bevan has parachuted in from the Liverpool City Region Combined Authority to look after major projects. The city’s planning function is not in a good way: developers and landowners are as unhappy as residents and campaigners at a system suffering from a kind of policymaking rigor mortis. Re-animating the corpse could be hard work.

Deansgate pedestrianisation

The biggest bang for regeneration bucks Manchester has to offer is the pedestrianisation – or boulevardisation – of Deansgate. Are we moving closer? The city council has begun consultations on what to do with £14m from the City Regional Sustainable Transport Settlement. It hopes to transform the long mile that should be the city’s glory.

If you were hoping to see obstacles swept away, you will have been disappointed by the hostile trip hazards and barricades of the new bus lanes. It’s a bad portent and points to the big problem, because real change would involve taking on the bus bosses. Alas, challenging the idea that a bus has to drop people exactly on the doorstep of their preferred destination, or follow exactly the route of a long-defunct trolley bus map, has stymied work at Piccadilly Gardens for decades and will do the same in Deansgate.

Get in touch with David Thame: [email protected]