Bagpipes, brews and bonnie views

There are few cities so universally known for their world-leading heritage, art and architecture as the Scottish capital. Originally known as Castle Rock, Edinburgh is famous for its castle nestled atop a volcanic rock intrusion creating the well-known crag and tail formation that makes up the historic castle and Old Town. Perfect for a defensive site, Edinburgh Castle sits on the crag while the Old Town follows the tail leading into the renowned Royal Mile that runs through the heart of the capital. The history of Edinburgh, unlike most capital cities around the world, has remained relatively untouched thanks to much of the expansion and development during the industrial revolution happening outside in Leith. With much of Edinburgh’s culturally rich history preserved, it earned its status as a UNESCO World Heritage Site in 1995 as it “represents a remarkable blend of two urban phenomena: organic medieval growth and 18th and 19th century town planning”, according to the agency.

Much of this preservation is due to the city walls that enclosed Old Town, keeping invaders out and inhabitants in – plus the government stepping in the 1970s helped prevent mass rebuilding and ensured the city’s restoration. Its rich history is second to none; for example, while other cities expanded outwards when faced with overcrowding in the 16th century, Edinburgh focused upwards, with tall buildings reaching 14 stories and even underground floors built to accommodate immigrants – hence the city’s famous underground city that tourist flock to every year during their visit. This inevitably led to overpopulation, disease and pollution, which saw expansion into the New Town we know and recognise today. Nonetheless, the Scottish capital is a culturally rich and historic site boating visitor attraction from Arthur’s Seat to the National Museum of Scotland.

History and haggis

There can be no denying the capital’s claim to the title of centre of culture and history, winning Best City in the World by Time Out’s 2022 Index. Part of this comes down the city’s series of festivals that span the year, drawing countless tourism from across the globe for the Edinburgh Fringe Festival – celebrating art and culture – its International Books Festival to Hogmanay Festival, one of Scotland’s most important holidays dedicated to celebrating the new year. Responsible for generating massive tourism and commerce, the Edinburgh Fringe Festival normally pushes the city’s hotel occupancy to 100% for a period of six weeks each year, with other events such as Hogmanay and the summer season contributing to a year-long average occupancy of 80% for the past decade or so, according to HVS.

While the growth rate of Edinburgh has declined over the past five years in part due to the effects of the pandemic, which saw tourism decline significantly, the city has seen an uptick following the lifting of Covid measures in 2021 with a RevPAR growth of 150% over 2020 with over 60% occupancy. Since then, the city has thankfully seen a return to pre-pandemic levels, with a 60% market wide occupancy and 25% rise in average rate in 2022, marking a 2% increase in real terms.

“There is always a demand to come round [to Edinburgh],” says Andrew McPherson, general manager for The Balmoral. Synonymous with the city’s skyline, there are few hotels that are as integral and as well-known as The Balmoral is to the Scottish capital, and even fewer that really know the city inside and out. “The cultural side of things is phenomenal, and that really does drive an all-round occupancy and also drives a very high demand in the city for hotels.”

Traditionally made up of small or independent luxury brands, the hotel market in the capital saw quicker recovery than most due to this proportion of high-end and luxury offering helping to drive an ADR index of 1.47 compared with 2019, according to a report by Avison. The city is unsurprisingly seeing a lot of investment driven by this hotel demand, with a new W Edinburgh hotel opening up on Prince Street, the Gleneagles Townhouse, the Virgin hotel and the “anticipated opening of Red Carnation on Princes Street early 2024,” explains Stephen Walker, director of sales and marketing at the Balmoral. “As Princes Street transforms from retail centric to more hospitality focused, there are multiple hotel projects in the pipeline. These include the arrival of Ruby Hotels and also the announcement of a new hotel to open in the multi-use project located in the Old Jenners Store,” he adds.

“Traditionally in Edinburgh, I think that is has been independent brands or independent hotels,” explains McPherson. “Big five-star hospitality, such as the Peninsula or the Mandarin or Rosewood, Raffles, they are still a way off from coming here – they’re still focused in big cities like London. So, at the moment Rocco Forte hotel fulfils that role of five-star luxury in that smaller northern capital.” With independent and luxury hotels making up the hotel market in Edinburgh, guests are undeniably drawn to the “destination within the destination city”.

A highland fling?

Despite the global pressures, Scotland and Edinburgh have maintained its popularity among tourists and gained interest among investors. “Edinburgh has stayed in the top spot of our ranking thanks to its appeal as a popular leisure destination and secure underlying market fundamentals for investors,” added Marc Finney, head of Colliers hotels and resorts, in a Colliers report.

“The city benefits from a highly qualified workforce and a strong economic potential, therefore, many businesses look to expand or set up a new presence there,” said Douglas McPhail, head of Scotland for Colliers on its H2 2022 report. Ranked second in Colliers Top UK Resident Investment Cities report, it is no surprise that it places so high when the report lists it as “a compact city that can be discovered on foot and offers a unique blend of world-leading heritage, arts, and architecture.” The city is not without its challenges, however, as Colliers’ latest Scottish Snapshot in 2023 reports there may soon see a decline as investment into Scottish commercial property has seen a 33% decline below the five-year quarterly average of £500m to £330m in Q3 as a result of the global financial market. “Scotland has been hit by the same market forces as the wider UK and Europe; stubbornly high interest rates coupled with inflationary pressures,” explained Olivier Kolodseike, director in the research and economics team at Colliers.

While Castle Rock still presents plenty of opportunity, visitors to the capital face another hurdle in the form of an additional charge to their hotel bill. Coming 2026, the city council will introduce a tourism tax to help meet the capital’s growth.

“They need to be really careful with the tourist tax they’re bringing in because to add another 5% or 10% onto somebody’s bill, that’s a big chunk of cash,” warns McPherson over the proposed tourism tax. While a good thing, McPherson stresses, it is important to consider how it is reinvested into the economy and that it is spent in the right way so it does not become a burden for hotels and tourists alike. As the first city in the UK to introduce a full-scale tourist tax – compared with Manchester’s £1-a-night charge for 74 city centre hotels – Edinburgh’s proposed tax is expected to levy up to 4% on all overnight accommodation from hotels, hostels to B&B and campsites and estimated to raise between £5m and £35m a year depending on the final tax model.

While this tourism tax is not expected to come into play until early 2026, and slated to support sustainable visitor economy, some are concerned that the additional funding will simply plug a hole in the council’s finances. “The sector is ready to play its part in the opportunity that the new tax presents. But so much will be in the detail – what will be the governance of the process, how transparent will the spending be, who will be accountable for that spending?” asked Donald Emslie, chair of Edinburgh Tourism Action Group on the proposed levy.

Over tourism is a major challenge facing Edinburgh, and it is up to the hospitality industry to share the benefits of tourism to the area and locals. “The local governments and local council need to appreciate the industry and what it brings to Scotland,” adds McPherson. “And our industry needs to engage with the community and show the benefits that we bring to the city as well as having support from the government and council to be able to help us do that.” One of the main reasons Edinburgh is such an interesting and beautiful city to visit can be found in the cultural history that the capital offers, but the size and population cannot sustain the number of activities without support, McPherson stresses.

As a constantly evolving hospitality landscape with a rich culture and beautiful landscape, Edinburgh is well positioned to exceed expectations in the coming future, but it is essential for the hospitality industry and local community to work together to meet guest expectations of this historic capital.