Manchester’s hotel evolution

11 October 2018

With hotel occupancy rates in Manchester on the decline at the beginning of 2018, there were worrying signals felt across the market. Was the tide beginning to turn on the city’s booming hotel market? However, a positive upturn in July and August seemed to alleviate any immediate fears but there still remains some uncertainty in the sector.

One person not in doubt over the strength of Manchester’s hotel sector is GVA’s Martin Davis who believes that the city’s strong blend of corporate and leisure hospitality properties, as well as a healthy pipeline of upcoming hotels, demonstrates a positive future.

But as new hotels continue to enter the market and some older properties are converted for alternative use, Martin explains why operators of existing hotels that have lacked investment, risk entering a downward spiral of decline, where lower occupancy, and therefore rates, will ultimately lead to lower revenue if they do not ‘up their game’.

A slow start to 2018

As we approach the final quarter of the year, Manchester’s hotel market could be described as a somewhat uncertain place. At the beginning of 2018, a drop in the city’s occupancy rates sent worrying ripples across the sector. However, property, as with most other markets right now, has a tendency to point the finger at Brexit at the slightest hint of decline or negativity, but we must take other factors into account.

The unexpected arrival of The Beast from the East in February caused a significant drop in consumer spending, which was felt particularly strongly in retail and hospitality. Hotels are generally prepared for a decline in sales after the Christmas period, but the bad weather was an extra obstacle that few were prepared for, or able to compete against.

July and August brought a more positive outlook back to the sector, with occupancy rates higher than those originally forecast. According to the STR destination report, by the end of August the average occupancy for Manchester stood at 77.6% for the year to date compared with 77.7% in 2017. According to the same report, revenue per available room (RevPAR) was £59.57 versus £59.75 during the previous year. This was perhaps aided by the unprecedented summer heatwave, which was likely to have had an influence on the number of people taking ‘staycations’ and city breaks.

But although Manchester’s hotel occupancy numbers and rates have dramatically fluctuated, I am far from worried about the future of the market.

A healthy hotel portfolio

Despite the slow start to the year, I personally believe that Manchester’s hotel market will remain stronger than most, if not all, of the other cities outside London.

The city’s healthy balance of corporate and leisure offerings in central locations helps the city attract a range of visitors, from the business traveller looking for accommodation within reach of major conference venues, to friends and couples seeking a high-quality choice for a last-minute city break.

Manchester’s excellent hotel portfolio has been strengthened by a number of recent success stories in the market, such as the rapid growth of operators like Motel One, which offers a stylish option at an affordable price.

The market isn’t resting on its laurels either with Manchester’s hotel pipeline showing activity in the sector that will ensure new hotels are being delivered from now and beyond Brexit. There are major investments taking place across a range of property types and customer bases including Marriott’s upcoming AC by Marriot branded hotel launch in Manchester city centre in October, as well as IHG who has recently opened its new Crowne Plaza hotel on Oxford Road. Another IHG property, Hotel Indigo is due to open imminently by Victoria Station.

GVA How Planning recently prepared a planning application for a 22-storey building for Japanese hotel brand Toyoko Inn. The hotel will provide around 350 bedrooms in the heart of the city at Piccadilly Basin, with all staff being recruited locally. The hotel’s project lead cited Manchester’s growing tourist numbers, as well as an increase in visitors from the Far East, as the driving force behind the company’s decision to open its first UK hotel in Manchester.

With a planning application expected to be submitted imminently, the new Toyoko hotel is just one example of international investment in the city’s hospitality sector that reflects high confidence in the market, something that the city needs in today’s economic climate.

A warning to existing hotels

Though the growth of the hotel market in Manchester, as well as its rich pipeline, are of course positive, there is danger of mounting pressure being placed on existing hospitality properties.

Hotels that have lacked investment in the past risk entering a potential downward spiral of decline if they do not up their game and protect their market share. If hotels are dated and fail to deliver on service and value, it will be impossible for them to compete with the newcomers and the disruptors such as Airbnb. These hotels are at risk of a threat in decline of occupancy and in turn, leading to reduced room rates which will lead to a possible loss in revenue. As older hotels struggle, they could be forced to let staff go, reducing the ability to meet service standards. It’s a vicious cycle.

Due to this, I believe that we could start to see an increasing number of older hotels being sold for alternative use and transformed into serviced apartments, residential towers or office space. These properties may even introduce mixed-use facilities, such as retail and leisure space.

Manchester is no anomaly. Cities are constantly evolving, and as new offices, residential blocks and hotels enter the market, older ones inevitably disappear from our city centres. With Manchester’s current and future hotel activity still instilling great confidence though, whatever happens, I believe it will be evolution not revolution.