Cardiff celebrates its 60th anniversary as the capital of Wales in 2015. The city is steeped in heritage but expanded rapidly from the 1830s onwards when it became one of the world's busiest shipping ports, exporting huge volumes of coal extracted from the mines of the South Wales valleys.
In the post-war era, global demand for Welsh coal declined and the conferring of capital city status ultimately proved a key catalyst for the major urban transformation that followed. Today's modern city of Cardiff is not only the business and economic centre of Wales, but is also home to a diverse range of national cultural, leisure and sporting attractions and venues.
The hotel market in Cardiff comprises just under 5,000 rooms, a figure that has remained largely unchanged over the past two to three years with no material new supply during this period. The last major new supply additions were in 2011 when the 96-bed Travelodge Cardiff Central Queen Street and 216-bed Best Western Plus Maldron hotels both opened their doors in the city centre.
This lull in development activity mirrors a remarkably similar pattern around 15 years ago, when a sustained four to five-year period of new supply growth was followed by some welcome respite for the next few years. Over 1,100 new hotel rooms opened in the city between 2007 and 2011, representing growth of almost 30% in total room supply.
The vast majority of new hotel openings since 1997 have been by major global, international and national brands, who now account for over 83% of total supply in Cardiff, one of the highest brand penetration rates of any UK city hotel market.
Many of these new hotels have been polarised in either the budget or four-star segments, which now each account for approximately one-third of room supply, steadily displacing what was historically an independent three-star market. As a capital city, Cardiff also boasts two five-star hotels - the Hilton and St David's hotel and spa.
The pipeline for potential new hotels is relatively muted, with several standalone projects on hold, such as the Hotel Indigo and Seren Tower. Plans for a 206-bed Hampton by Hilton are expected to progress shortly, but no other active developments are on the immediate horizon. Developers are progressing several key mixed-use schemes, including the Capital Quarter and International Sports Village, where several new hotels are expected to feature in later phases of the development.
A strong brand presence
According to AM:PM Hotels' research, the consistency of the current level of bedroom stock helped the Cardiff market achieve a growth in revpar of 5% last year, which is broadly in line with the regional UK trend. As of the end of June 2014, AM:PM Hotels' research showed revpar was up a further 3% on 2013.
Cardiff benefits from a range of demand drivers in both the leisure and corporate sectors. The Millennium Stadium continues to host high-profile international sports fixtures and music concerts. In addition, Cardiff was recently voted the sixth best shopping destination in the UK, and with the 2009 extension of the St David's Dewi Dant shopping centre, it boasts one of the top 10 largest shopping centres in the UK. As a regional commercial centre, strong corporate demand is also driven by business parks, such as the 100-acre Cardiff Gate site onthe fringes of the city.
Cardiff has traditionally been a location associated with a strong brand presence, with only 10% of available bedrooms being independent. Global or international brands make up around 50% of the bedroom spaces, with national or regional brands accounting for the remaining 40%.
With the limited availability of current stock and the improving trading environment, there has been good interest in local assets when they have come to the market, with good pricing being achieved. Savills is currently advising on the sale of the St Mellons hotel, Cardiff, and the strong appetite among investors for this asset during the marketing process signals growing investor confidence in the city.
Martin Rogers, head of regional hotels, Savills
A reliance on rugby
Cardiff has always been associated with rugby, and the best-performing months coincide with the international rugby events: the Autumn Internationals in November and the RBS 6 Nations in February.
During the past year the city has had the added benefit of Premier League football being played on the same weekends. Additionally, Cardiff hosted this year's Heineken Cup final in May.
What Cardiff lacks is the conference and events business to fill in the months when there is no international rugby. However, this may change as the council announced in January this year that it would start drawing up the procurement plan for a convention centre. The plans are also likely to include a 12,000-seat indoor arena, which would add to the demand for hotel beds. Any conference centre plans will face strong competition from Celtic Manor, which also wants to develop its conference business, and from new arenas planned for Newport and Bristol.
While occupancy and rate have improved slightly, profitability remains stubbornly negative, and it is only when Cardiff becomes less reliant on rugby that it is likely to see a step change in performance.
Paul Harries, managing director, corporate finance, FTI Consulting
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