Scotland - Edinburgh in particular - has long been a magnet for visitors, and in 2024 asserted itself as one of the strongest hotel markets in the summer months, not just in the UK but in Europe. Last year, events including the annual Edinburgh Festival Fringe and Taylor Swift’s Eras Tour played a critical role in boosting hotel performance and this year’s event schedule – which includes concerts by AC/DC and Oasis – means that Edinburgh will once again have a strong summer. However, a survey through the binoculars reveal that the future is not all sunshine and roses.
“Events have been a major driver of demand and hotel rates in Scotland,” says Cristina Balekjian, director of Hospitality Analytics UK at CoStar Group. “Edinburgh has the Fringe every year and if you look outside of Edinburgh, we have The Open and that helps to drive demand to hotels in and around Glasgow.”
Edinburgh vs Monaco
These events create periods of exceptionally high demand, allowing hoteliers to push pricing power to its limits. Data from CoStar shows that in the summer months of 2024 from June to August, Edinburgh saw YoY ADR growth of 14 per cent, on par with Paris and outperforming markets such as Monaco, Venice and Florence and on par with Paris.
Looking at August specifically, Balekjian noted that when comparing key markets in western, southern and Northern Europe as well as some key urban markets in the US, Edinburgh ranked fifth in terms of highest ADRs.
“Overall, across the summer, Edinburgh ranked 10th in the list and even above London last year,” she noted.
And while ever increasing ADRs may be enjoyable for some time, hoteliers need to be wary of a bite back, especially due to the city’s reliance on demand driven by events.
New evidence presented to the Scottish Parliment by The Fringe Society revealed that growing numbers of ticket buyers and artists being put off going to the Edinburgh Festival Fringe due to the soaring cost of accommodation in the city. One in four cancellations cited the cost of accommodation as a reason as accommodation costs during the event have risen by up to 300 per cent over six years
Tourist tax
The impending tourism tax also raises some concerns in relation to the impact it may have on visitor numbers.
In January, local lawmakers in Edinburgh approved a 5 per cent surcharge to overnight accommodations in the Scottish capital for hotel and lodging accommodations made for July 24, 2026 and onward. While city officials argue this revenue will help sustain infrastructure and enhance tourism management, local hoteliers and others worry about the impact.
Leon Thompson, executive director of UKHospitality Scotland, said he is worried extra taxation would only serve to make visitors' trips to Edinburgh more expensive and decrease their odds of returning.
“Not only has Edinburgh’s visitor levy been confirmed, but so too has the hit to the city’s competitiveness as a leading tourist destination. Our fundamental concern has always been that this levy will only serve to make visitors trips to Edinburgh more expensive, ultimately reducing their spending in the wider visitor economy and deterring future visits.”
Balekjian agrees that a close eye need to be kept on how tourist tax may affect demand but positively notes: “There are a lot of European countries that already have these in place and we haven't seen a massive impact from these taxes – apart from Amsterdam which has the highest taxes which has had a bit of an impact on Amsterdam hotels from an occupancy perspective.”
In 2024, Edinburgh's hotel occupancy reached 84 per cent, up 2.1 per cent year over year as average daily rate rose 10 per cent from £146 to £161.08 and revenue per available room increased 12.6 per cent. to £135.56.
Moving forward though, Balekjian forecasts stabilisation in the city’s hotel performance. “We’re forecasting a more stabilised revpar growth this year - at the moment we're forecasting Edinburgh ADR to grow about 2.9 per cent in 2025 and revpar about 2.4 per cent, with occupancy of 83.8 per cent.
However, the hospitality analytics company also predicts slight YoY reductions in occupancy, ADR and revpar for 2026, with the metrics down 1 per cent, 0.4 per cent and 1.4 per cent respectively.
On the topic of the tourism tax, Balekjian adds that from an investor perspective, many are starting to look into such taxes and examine how to account for those in their underwriting and strategies.
Reliance on seasonality
But while the city’s summer hotel prices is ranked as one of the highest in the world according to The Times, international visitor numbers are set to be aided by new direct flight routes to/from the Middle East and North America and 2024 transaction volumes in Scotland jumped 38 per cent YoY to £431 million as interest from US investors grow, Edinburgh’s dependence on seasonality also raises concerns.
Balekjian cautions that outside of peak periods, there may be challenges ahead if demand softens. “Outside of peak season – those summer months - when demand is not so buoyant, there could be some challenges that hoteliers could start facing in Edinburgh if there is not as much demand coming to Edinburgh and if that US inbound starts going away.”
To mitigate this, she suggests a more strategic approach to event planning. “Local councils and hoteliers should work together to ensure a more even spread of events throughout the year rather than concentrating them in summer months,” Balekjian advises. “This would help create more year-round stability and reduce the reliance on a seasonal bump.”
Perhaps this presents a solution to a lot of the potential issues, including overtourism in singular destinations, with organisations such as VisitScotland working to market other Scottish destinations. This is as investment in hotels particularly in markets such as The Highlands and Inverness are expected to continue as interest grows in more rural markets.
This follows Colliers’ 2024 UK Hotel Market Index placing Edinburgh at the top spot in terms of investment desirability due to its strong performance in both occupancy and average daily room rate during 2023 as well as revpar growth since 2019, with third place being Inverness, supported by the strong appeal of Scottish destinations to visitors together with a limited pipeline under construction and favourable build and land costs.
Positively though Savills anticipates another strong year for the Scottish hotel sector and Scotland is expected to remain one of the highest performing hotel markets outside of London in 2025.
“We continue to see year-on-year increases in transaction volumes and we expect transaction volumes will continue to outpace the 10-year average in 2025,” says Steven Fyfe, hotel capital markets director at Savills Scotland.
But it’s clear that while the sector is booming, its long-term sustainability hinges on managing overtourism, balancing pricing with consumer demand and working to ensure a more evenly distributed visitor economy.