Scottish hotel market thriving in midst of 'perfect storm'

Yet despite these pronounced difficulties, the market for buying and selling tourism and hospitality businesses seems as vibrant as ever – and particularly in rural areas.

On what seems to be a daily basis, The Herald is reporting news of rural hotels and country inns coming on to the market or being sold, with the pipeline of potential buyers showing no sign of drying up.

Whether it is established operators seeking to add to their portfolios, overseas investors keen to plough capital into Scotland, or private entrepreneurs pursuing “lifestyle opportunities” in the sector, the interest in rural hospitality properties continues to be very high.

In recent days, for example, we have seen Edinburgh-based Apex Hotels acquire its first rural destination, snapping up the popular Pine Trees Hotel in Pitlochry from private owners. Apex has built its reputation as an operator of city centre hotels but, as it sealed the Pine Trees deal, the firm signalled it was looking to expand into new geographical areas.

“This move was the perfect fit in seeking to diversify the Apex Hotels brand in more rural locations to provide our guests with greater choice alongside existing city centre locations,” said Apex chief executive Angela Vickers.

Other deals concluded this year have underlined the strong interest investors are showing in country and rural hotels in Scotland.

In June, the four-star Keavil House Hotel near Dunfermline was snapped up by a Singaporean company, Buxani Hotels Pte Limited, after four decades under the same ownership.

And in March there was the surprise sale of Crerar Hotels – owner of seven four-star and five-star hotels in largely rural areas across Scotland - to a joint venture between Blantyre Capital and operating partner Fairtree Hotel Investments. The Crerar deal was expected to have been worth tens of millions of pounds.

But why is interest in rural hospitality businesses in Scotland so strong? And why is the difficulty of current trading conditions not deterring potential buyers?

Peter Seymour, director of hotel and leisure at property firm Graham + Sibbald, expressed the view that the hospitality sector is “always a haven for the entrepreneur” when asked why he believes the market is seemingly defying gravity at the moment.

“The sector thrives on new ideas, new ways of working, new ways of entertaining guests,” he told The Herald.

“Despite the pressures on the rising costs of doing business it is still one of the more profitable business models (when done right), offering business owners between 15% and 30% profit return for running their own business.

“That factored in with a business which is excellent for those who like people, enjoy entertaining and can see the fruits of their hard labour so easily in terms of customer satisfaction and enjoyment make hospitality of interest for many people.”

Mr Seymour also downplayed the suggestion that the deals market is being driven by distressed sales, despite the pressure the sector is under, though warned there could be the full impact of the inflation crisis may be yet to come.

“There is pressure on operators now, but we have not yet seen the flow of distressed sales that many people expected,” he said. “Insolvency practitioners are busier, and we have just brought the Dalkeith Hotel to market which is in administration now.

“However, this is a strong business which will continue to trade whilst we sell it. Hoteliers are seeing better room rates which is helping to cover the inflation in goods, utilities, and staffing, but this may not continue, and we are yet to fully see the impact on profitability that these pressures are having on the bottom line.”

And, while demand for rural hospitality businesses is strong, Mr Seymour said pricing outlets at the correct level is key to getting deals done.

“When launching businesses for sale we are seeing a good level of interest from the database of buyers we have as well as consistent levels of viewings,” he said.

“Pricing strategy is still key to the market reaction and unfortunately where vendors pricing is out of line with market expectations this will dampen responses and levels of interest. So, taking the right advice and setting the most realistic price from the outset is key to driving demand and achieving a relatively quick result.”

The vibrancy of the tourism property market should not detract from the challenges operators are facing, though.

The tourism industry called last month for “meaningful intervention” over working visas and immigration policy to help east staff shortages, as a survey by the Scottish Tourism Alliance underlined the “continued fragility” of the sector because of the lingering effects of Covid and high costs. The survey found that more than one half (52%) of tourism and hospitality firms are still in “survival mode” or consolidating, with 16% of businesses saying they had no cash reserves.

That fragility was further highlighted this week, when accountancy firm Azets said the hospitality sector is“particularly vulnerable” amid stubbornly high inflation and high interest rates.

The warning came as new figures showed there were 2,163 company insolvencies in June, 27% more than in the same month last year and higher than pre-pandemic numbers.

Citing the impact of high inflation, the elevated cost of goods, and rising interest rates, Chris Tate, a restructuring partner at the firm, said: “These economic conditions, unwelcome and unsettling, are causing a perfect storm to brew for businesses. The hospitality sector, including bars, pubs, restaurants, hotels, theme parks and tourism, is particularly vulnerable.”

Against this backdrop, the high level of property sales currently taking place can surely be seen as a big show of faith in the quality of Scotland's rural hotels and their prospects for the future.