The public sector is partnering with investors and developers to make new hotel openings possible in the UK’s regions.
Brandon Riley, director of hotel developer Mill Lane Estates, said that making projects viable today is “way more difficult” than before the pandemic because of the rise in the cost of construction materials, energy, and labour, which peaked at 30 percent in 2022, and remain challenging.
Rising costs
From 1 July 2026, the government introduced new limits to tariff-free steel imports, reducing overall quota volumes. The immediate consequence for new build hotel development has been that “the cost of steel has rocketed, and the availability is not there,” said Riley.
In addition, the costs of M&E (mechanical and electrical) are “increasing significantly” and Riley advised developers on conversion projects to be extra thorough in their due diligence before acquisition or starting works.
“Quite often people assume you can remodel the M&E, and then once you get in with your M&E contractors, you realise everything’s got to be ripped out and the price goes up by £2m,” he warned.
Feasibility
In London and Edinburgh and other major cities, hotel economics usually make sense, whereas in many secondary and tertiary cities it’s much harder to make the numbers add up.
“That’s where we’re seeing a lot more public sector intervention from councils or universities, helping to plug the viability gap in a range of different ways,” Riley said.
Public-sector intervention does not eliminate development risk, but it can alter the economics of a project, thanks to lower cost borrowing, much longer investment horizons, and an interest in regeneration and place-making.
The input of local authorities can vary from help with infrastructure and planning, providing land at no or a low premium, providing land plus a grant, or financing and owning a hotel outright.
“It depends where the public body sits on the risk and reward curve as to what they’re prepared to do, and I’ve never seen two examples the same,” said Riley.
Skin in the game
The Hotel Indigo Gloucester, which opened in March 2026, is one of the clearest recent examples of a UK local authority taking a direct role in hotel financing.
The 131-room new build hotel is part of The Forum, a £107m transformation of the city centre delivered by Gloucester City Council and the developer Reef Group.
The council's case to its residents was not only that the hotel would accelerate regeneration and support the local economy, but that it would be an income-generating municipal asset.
The council owns the hotel and will receive guaranteed rental income and performance-linked dividends. A council loan to the operator is also expected to produce a positive return over its term.
Rapid fit out
However, like many ambitious regeneration projects, the Forum, including the hotel, overran its budget and timetable and Gloucester City Council needed to take out an additional loan from the Public Works Loan Board.
Delays presented challenges for Jake Whiteside, founder, Envisage Interiors, who carried out the final fit out at the hotel: “They’re a year behind so their whole yield expectation calculations all must be completely redone. Our budget would have been £4.6m and it was reduced to £3.6m.”
With speed of the essence, all materials and FF&E were gathered in a nearly warehouse so that once the main contractor had finished the white box build, Whiteside and his team could assemble the hotel’s interiors as fast as possible. It was an 18-week programme that they succeeded in completing three days early, he said.
Accommodation on campus
Another notable public-private partnership is the Courtyard by Marriott at Keele University, Staffordshire: a 150-room hotel that opened in February 2021 on the university’s science and innovation park. A land deal was struck between the university and the developer Mill Lane Estates.
The university benefits from a profit-sharing agreement while the £20m to build the hotel was financed by Mill Lane Estates and its funder Legal & General.
Tower Hotel Management operated the hotel until 1 January 2026 when another operator Castlebridge Hospitality was appointed.
“Negotiations were really quite complex with multiple parties coming to the table to seek how their performance guarantees were going to work in terms of occupancy, investment, and end value,” said Riley.
Long-term asset
Paul Thomas, VP development, UK, Ireland & Nordics, Marriott International, added: “It’s one of our longer-term franchise agreements, so we’ve got a vested interest in ensuring that the brand stays on the asset and that the developer, the operator, and the university all get what they need out of this partnership.”
The hotel enables visitors and conference delegates to stay on campus instead of travelling to overnight accommodation further afield. It is also used by visiting parents, prospective students and Keele Hall wedding guests.
Riley summed up: “It opened just as we were coming out of Covid and it’s been trading for five years now. It had a viability gap back then and the partnership and structure we put together helps overcome the viability gap and it’s a great asset for the university and the campus and it continues to trade well.”
Developers should be aware that working with public entities can be much slower than what they are used to. Courtyard by Marriott at Keele University was a ten-year project from conception to opening. “You’ve got to be patient,” said Riley. “[Working with public bodies] slows the process down but if there’s a strong desire on both sides, you find that common ground and you get there in the end.”
All quotes taken from the ‘From vision to value: Development and design case studies in action’ panel at the Annual Hospitality Conference 2026 in Manchester. The panel was moderated by Julie Rey-Gore, senior content director - operational real estate, Questex