By Adrian Mattock
THERE is a need for tourism bed spaces in the region because of increased demand and the need to service current strategy, which attempts to increase overnight stays in the region and change the trend of people staying briefly in Newcastle before moving on to York, the Lake District or Edinburgh.
The region has a number of top tourist attractions and Newcastle Gateshead is an increasingly important business and conference destination with occupancy rates varying from 65% to 85% and average room rates from about £82 to £100.
As a result of these indicators, after the opening of the 240-bed Hilton and the 274-bed Jurys Inn, plus a Travel Lodge at Derwenthaugh, there is now a planned hotel at Newburn, a 250-bedroom hotel and a boutique hotel set for the Stephenson Quarter as well as a potential hotel site in Blandford Square and a new unit at Newcastle Airport.
There is also the recently fire-damaged Hotel Du Vin and there are plans to develop a hotel at Gateshead Quays. Thus, corporate sector development is buoyant.
As to the privately owned hotel market, typically with 15 to 40 bedrooms, many are performing well and, of course, offer the buyer local kudos of owning such a business.
Traditional values of between eight and 12 years’ purchase to EBITDA have been maintained. Furthermore, according to the statistics provided by Bench for North-East Hotels, comparing 2006 with 2007, the average room rate (ARR) was up 3.7%, with occupancy up 1.5% and revenue per available room (Rev PAR) again up 5.2%.
This should give the market some reasons for confidence and values should hold next year. However, looking at the first quarter of 2008, there may be several privately owned deals completing to avoid the Chancellor’s increase in Capital Gains Tax, which will be altered at the end of the 2007/2008 tax year.
And mentioning finance, private equity is having a huge influence in the restaurant market. An example is the acquisition by Corbridge company Shire Group for £6.5m of six Smollensky units and three Burgershack outlets in the South of England, backed by Octopus Capital.
There is also significant private equity in the pub and bar sector, with Alchemy owning Inventive Leisure and Tattershall Castle Group, GI Partners had Orchid and Electra Partners, Novus Leisure (Urbium).
Private equity firms have raised billions of pounds for investment in leisure, so the forthcoming 12 months could see more deals backed by private equity.
Adrian Mattock is director, licensed and leisure department, Sanderson Weatherall Adrian.mattock@ sandersonweatherall.com