Experts say an over-supply is already having a “negative impact” on occupancy levels and room rates, even before a string of proposed new developments across the city are either completed or come up for planning permission.
The Edinburgh Hotels Association (EHA), which represents more than 50 of the city’s key players, claims some businesses have been left in a “fragile” state due to dwindling business.
It says there is “no doubt at all” that the addition of more than 5,000 new rooms over the past 10 years is to blame for a slump which has left hotels unable to fill beds, even during traditional peak periods, such as the summer and winter festivals, and over Six Nations Rugby weekends.
At least 2,400 new hotel rooms are due to be created in Edinburgh over the next few years, while a similar number would also be built if proposed developments are approved by the city council. Major new hotels have opened recently on Market Street and St Andrew Square, while others are being pursued at the St James redevelopment, the old Royal Overseas League building on Princes Street, and a former RBS building on St Andrew Square. The Scottish Government has also yet to rule on an appeal over the rejection of plans to turn the former Royal High School on Calton Hill into a hotel.
EHA spokesman Russell Imrie said the industry was experiencing worrying decline across several key indicators, including occupancy rates and the average daily hotel rates as it also struggled with the lack of control over an “explosion” in the number of properties being marketed for short-term lets on sites like Airbnb.
He warned of the sector’s woes being compounded this year due to the prospect of a tourist tax being introduced in Edinburgh, uncertainty over the impact of Brexit and concerns over the coronavirus outbreak.
Edinburgh has lost long-standing crowns for boasting the highest room rates in the UK outside London over the past 12 months.
Imrie said the overall financial performance of the sector had slumped by 2.4 per cent in the space of a year.
He added: “There is no doubt at all that the increase in hotel supply over recent years is now having a negative impact on hotel performance, especially in the low season.
“Hotel supply in Edinburgh has expanded to accommodate peak demand but this means over-supply in the shoulder and low seasons with the inevitable negative impact on occupancy and achieved rates. Even at periods of peak demand, the supply is now sufficient with the result that growth on occupancy and rate is very challenging.
“Hotels, like all businesses, are facing ever increasing overhead costs, especially in areas such as business rates, energy and the minimum wage. They need steadily increasing financial performance just to stand still. The growth in hotels combined with the explosion in short-term lets is making some accommodation businesses in the city fragile. Even at the lower cost end of the market, trading is very challenging.
“The prospect of a tourist tax in Edinburgh on top of the highest VAT in the EU is now being reported by tour operators, agents and customers. It is a negative narrative that we do not need. Overshadowing all this is the prospect of cancellations and decisions not to travel in 2020 due to coronavirus concerns.”