Hotel hypocrisy?

How Edinburgh council decided to enter the hotel business and then set about closing down the competition

A council threatening to shut down thousands of small holiday apartments is going into the hotel business.

Edinburgh city council has taken a 25 year lease on what will be the Scottish capital’s biggest hotel.

The giant 349-room four star hotel in central Edinburgh is due to open in 2025 under a franchise agreement with the Hyatt hotel group.

Edinburgh council rubber-stamped the proposal in 2021, the same year the council announced a crack down on short term letting in the city.

Details of how much the council is paying have not been released on grounds of commercial confidentiality.

Last week it emerged that the council had leased out its old city chambers on the Royal Mile for conversion into 24 luxury holiday apartments.

The council received just over £3 million for a 125 year lease and agreed an annual rent of £1. The deal means the council receives the equivalent of £24,001 a year for the building, where luxury apartments can cost more than £3,000 for a week.

The crackdown on self catering was launched in 2021 in response to a campaign claiming the growth in the number of short term lets in the city had exacerbated housing shortages and led to antisocial behaviour.

The following year the Scottish Government introduced legislation requiring all small self catering businesses and B&Bs across the country to apply for a licence and, in many cases, secure planning permission for change of use.

But aparthotels - like the one operating out of the old city chambers - were granted an exemption from the rules after a successful lobbying campaign. The council has recently approved a number of other aparthotels.

The deadline for licence applications is October 1 and many operators fear they will be refused permission to continue trading.

Across Scotland there are reports of businesses closing and owners warn that prices for holidays will inevitably rise as large companies gain a stranglehold on the market.

The city council has led the way on demands for licensing of short term lets in Scotland - but owners say the council is hell bent on driving them out of business.

They have urged the Scottish Government to pause the scheme and reassess its impact to avoid causing permanent damage to grassroots Scottish tourism.

But Scottish government housing minister Paul McLennan has insisted that the October 1 deadline will remain.

To date the council - which estimates there are more than 10,000 self catering properties in the city - has not issued a single licence for stand alone self catering accommodation in the city.

In the Highlands, where there are an estimated 10,000 properties, only around 1,000 have so far secured licences.

According to Edinburgh council documents, the council decided to get involved in the hotel business to raise money to fund the Edinburgh International Conference Centre (EICC), which it owns through an “arms-length” company.

The complicated lease agreement won Deal of the Year at the Scottish Property Awards earlier this year. Under the deal the council will sublease the hotel to the EICC, which will operate the hotel as part of a franchise agreement with Hyatt Hotels.

The Hyatt Centric Hotel will be located at Haymarket at the western end of the city centre and the development will also include a hotel school. It will be Hyatt’s first hotel in Scotland.

The EICC is a subsidiary of CEC Holdings Limited, which is a subsidiary of the City of Edinburgh City Council.

According to the council papers, as long as the hotel does not suffer a deep and prolonged fall in demand it will be able to pay for the running of the conference centre, which is facing a funding shortfall.

In June 2018 council officers were instructed to find a solution to the shortfall and came up with the idea of generating money through a hotel.

Announcing the deal Felicity Black-Roberts, Hyatt’s Vice President Development for Europe and North Africa, said: “We are thrilled to be collaborating with the Edinburgh International Conference Center on Hyatt Centric Haymarket Edinburgh, which will mark the Hyatt Centric brand’s entry into one of the world’s most celebrated capital cities.

“This new-build development demonstrates Hyatt’s commitment to growing its portfolio of lifestyle brands across the U.K, in locations that matter most to our guests, members, customers, and owners.”

But small accommodation businesses are less excited about the development, accusing the council of trying to wipe out competition to its hotel.

The Association of Scotland’s Self-Caterers has questioned whether the short term let legislation breaches competition laws, arguing that policies that explicitly favour hotels over short term lets could be viewed as discriminatory and anti-competitive.

Fiona Campbell, the CEO of the association, said:

“You would have thought that a Scottish council would wish to support local small businesses instead of favouring a large international corporation.

“Conveniently, planning permission for this development has sailed through at a time when so many self-catering businesses are being refused.

“Given the business plan requires high occupancy, there will be a need to eliminate competition. Sadly, it would appear that self-catering is in the firing line as Edinburgh Council seeks to regulate the sector out of existence.”

According to the council’s business case, the hotel needs to avoid sharp drops in occupancy and demand to remain viable.

Officers noted: “There is a risk that the profitability of the hotel could be eroded by adverse market conditions. A range of scenarios have been tested and it has been found that the hotel could broadly sustain a 20% decline in occupancy alongside a 20% decline in room rate.

“The hotel could not sustain prolonged extremely adverse market conditions, but the external advice received by the Council from its property advisers is that a downturn of this magnitude or this duration is highly unlikely.”

Last week the council’s planning convener James Dalgleish told the local Edinburgh Evening News that the crackdown on short term lets was needed to tackle “poorly managed properties”, which he said included those which had taken “much-needed homes” out of the market, may be unsafe and were causing local residents to suffer anti-social behaviour.