Awaiting Brexit, UK hotels hold steady on rates, occupancy

Travelodge London Central Euston
Travelodge London Central Euston. Photo credit: Travelodge

The UK’s hotel sector has stood firm in what HVS is calling "a tough year," with overall occupancy in London slightly up and the provinces remaining flat year-to-date.

Speaking to an audience of Hospitality Professionals Association members in London, HVS chairman Russell Kett said average rates also had shown little change, leading to a minimal impact on revenue per available room (RevPAR), which now sits at £121 for London and £57 in the regions for the year to September.

London has fared better than the provinces over the past three months, with hotel occupancy up 3 percent to 88.2 percent, boosting RevPAR by 4 percent. Intense competition, however, meant that room rates rose just 1 percent to £158.03 in London, compared with 2 percent in the provinces to £77.69, according to HVS.

FREE DAILY NEWSLETTER

Like this story? Subscribe to IHIF!

The hospitality industry turns to IHIF International Hotel Investment News as the must-read source for investment and development coverage worldwide. Sign up today to get inside the deal with the latest transactions, openings, financing, and more delivered to your inbox and read on the go.

Investor Interest

The sector does continue to attract strong investor interest whenever anything comes onto the market, particularly in London, said Kett, citing £5.2 billion-worth of sales in the last 12 months of trading. A strong 2017 meant the volume of comparable transactions in London was down 33 percent over the past 12 months at £1.8 billion, although up 31 percent in the regions to a value of £3.4 billion.

Transaction activity over the past 12 months included both portfolio and single-asset deals, such as the sale of Principal’s 14 hotels for £750 million and the 76-hotel deal by Travelodge worth £246 million. In London, the most notable sales in the same period included the Beaumont hotel for £130 million and the Hilton Kensington for £260 million.

“Hotel operators have stood firm in what has been a difficult climate,” said Kett. “Unfortunately, we are unlikely to see any immediate relief in the first half of 2019, particularly with the Brexit agreement as yet unresolved. This has the potential to reduce business travel and therefore corporate demand. The weak pound will benefit incoming travelers and, while this may improve occupancy, is unlikely to lift average rates and RevPAR.”

Related story: Weaker pound driving investment in London's hotels

As reported late last month, London has gone from seventh place to take the crown as the most attractive investment prospect for hotels worldwide, according to Cushman & Wakefield—defying fears of a Brexit-based downturn. 

Future Openings, Future Revenue

Kett told the audience occupancy in UK hotels is likely to be heavily impacted by future openings as London is set to see an 8 percent rooms-supply increase next year, with a 5-percent increase in the regions—a rise on this year’s 2 percent growth in both London and the regions.

“With such a strong pipeline of hotels due to come on stream, we will need healthy demand growth to avoid a drop in occupancy percentages,” Kett warned.

RevPAR in 2019 is expected to show a 1-percent increase in London, with a 2-percent increase anticipated in the regions in line with GDP forecasts. However, issues such as sourcing staff, increasing payroll costs and rising business rates continue to be of concern, despite some good news in this week’s budget, according to HVS.

“The reduction in employment costs and business rates, particularly for smaller businesses, and a reduction in the cost of apprenticeships for SMEs [small and medium-size enterprises] is welcome news,” said Kett, “As is the freeze on excise duties on beer, cider and spirits. But the biggest issue by far, for all businesses, remains whether Theresa May will pull off a satisfactory Brexit deal and then be able to sell the deal to her party, to Westminster and to the country as a whole.”

Suggested Articles

IHG CEO Keith Barr discusses the group's strategy for 2020

It can be such a dilemma, can’t it, working out what to do with the sacks of cash one has piling up in the bank, or in the vault.

The survey polls interior designers, architects, landscape, lighting and other designers about a variety of hotel design topics.