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North’s office market reports record 2018 in year of political uncertainty

THE Northern Ireland office market enjoyed a record 2018, with more than double the business reported in the previous year.

CBRE’s latest Real Estate Outlook report shows the office sector in the north is flourishing, with a record 885,023 sq ft of take-up reported across 84 transactions

Notable office deals completed in 2018 include PwC’s move to Merchant Square, the Northern Ireland Civil Service to 9 Lanyon Place and the opening of the new Allstate Belfast base at Mays Meadow.

CBRE managing director, Brian Lavery believes the local office market is well placed to continue on an upward trajectory in 2019.

“Foreign direct investment in the region remains strong and indigenous technology and professional services businesses are growing as the latest office accommodation results indicate,” he said.

“We believe that Northern Ireland can capitalise on ‘north-shoring’ opportunities from London and Dublin going forward into 2019 and beyond despite Brexit dominating the landscape because of the supply of talent and the attractive costs base.

“Currently we only have around 250, 000 sq ft of Grade A office space available fragmented across a number of buildings underpinning the need for more investment in this space. Alongside this office space growth, we are also seeing the green shoots of demand for residential living in the city centre. We believe this is the trend to track in 2019 and beyond as investors across the UK and globally continue to look for opportunities in this area.”

In spite of the relative positivity within the commercial property market, a lack of investment is a cause for concern, with the ongoing political uncertainty cited as factors in a decline in activity.

Key transactions over the last 12 months included the sale of Metro Building in Belfast to a local investor for £21.8m; the £18m acquisition of the NCP Car Park at Montgomery Street, Belfast by CBRE Global Investors; and Belfast Harbour Commissioners’ purchase of the Obel Building for £15.2m.

“At present, Northern Ireland does offer a unique investment opportunity, although success will be dependent on a Brexit deal which prioritises the local business and economy,” Mr Lavery added.

Meanwhile it has been confirmed the Northern Ireland Investment Fund, launched by CBRE Capital Advisors at the start of 2018, has already invested 30 per cent the initial £100m allocation.

CBRE is expecting to announce a suite of additional loans to fund the development of hotels, high-tech research facilities, energy efficiency and industrial infrastructure with employment space in a variety of locations across Northern Ireland in the coming weeks and months.

Source: Irish News

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Investing in commercial property: beware the Brexit clause?

Last month saw an apocalyptic picture painted about the impact of Brexit. The Bank of England warned that commercial property values could fall 48% in the event of a No-deal – worse than the global financial crisis – and even a more “orderly” Brexit could see a 27% drop.

The severity of the warning seemingly took many by surprise. However, the negotiations and the resulting wider economic uncertainty have been impacting commercial property valuations and tenant demand for some time.

‘Brexit clauses’ have become a feature of commercial property valuations since the Referendum, stipulating that values can’t be guaranteed following the March deadline. But while previously, these clauses were typically buried in the “boilerplate” wording, now they’re front and centre, presenting a much bigger obstacle for institutional investors. Funds are increasingly sitting on their hands, with some suspending or aborting live deals, reluctant to gamble stakeholders’ money in a market with such a blind spot.

Silver linings, not Brexit blues

But this isn’t Armageddon. One person’s risk is another’s opportunity and the vacuum left by institutional investors has left the door open for cash-rich private or family office investors. With no institutional shareholders and often no short-term debt pressures to satisfy, they can take a longer-term view. They’re actively looking to price and pursue risk, especially (soon to be) vacant properties and will remain a force to be reckoned with in this period of Brexit limbo.

A simple reading of the Central Bank’s numbers also ignores the fundamentals underpinning UK real estate. The headlines might say differently, but our major cities continue to be buoyed by overseas capital. Over three-quarters of the £5.3bn spent on Central London office transactions in Q2 this year came from foreign buyers.

So before everyone pours freezing cold water on the market, we should remember that Sterling’s devaluation has ensured that UK real estate remains attractive. And, with investors now getting more bang for their buck, we’re arguably more appealing than other territories. Compared to many other competitor markets we have more transparent, real-time data available, alongside a mature professional infrastructure and easy access to finance to aid investment decisions.

There’s also the intangible: certain investors will always want to be in the UK and feel a sense of inherent security investing here. It may not feel like it now, but historically we are far more politically stable than many other countries and have a well-established rule of law. Depending on where you sit, these are key factors for investors’ wish lists.

Yes, Brexit presents significant challenges. It would be foolish to pretend otherwise. But it doesn’t have to be a perennial spectre. Some might argue that the uncertainty generated by a potential change of government at Westminster because of Brexit – rather than Brexit per se – is a bigger concern and would have a more significant impact on investment decisions. With continued resignations and reshufflings, no one can say for certain what will happen politically.

When the dust settles however, just as after every major disruption to the sector in the past 30 years, we’re likely to find that a number of risk-savvy, cash-rich operators have done well from the uncertainty and will be well-positioned for whatever the post-Brexit World throws at us.

Source: Property Week

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Get ready for the commercial property data revolution

In these uncertain times, modern commercial real estate landlords and operators have turned to technology and data to weather the storm and gain a competitive advantage. Those that do so are arming their companies with an ability to quickly pivot operating models, reallocate investment to counter risk and capitalise on opportunity.

The right software lets you future-proof your business, enables you to understand performance in real-time and most importantly helps you predict what’s next – the biggest hotspots and opportunities, which team members are doing well, and who needs some support.

You don’t have to look far to see the transformative power of data and examples of how it is successfully being applied to drive digital transformation. Take the financial sector, where unleashing the power of data has not only streamlined workflows but also enabled firms to grow their businesses through powerful AI applications that personalise their services.

According to a 2017 Forrester report, there is an increasing gap between financial firms that embrace technology to fuel growth and business transformation and institutions that continue to do business in traditional ways.

The evolution of the stock market also highlights the value that technology and actionable data unlocks. Look at the New York Stock Exchange. Thirty years ago it was characterised by highly inefficient and manual processes and opaque information. Today? Technology has transformed the way the market operates and traders are able to leverage real-time data and algorithmic trading to execute deals in nanoseconds.

The commercial property sector is making great strides in using new software offerings such as leasing and asset management platforms to capture and analyse data. Landlords and brokers are using the resulting insights to make better decisions that move the needle. We’re fast approaching the next major frontier – market benchmarks.

Using real-time market data to make better decisions has been the standard in our own backyard for other property types such as multi-family and hospitality for some time. RealPage Yieldstar® helps PRS owners leverage market data to determine pricing in real-time and for hospitality the STR Global Report helps landlords benchmark a hotel’s occupancy or revenue that day.

Unlike PRS real estate or the hotel space, when it comes to office, industrial or retail properties, market leasing data on pricing, tenant demand or operating efficiency within buildings is neither transparent to the market nor recent.

We are working hard to develop the ultimate market benchmark. In June, we announced plans to launch VTS MarketView™ – the industry’s first real-time benchmarking and market analytics. For the first time, VTS customers will be able to compare their own property-level performance against market-wide data on our platform.

Aggregated and anonymised, this data and insight will be embedded in users’ daily leasing and asset management workflows and presented in context to drive better decisions, informed by key market-wide metrics such as net effective rents, concessions, leasing spreads and velocity, level of tour requests and deal conversion rates.

For the commercial property industry, the possibilities for how technology and data can be applied are endless. For example, AI could be applied to real-time market benchmarks to provide landlords with property-specific predictions and recommendations for maximising asset value.

These are exciting times, but not without risk. Now, more than ever, it’s time to embrace the data revolution or risk being left behind.

Source: Property Week

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Yorkshire commercial property market feels impact of Brexit uncertainty

The commercial property market in Yorkshire and the Humber is feeling the effects of the uncertainty surrounding Brexit negotiations.

The region has seen tenant demand for offices, retail space and industrial property fall throughout the last quarter, according to the Q3 2018 RICS UK Commercial Property Market survey.

Due to the continued uncertainty, RICS (Royal Institution of Chartered Surveyors) is calling on the government to review the business rates system in the upcoming Budget.

Respondents to the quarterly survey said that occupier demand for offices in the region fell during the last quarter of the year (Q3) with 18% more respondents reporting a rise in tenant demand for office space (down from 38% in Q2), whilst 41% reported an increase in demand for industrial space (down from 46% in Q2) and 41% saw a decline in occupier demand for retail property.

This is most likely because the retail sector is struggling amid the tough market conditions and the boom of online retailers.

Respondents also reported a lack of available office space and industrial property in the region, but 32% saw a rise in the availability of retail space during Q3, prompting landlords to continue to offer incentive packages.

To help provide a boost for the High Street and the wider commercial property market, RICS is calling on the government to review the business rates system in the upcoming Budget.

Hew Edgar, head of policy at RICS, said: “People want a vibrant high street at the heart of their community. Yet the combination of Brexit uncertainty and competition from online retailers mean small independent businesses, in particular are finding it harder to stay afloat.

“That’s why we are calling on the government to use the Budget to review business rates, with the aim of improving the whole system and help provide a shot in the arm for our ailing high streets.”

Looking at investments, all commercial property types – except the struggling retail sector – saw a rise in enquiries from potential investors with 55% of respondents reporting an increase in investment enquires for industrial space, and 30% seeing a rise in enquiries from investors for office property.

Looking ahead, the lack of available office space and industrial property in the region is predicted to impact rents over the next three months – across both these sectors – with 25% of respondents expecting office rents to increase (up from 21% in Q2), whilst 35% of respondents expect rents to rise for industrial property (up from 27% in Q2). Retail rents are not predicted to rise over the coming three months.

In each quarter since the Brexit vote took place, survey participants have been asked if they have seen any evidence of firms looking to relocate at least some part of their business as a result. Throughout much of this time, the proportion reporting they had seen signs of this type of activity remained at around 15-18%. Interestingly, however, this picked up to 25% in the latest results.

Tarrant Parsons, RICS economist, said: “The commercial real estate market continues to be characterised by a stark contrast between the struggling retail sector and the strong performance of industrial property.

“Trends are a little more mixed in the office market, depending on which part of the country you look at, but the overall picture remains broadly steady. The uncertainty engendered by the ongoing Brexit process now appears to be having a greater bearing on tenant decisions when it comes to taking up commercial space, with a lack of clarity regarding the final trading relationship causing some hesitancy.

“That said, investment activity remains reasonably solid, as the latest results point to a stable quarterly trend in demand and a continued decline in supply.”

Source: The Business Desk

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Europe ramps up property investment in central London

London’s appeal as a major hub for overseas investors was underlined by fresh figures today, which showed that the proportion of foreign money being injected into the capital’s commercial property market has hit an all-time high.

A resurgence in demand from European buyers has helped drive central London’s booming office space market in the last three months, with foreign buyers accounting for a record 92 per cent of total investment in the third quarter of 2018.

While overall levels of investment slipped from £5.2bn in the second quarter of 2018 to £.4.1bn in the third quarter, European investment more than doubled after hitting £1.7bn in the three months to the end of September.

Appetite for skyscrapers and major office blocks has largely been dominated by Asian buyers in the last 12 months, but several landmark deals from major European investors caught the headlines during the third quarter of this year.

The Spanish billionaire founder of fashion chain Zara, Amancio Ortega, recently snapped up The Adelphi building for £550m using his real estate arm Ponte Gadea, while German investor Deka also splashed out £460m for Victoria’s Verde office development.

“London office investment volumes continue to be supported by a robust occupational market with low vacancy levels, and take-up well above the 10-year average. Attractive yields relative to other European cities, coupled with the comparative weakness of sterling, mean we have seen investors from all corners of the globe hungry to deploy capital in London,” said CBRE’s head of London investment properties James Beckham.

He added: “There may be some hesitancy from a few investors over the next six months as we enter the latter stages of the Brexit negotiations, but total investment volumes for the year look set to be broadly on par with 2017, once again highlighting the strength of demand for London assets.”

The figures, released by CBRE, come after a report from Cushman and Wakefield showed that London has held its position as the top city for cross-border property investment this year for the ninth time in a decade.

Source: City A.M.

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North’s commercial property market to end 2018 in strong position

THE north’s commercial property market is set to finish the year in a strong position, according to a new report.

The latest CBRE Marketview, covering the three months to the end of September, shows solid progress, building upon record levels of take-up in the first half of 2018.

The office market added a further 105,337 sq ft across 17 transactions in the third quarter of the year, bringing the yearly total to date to 643,983 sq ft.

The investment sector has also been busy, with total spend to date this year £122.2m, boosted by the completion of a number of high-profile office buildings, including the likes of Artola House, Moneda House and River House.

CBRE office agency director, David Wright believes refurbished office properties have given a “much-needed lifeline” to the market over the last three years, given the lack of new build activity.

“There are a large number of office deals agreed and currently in ‘legals’, and providing they complete in Q4, Belfast is set to experience one of the most active years ever recorded in this sector,” he said.

Despite the positives, political uncertainties remain a concern, according to CBRE managing director, Brian Lavery.

“Lack of local government and Brexit are impacting upon pricing, but it is clear that investor appetite in Northern Ireland remains encouraging from both locals and new institutional entrants.”

“We expect the final quarter of 2018 to be a particularly busy period, which should lead to investment volumes for the full year mirroring last year’s figures,” he added

The report acknowledges the impact of the August 28 Primark fire on the Belfast retail sector, but state that the market has held up reasonably well, with activity now increasing ahead of the key Christmas trading period.

Source: Irish News

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British Property Federation announces plans to modernise commercial property sector

The British Property Federation (BPF) has launched a Technology and Innovation programme for the UK commercial property sector – to support the sector in its digital transformation – following the Government’s challenge to all sectors of the economy to improve productivity and deliver growth. The programme is launched with the publication of a new report produced by Future Cities Catapult, commissioned by the BPF, to understand the barriers to and opportunities for improving the productivity of the real estate sector through the application of technology.

The report Lost in translation: How can real estate make the most of the PropTech revolution? highlights that while 50 per cent of PropTech companies focus on sales/leasing, only 16 and 12 per cent respectively apply themselves in construction and investment/financing respectively. Land acquisition and refurbishment have less than five per cent of active PropTech companies. No companies, from the data sources used for the report, fell into the category for demolition/remediation.

Following a BPF-member survey, interviews and roundtables with key real estate and PropTech leaders, the report finds that there is significant untapped potential for greater adoption of technology to enhance productivity – and that the real estate sector must start by better articulating its pain points across the property lifecycle, so that innovators can better understand where there is more scope for technology to provide solutions.

To improve the sector’s engagement in and adoption of new technologies, the report’s recommendations to the sector, the BPF and the Government are:

  • Improve market information – there is a dearth of clear, quantitative and authoritative information, from the needs of different users across the property lifecycle to the nature and type of technologies on offer to property professionals.  It means that investment, buying and selling decisions are not optimised. To achieve this, next steps include:
    • Proptech Library – develop a library of all current and emerging PropTech innovation, classified in line with the lifecycle, user needs and technological drivers
    • Property Innovation Index – develop a property innovation index to assess a company’s capacity and preparedness for innovation/tech
    • Proptech Maturity Index – understand the level of maturity of technologies and give the market a better understanding of which technologies they should be investing in now
    • Research priority technology needs – the BPF is recommended to undertake regular research on the priority technology needs of members and their occupiers
  • Embed digital knowledge and foster innovative behaviours – the research uncovered scarce and unevenly distributed technical digital skills and a lack of business innovation mindset across the property sector. To achieve this, next steps include:
    • Put people with digital skills in influential roles – develop a programme to put early career software developers, engineers and designers and innovators in influential roles in property companies
    • Set up an open and challenge-based procurement platform
    • Leadership development course – the BPF is to create a leadership development course, including a comprehensive overview of the technologies driving digital innovation and the business models changing industries
  • Create a cohesive approach to championing innovation across the commercial property sector – the different asset classes, actors, innovators and regulators across different segments of the property lifecycle lead to a disconnected and unclear response to the many shared challenges and future vision. To achieve this, next steps include:
    • Shared language for the property sector – create a shared vision like the automotive industry has with ACES, to signal where the industry wants to head
    • Regulatory sandbox – the property industry, government and other strategic organisations to set up a property sector regulatory sandbox with a view to ensuring regulation does not fence out innovation and promotes it
    • Establish a property passport – the property industry and government to work together to set up a property passport with common data standards for core information relating to buildings
    • Consider productivity and wellbeing early – Centre for Digital Built Britain to work with industry, architects and innovators to improve consideration of productivity and wellbeing at the earliest stages of building design

Aligned with and responding to these recommendations, the BPF is setting up a new Technology and Innovation Group for the sector, to oversee its programme and drive closer collaboration across the real estate and technology sectors, to allow the benefits of technology to be maximised, and to preserve and enhance the UK’s reputation as a PropTech leader.

The Group will be led by Andy Pyle, UK Head of Real Estate, KPMG and also includes Nick Wright, Senior Director, Strategic Consulting – Investors, CBRE; Susan Freeman, Partner, Mishcon de Reya; Dan Hughes, Founder, Liquid Rei; and James Dearsley, Co-founder, The Digital Marketing Bureau.

Melanie Leech, Chief Executive, British Property Federation comments: “Today the BPF commits itself to provide thought leadership and deliver a practical programme to ensure the real estate  sector harnesses the benefits of technology, in line with the Government’s ambition for all sectors to better future-proof themselves, innovate and improve productivity and economic growth.”

Stefan Webb, Head of Digitising Planning, Future Cities Catapult says: “Digital tools, technologies and business models have transformed sectors from automotive to aerospace, yet the property sector has proven to be resistant to these forces. Many argue that the sector is too diverse, complex and complicated to be disrupted. However, there is more that unites the different asset classes, activities and actors across the property lifecycle in terms of data and digital than many realise. The choice for the sector seems clear, create a clearer vision, better market information and more collaboration between the sector or wait for someone else to join the dots and create a business that makes the impact of WeWork look relatively benign.”

Andy Pyle, UK Head of Real Estate, KPMG adds: “In our 2018 global proptech survey we found that whilst nearly all decision makers in the real estate industry agree they need to engage with technology, two thirds don’t have a clear tech strategy. Therefore it is hugely helpful to have an industry wide group to help understand how to respond to and capitalise on the opportunities technology creates. As the industry’s representative body, BPF is perfectly placed to do this and I look forward to leading the group.”

Source: Workplace Insight

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Office and industrial property build strong returns in ‘attractive’ Scotland

Returns in Scottish commercial property dipped in the ­second quarter, with the exception of growth in the office and industrial ­sectors, according to the latest research from CBRE.

In Q2 total returns hit 2.4 per cent for the offices sector and 2.3 per cent for the industrial sector, both “significant improvements” compared with Q1, said the property adviser’s quarterly Scotland Property report. Scottish commercial ­property achieved an overall return of 1.4 per cent, a slight decline from 1.7 per cent in the first quarter of the year.

The weakest performing sector was retail with a 0.3 per cent return, which CBRE described as “reflecting the turbulence this sector has experienced so far this year”. Retail was the only sector in Scotland to see capital ­values fall, down 1.1 per cent ­during the quarter, as a number of major high street retailers have embarked on store ­closure programmes or sought company voluntary arrangements.

On an annual basis, the Scottish all-property total return remained virtually unchanged at 7.1 per cent over the 12 months to the end of June. Total returns in Scotland are now close to matching the returns being achieved across the UK as a whole, with the exception of the industrial sector, which is fuelled by the strong market in London and the south-east of England.

Steven Newlands, an executive director in CBRE’s investment team, said: “It is encouraging to see Scotland being considered as an attractive investment location again after the threat of another independence referendum has diminished. “This is evidenced by Scottish property returns now being very close to those achieved across the UK as a whole, with office sector returns actually ahead of the UK for the first time in eight years.

“Industrial property hasn’t followed the same pattern as the rest of the UK. “However, the gap is narrowing and we predict that Scotland will eventually catch up on the “last mile delivery” trend being seen in London and the South East given industrial property here offers very good value for money.”

Overall, there has been some £1.25 billion of property spending across Scotland during the first half of the year, a rise of 43 per cent compared to the first half of 2017, with more than £500 million of this invested in the office sector. LCN Capital Partners’ purchase of the Aker campus at Aberdeen International Business Park for £112.5m was the largest office deal.

Source: Scotsman

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Local authorities splash out £4.1bn on commercial property

Local authorities have spent a huge £4.1bn on commercial property over the past four years and are on track to set a new annual spending record this year, according to exclusive data from Savills. Last year they spent a record high of £1.8bn, a whopping 1,868% up on the £93.8m spent in 2014.

Local authorities

Local authorities

As a result of this spending spree, local authorities have seen their share of total investment in the commercial property market grow from 0.2% to 3.4%. The investment push was sparked by the government’s announcement in December 2015 that local authorities would need to finance their spending entirely from locally raised revenue by 2020. Many councils took advantage of low-interest-rate loans available from the Public Works Loan Board.

With the supply of central government funding due to be cut off, councils need to find alternative sources of income to ultimately pay for the services they need to supply to their residents, says Mark Garmon-Jones, a director in Savills’ UK investment team. Hence the rush to invest in revenue-generating commercial property.

In many cases, councils are buying property in their own town centres to kickstart regeneration projects “that the private sector can’t or won’t do”, says Garmon-Jones, citing the example of retail-led regeneration schemes. “Interestingly, there hasn’t been a shopping centre bought by a local authority outside its jurisdiction,” he says.

Since January 2014, the top five biggest local authority investors in commercial property have been Spelthorne, Runnymede, Warrington, Canterbury and the City of London.

Local authorities

Just a fortnight ago, Spelthorne Borough Council, which had already spent £620m on commercial property since the start of 2017, acquired a £285m office portfolio from Landid and Brockton Capital.

Council spending on commercial property hit £994.5m in the first half of 2018, up from £681m during the same time period last year. Yet Garmon-Jones predicts spending in the second half will cool and end of year totals will be about the same.

He is not unduly worried about the prospect of local authorities becoming significant investors in commercial property. “As long as they are well advised, from houses like ourselves, then fantastic,” he says. “They just need to tread carefully and not get carried away.”

Source: Property Week

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Commercial property: Scottish hotel sector boom shows no signs of flagging

There’s no denying that the Scottish hotel sector is going through a period of significant growth. Tourism is booming in many parts of Scotland and Edinburgh is certainly benefiting from the upsurge in visitors, most visible this month for the festivals.

Despite concerns over Brexit, UK tourism is set for record highs this year after a strong performance in 2017. And, along with increasing visitor numbers staying in UK hotels, there has been a surge in investment in the sector from both domestic and overseas funds.

But according to a recent report by GlobalData, Scottish destinations are faring particularly well. In early April, First Minister Nicola Sturgeon revealed during a visit to Beijing that the number of Chinese visitors flocking to Scotland had soared by almost 200 per cent in a decade, and with the recently announced direct flights to China from Edinburgh, links with the country are set to strengthen even further.

A report this summer from Savills highlighted that investment activity in the Scottish hotels market in the first quarter of this year totalled £105.85 million – a 90.3 per cent increase year-on-year – but it also revealed that much of the demand was driven by overseas investors.

It is Edinburgh that is increasingly on investors’ wishlists. Not only is its tourist industry boosting the economy and supporting thousands of jobs, its year-round visitor numbers are attracting notable interest from large hotel and serviced apartment operators.

The heightened appetite for space in Edinburgh doesn’t just stop at hotels, though; the story remains the same for retail, leisure and office accommodation.

The number of overseas investors and tourists turning their attention to Edinburgh has resulted in the city responding. Keen to make prominent returns, hotel room rates have increased, with a recent PwC survey finding that prices in Edinburgh’s are growing at three times the speed of the UK’s, and revenue per available room is significantly ahead of the national average.

A recent Edinburgh transaction has also highlighted the appetite among investors to be part of the city’s hotel scene. It was announced this month that the Grade A listed Buchan House on St Andrew Square would be turned into the city’s second Malmaison.

The story remains as sweet at a UK level. A 37 per cent rise in new-build hotels is contributing to a significant boost in the sector, according to analysis by Knight Frank.

The same research found that, of the UK cities presenting the best prospects for hotel investment and development, Inverness, Brighton, Edinburgh, Cardiff and Liverpool were the UK’s top five most attractive cities.

It’s also interesting to look at the areas in UK hotel investment that are experiencing the most growth. Knight Frank’s report discovered that it’s the budget hotel sector that continues to dominate the market, representing 69 per cent of all new-build hotel stock and 65 per cent of all hotel extensions, with around 8,300 new branded budget hotel rooms planned to open this year.

Whatever the budget, tourism in Edinburgh certainly shows no signs of slowing, but investors will need to be quick off the mark to secure prime space. It is encouraging to see the spotlight fixed firmly on the city and that Edinburgh, and all it has to offer, is recognised and sought-after by investors from around the globe.

Source: Scotsman