Aberdeen’s hotels operators concerned that the falling oil price will have a negative impact on their businesses are set to benefit from wider economic activity in the city, according to a new report.
Given that corporate and conference demand accounted for almost 50% of Aberdeen’s hotel capacity in the past 12 months and that the city’s economy is largely centred around the oil industry, it is no surprise that there is unease about the recent drop in the price of oil and the long-term decline in extraction of oil from the North Sea.
However, a study by real-estate company CBRE of revenue per available room (revpar) over the past 14 years suggests that a change in oil price has a lesser impact on the bottom line than might be expected. This is mainly due to the impact of oil value on wider commodity prices, such as food and energy costs, which are often two of the most significant operating expenses for a hotel.
In recent years, the Aberdeen hotel market has been one of the strongest in the UK: in 2014 hotel profits experienced 10.3% year-on-year growth.
Looking forward, Aberdeen is now recognised as the centre of the global energy industry which has helped grow hotel demand for non-drilling activity.
Joe Stather, hotels intelligence manager, Europe, Middle East, Africa, CBRE said the development of wider complementary industries has increased the diversity of demand for hotel rooms and reduced the oil dependent nature of Aberdeen’s economic output.
“There is potential for the expansion of this market. The decommissioning of the Brent field could take 30 years, pioneering a new sector for which Aberdeen would most likely be the epi-centre. Couple this with the recent reduction in government taxation on North Sea oil (cut from 50% top 35%), which will likely kindle further exploration, and long-term prospects for the city look bright. “Aberdeen undoubtedly faces some challenges in the short term. However, headwinds from the oil industry might not be so damning for the hotel market and the city’s outlook presents multiple opportunities for owners to drive returns on their investment further down the line.”
