Building boom risks hotel room glut amid fears for the commercial property market

MANCHESTER’s building boom risks leaving the city with too many hotel rooms, analysis by PwC has found, stoking fears that Britain could be heading for a commercial property crash.

Building projects are under way in England’s third-largest city for hotels to create 2,400 extra rooms over the next three years, which PwC said would boost supply by around 10pc. It comes amid major redevelopment efforts in Manchester, including £180m of investment in hotels around Manchester Airport and projects to improve the area around Manchester Piccadilly station ahead of the arrival of the HS2 rail network between 2029 and 2033.

However, PwC warned that the boom in available rooms in the city over the next few years would coincide with a slip in demand as economic growth stutters. Outside London, GDP is forecast to fall close to zero next year, which would lead to lower occupancy levels in hotels and prices for hotel rooms to slump below 2019 rates in real terms.

Around half of consumers surveyed by PwC last month said they were expecting to spend less on holidays in the next 12 months.

PwC, in its new UK Hotels Forecast, said this posed a “risk of oversupply given the forecast fall in occupancy levels in the regions for 2023”.

It threatens to pile more pressure on the commercial property market, which Goldman Sachs suggested earlier this month was on the brink of a crash.

The Wall Street bank said UK commercial property values could fall by as much as 20pc between June this year and the end of 2024 in a sharp correction which could be spurred by interest rate rises sending the cost of loans higher. The comments were made in the wake of Kwasi Kwarteng’s miniBudget, at which point markets had been expecting the Bank of England to raise interest rates to 6pc next June, from 2.25pc currently. Markets are still expecting rates to go up to 5pc, which would drive borrowing costs up significantly for developers.

PwC hotel leader Sam Ward said the opening of thousands of hotel rooms in Manchester could put pressure on occupancy and room rates, “which in turn could result in a slower value recovery growth than the rest of the UK”.