Manchester and Salford’s hotel development pipeline has been relatively active over the last decade, and the rate of delivery is expected to increase in 2018- 2020. While the last decade has seen a high level of applications for new hotels, the actual delivery of new rooms has been comparatively restrained. This has changed over the last two years, and we expect to see a steady development pipeline going forward.

It is clear from the city’s recent RevPAR trends that the hotel market is broadly in balance. While RevPAR grew by an above average 5.7% in 2016, it has grown by only 0.4% in the year to September 2017. This puts Manchester towards the bottom of the UK city rankings, and indicates that supply of and demand for rooms is broadly in balance. It is worth noting that this probably has more to do with the addition of 874 new rooms to the supply this year, than any decline in demand.

Looking ahead, the key driver for hotel demand and revenue outside London tends to be GDP growth. While the outlook for the UK has generally been revised upwards over the last 18 months, we are still looking at a period of lower than average output growth. Hotel operators will also be challenged by further pressure on their operating margins, not least from inflation and a heavy dependence on non-domestic staff.

The hotel development pipeline in Manchester and Salford is expected to remain fairly well supplied, with 2,713 beds due for delivery in 2018-2020. If all these beds are delivered over that period then this will equate to a 20% increase in supply.

The biggest gain in number of rooms over that period is in the 4 star segment, and in terms of percentage change in the serviced apartment market. This pipeline, combined with modest increases in demand and performance, is probably all that the city needs to satisfy demand and maintain viability for the immediate future.

^{Source: Savills Research}

While some European and global cities have either experienced or speculated that the emergence of alternative lodging models such as Airbnb is a challenge to either hotel viability or housing provision, this is less true in the UK and specifically in Manchester. Thus, for example, while Airbnb rentals in Paris account for nearly 2.5% of the total residential stock in the city, in London they are only 0.8% and Manchester only 0.4%.

Urban logistics

Instant gratification could lead to more warehouse-type space in the city core

While parcel delivery by drones or autonomous vehicles is still some years away, the trend that is very prevalent at the moment is customer demands for shorter and shorter delivery times. What started with same day delivery a year or two ago is now pushing down to two or even one hour delivery from click to your door.

Whether we really need our internet shopping orders quite so immediately is debatable, but for many retailers the speed of their delivery and ease of returns is seen as the new battleground and this is already affecting logistics requirements. Small multi-let industrial estates on the edges of major conurbations or residential areas are becoming increasingly institutional in both their occupier and investor profile, and yields on some estates in London have pushed below 3% in some instances.

Availability of such sites for tenants will be tightened by the new light industrial to residential PDRs that came into effect on the 1st October 2017, and while these only apply to buildings of less than 5,380 sq ft, EGi research shows that Manchester has a cluster of suitably sized schemes to the east and north of the city centre.

We also expect to see distributors and retailers coming up with more creative solutions to their need for storage space close to their customers both for deliveries and returns. These could include basements of office buildings, under-utilised car parks, and off-pitch and unwanted retail units.