ABERDEEN, Scotland—The center of the United Kingdom’s energy industry, Aberdeen, on the North Sea on the eastern coast of Scotland, has seen a dip in industry performance in the first half of 2015. However, the market remains strong and one of the U.K.’s most robust markets, according to sources.
Sources said Aberdeen is a two-tier market—city center and airport—that serves domestic and international cities as well as approximately 350 oil and gas platforms.
Kerr Young, director of the hotels and hospitality group in business consultancy JLL’s Edinburgh office, said Aberdeen has seen a noticeable drop off in revenue per available room, but alarm bells aren’t ringing.
“In year-to-date terms, Aberdeen is down some 16% in terms of RevPAR, but average daily rate continues to be high, perhaps second in Scotland behind Edinburgh. What one must remember is that these figures come on the back of strong RevPAR growth over three to four years, so the market shouldn’t be spooked. Aberdeen is still strong,” Young said, adding that another boost to the city in 2015 was “an almost a total absence of bad weather.”
According to data from Hotel News Now’s sister company STR Global, year-to-date June 2015 occupancy declined in the upper-upscale sector by 15.6% to 66.4%, in upscale by 10.7% to 64.1% and in upper-midscale by 11% to 67.7%.
Over all segments for the same period, occupancy fell 11.5% to 67.5%, while average daily rate dropped 7.8% to £89.93 ($140.39) and revenue per available room decreased 18.4% to £60.67 ($94.71). In 2014, Aberdeen saw a year-on-year RevPAR increase of 7.2%.
Sources said that to counter performance dips, Aberdeen has diversified into renewable energies and tech and supply chain logistics, and research and development.
Young explained that Aberdeen is the world leader in subsea engineering, and decommissioning retired oil and gas platforms is a multibillion-dollar industry.
Steve Harris, CEO of VisitAberdeen, the city’s convention and visitors bureau, said meetings and group business are on the rise, “attracted by more competitive hotel rates, where perhaps Aberdeen did not have those before.”
Harris’ calculations had occupancy down 11% year to date.
“Rate has followed, down 6% due to 5% additional supply, so the answer is to look at the demand side and opportunities beyond oil. Tourism is one answer, but the city has been a little complacent in that regard. Niche meetings, incentives bookings, and life sciences and medical conferences have seen increases,” Harris said.
Approval has been granted on a £16-million ($25-million) redevelopment to Aberdeen International Airport and a £333-million ($520-million) convention center, close to the airport, to replace the Aberdeen Exhibition & Conference Centre.
“There’s a need for people to move here, with unemployment at only around 1%,” Young said.
Lower-end oversupply
Aberdeen’s recent growth has seen increased budget supply, but remaining are gaps at the top end, sources agreed.
“Supply is up by more than 10% in the past 18 months,” Harris said, while Young said there “continues to be a lack of quality in the city center.”
Both said the city seeks to redress its weaknesses.
Top of the list is additional upscale-to-luxury product. The city only has one 5-star address, The Marcliffe Hotel & Spa, which almost closed this year, before reversing its decision to turn the property into residences.
“The city’s Chester Hotel, with no star rating as yet, will probably be given five stars,” Harris said.
Young’s employer JLL is advising on hotels for the new convention center.
“They will be good assets. The Marcliffe remains, with the next best quality asset being probably The Malmaison, a 4-star property. Some unbranded assets are being repositioned upwards,” Young said.
Stewart Spence, owner and GM of The Marcliffe, said he had heard speculation of a possible five additional upscale-to-luxury hotels for the market.
“It’s a nice market,” he said, “but the problem is that it’s been a one-trick pony for too long.”
Spence said the city has been guilty, and not for the first time, of putting all its eggs in one basket: oil.
“In 1986, when oil went down from $40 a barrel to $9, Aberdeen emptied overnight. We went to the convention and visitors bureau to see what they would do about making the area attractive to tourists, just to be reminded that (all the hotels) had told all the tourists to go away, as we had not needed them,” Spence said.
“Now, 1,800 roomnights a year at the (Marcliffe) are for golfers. We do a lot of marketing, but some others did not bother. They had not needed to,” Spence said.
High hopes remain
JLL’s Young retains high hopes for Aberdeen.
“The market will go from famine to feast in terms of quality hotels,” Young added. “And in time there will be sufficient demand for it.”
Young said if there were losers, it would include serviced apartments, bed-and-breakfast properties on the city’s periphery of Aberdeen and smaller, relatively nearby cities, such as Dundee, which have benefitted from Aberdeen’s success and uneven lodging offering.
“There’s been oversupply, especially in budget provision around the airport and adjacent business parks, a 50% increase in keys over three years, which has made things more competitive,” Young said.
Spence agreed destinations around and near Aberdeen are suffering.
“They used to get our overflow, but there is no overflow at the moment,” Spence said.