The terms of the “Brexit” have not yet been finalized, but PwC’s UK Hotels Forecast 2017 indicates that the effects of the vote will reverberate throughout Britain and Europe next year—and beyond. Hospitality and tourism is the UK’s sixth-largest contributor to export earnings and fourth-largest employer, accounting for 4.49 million people or 10 percent of the workforce (according to the British Hospitality Association) and over 180,000 businesses. How the industry responds to current challenges and additional economic uncertainty will be a key barometer of economic prospects in the post-Brexit British economy.
Here are three ways that PwC expects the hospitality industry to change in the coming year.
1. It’s the economy, stupid
Economic growth is expected to slow in Britain—which could actually be beneficial for hotel numbers as international travelers seek bargains and locals opt for staycations. “A weak pound should provide a boost to inbound leisure travel, but security concerns, tight corporate travel budgets, above average supply growth (especially in London) and consumer and corporate uncertainty will create an unfavorable backdrop. The industry is also tackling ongoing disruption via the sharing economy. We retain a cautious outlook,” the report said.
In July, the month after the Brexit vote, London hotels saw RevPAR growth of 1.1 percent, according to STR, helped by the bi-annual Farnborough International Air Show and the Ramadan timing shift. Business travel will not benefit from the weaker pound, the report noted, so more leisure guests will have an impact on business mix and ADR.
2. London vs. the regions
RevPAR in London hotels is expected to fall by around 2.8 percent this year and a further 0.5 percent in 2017. Beyond London, growth is ongoing, albeit at a slower pace than recently. “Our forecast is for 3.4 percent RevPAR growth outside London in 2016 followed by a rise of 2.3 percent in 2017. On the basis of these forecasts, occupancy levels are projected to reach record highs.”
Most cities have had a good 2016 so far, even if the pace of growth slowed. For 2017, PwC expects 2.3-percent RevPAR growth thanks to the weakened pound. “In fact, despite some high active room pipelines, hoteliers are telling us that Manchester, Edinburgh and Birmingham will be star performers in 2017. Glasgow, Cardiff and Liverpool are also expected to do well. We forecast occupancy to hit a record 77 percent and remain there in 2017. In 2017, the price of a room in a regional hotel could hit £70 in nominal terms.” Regional net supply growth is expected to be more modest at about 1.7 percent and 2.4 percent in 2016 and 2017, respectively—still above the long-term average of 1.5 percent over 1995-2015.
London, on the other hand, has recently seen weak demand due to an oversupply of rooms, uncertainty around the EU referendum and security concerns. Businesses are also cutting travel budgets, and 2015 also saw increased visitor numbers due to the Rugby World Cup year. “We forecast a year-on-year London occupancy decline of 1.8 percent in 2016 and a further marginal decrease of 0.8 percent in 2017, taking occupancy down a percentage point to 80 percent. ADR growth is forecast to decline by 1.1 percent in 2016 but sees a minimal 0.4 percent gain in 2017. This takes ADR to £141 and £142 respectively. This drives RevPAR declines of 2.8 percent this year and a further 0.5 percent in 2017, taking RevPAR to £114.4 this year and £113.8 in 2017.”
On the other hand, London will still have some of the fullest rooms by global standards, at 80-percent occupancy in 2017, with average room prices reaching £142 in 2017. Of the 18,000 new rooms set to open in UK next year, 7,000 will be in London.
3. The Sharing Economy
It’s hardly news that “peer-to-peer accommodation” has gone mainstream, and PwC estimates that commerce generated across these platforms could rise to nearly £30 billion by 2025. “The impact of the sharing economy may soon be felt more keenly by hoteliers as players diversify and innovate. For example, Airbnb’s recent announcement of a move into business and meetings has been strengthened by partnership with business travel companies.”
PwC’s poll of hoteliers found that many continue to regard sharing economy platforms as a low to moderate threat to their traditional business mode. This view, the report said, contrasts with what the company is seeing on the ground. “Almost 60 percent had not seen, or did not admit to seeing, new sharing models impacting their business. Hoteliers’ attitude could be partly because P2P is a stealth competitor and hoteliers find it hard to accurately measure the impact on hotel performance.”