Increasing pressure on the UK’s local authorities to be “more entrepreneurial” is resulting in more and more councils actively participating in hospitality development, according to sector experts.
Yet although cases of financial mismanagement are starting to stack up alongside high profile success stories, cash-strapped councils seem prepared to accept higher risks in the hunt for significant rewards.
Direct investment
A number of councils, such as Blackpool, have opted for direct investment in hotels, with the northwest authority deciding to fund the delivery of a Holiday Inn five years ago as part of its Talbot Gateway regeneration scheme. Recalling the investment decision, Alan Cavill, assistant chief executive at Blackpool Council says: “Blackpool was at a low ebb, and any deals we were doing seemed to place the onus of risk onto the council anyway, such as lending money for development at discount rates.” He adds: “Instead of assuming all of the risk and none of the reward, we decided to invest in hotel ownership – to demonstrate to the world that it can be done.”
Since opening the 144-bedroom hotel, which is operated by RBH Hospitality Management, Blackpool council reports that it has become one of the best rated Holiday Inns in UK & Ireland.
Two years ago, the Cardiff Capital Region elected to fund the completion of the 146-bed Tŷ Newport Hotel through its City Deal programme. By injecting a £9.7 million Strategic Premises Fund investment into the scheme, the local authority was able to ensure the delivery of the latest Celtic Manor Resort property in June 2024. Representing Wales’ largest all-electric hotel, the business has also pledged to collaborate with two local tertiary education institutions, offering hospitality management training for around 50 young people annually.
In 2016, Stockton-on-Tees Borough Council agreed to fund the development of a 128-bed Hampton by Hilton on the site of a former dairy on Bishop Street in Stockton. The ruling came in response to research showing an uplift in corporate overnight stays, with midweek occupancy at 95 pe rcent in hotels across the Tees Valley. Today the hotel enjoys over 80 per cent occupancy, according to 2024 figures, and is understood to pay business rates of £120,000 annually, half of which are retained by the council.
Placemaking plan
For the City of London Corporation, supporting hospitality development via its masterplan and user-friendly planning system is key to the area’s regeneration. The City has developed a placemaking programme in which new hotel delivery will help transform the Square Mile into a 24-7 economy.
The City is currently home to almost 1,000 licensed premises, including over 140 pubs, cafés, bars, and restaurants. It already counts more than 4,800 hotel beds, with around 1,000 more under consideration and in the planning pipeline.
“The City’s hotel stock will play a major role in realising the ‘Destination City’ vision. As we work to transform the Square Mile into a seven-day-a-week destination, hotels will help to accommodate all sorts of visitors that are projected to rise substantially,” says City deputy Tom Sleigh.
Population and job growth across London is forecast to grow significantly in the coming years and the capital-wide London Plan estimates that an additional 58,000 bedrooms of serviced accommodation will be needed across the capital by 2041. “This will mean adding around 3,000 additional rooms to the City of London,” adds Sleigh. He adds that in addition to leisure visitors, the needs of business visitors require consideration, including provision of suitable facilities for MICE participants.
Risks and rewards
The rise in the number of council initiatives in hospitality reflects the economic challenges faced by local authorities today. All UK authorities have witnessed a net fall in central government funding over the last two decades, with funding increases in recent budgets failing to reverse the trend, according to IFS data. During the 2010s, IFS reports, councils’ overall core funding per person fell by 26 per cent in real terms. As of 2024, councils’ overall core funding was 9 per cent lower in real terms and 18 per cent lower in real terms per person compared to 2010. The funding gap is larger for councils in deprived areas.
This has led some civic leaders to attempt higher risk investment bids while seeking to drive profits. Local councils in Peterborough and Coventry have both invested in hotels which have struggled to perform. For example, in 2017, Coventry City Council bought Coombe Abbey Hotel for a reported £9.1 million. However, in 2023 the BBC reported the business had lost almost £3 million in two years and was worth just £1.1 million. Peterborough City Council borrowed a reported £15 million to build a Hilton hotel which has not completed, with the future of the scheme currently under doubt after construction stalled in 2020. Auditors EY recently announced that there was a “significant” risk that the value of the property, when eventually completed, will be less than the amount of the loan.
Stepping away from hotels
In other regions, where hospitality is already key to the local economy, councils are intervening in different ways to manage the supply of hotel stock.
Torbay in Devon, which encompasses the coastal towns of Brixham, Paignton and Torquay, has seen demand for overnight stays plateau in recent years. Furthermore, the types of tourism structures in demand have fundamentally changed, according to Torbay Council’s cabinet lead for housing and finance, councillor, Alan Tyerman.
“Whereas so many tourists in the past were keen to stay in owner operated B&Bs and guesthouses, that has been changing on a gradual basis for a long time,” he notes. “The market is moving in the direction of preferring new, modern hotels, where clients know what they’re getting.” This in turn has prompted a council initiative to help “older hotels retire gracefully”, he says, whereby the council converts hotels “that are no longer viable” into much needed affordable and essential housing.
The programme, dubbed Hotels to Homes, has already transformed a number of properties. These include the former Brampton Court Hotel in Torquay, which is being converted into 14 flats by private developer Armada Property. Another project, underway at the former Seabury Hotel on Manor Road, will see a derelict structure demolished to make way for new, affordable homes. Once again, 14 units will be delivered, but these will be larger in size, a mix of one and two-bedroomed homes, some ideal for hosting young families too. “We bought the former Seabury Hotel with planning permission already secured,” Tyerman adds.
He notes: “Some of the hotels are very old and dilapidated, which is another important aspect. Nobody wants closed hotels becoming a focus for antisocial behaviour; boarded up hotels are simply an eyesore.”
Historically, councils were wary of assuming development risks, and are likely to keep seeking private sector partnerships for hospitality schemes where they can. However, with local authority budgets at historic lows amid rising care responsibilities, it seems that the trend of councils pursuing higher risk revenue streams is set to continue.