Brexit, other factors hurting London's hotel industry

london

London's hotel market isn't all brilliant after all. The Hotel Bulletin: Q2 2016—published this week by HVS, AlixPartners and AM:PM—found that hotel occupancy in London had its sixth consecutive quarter of year-on-year decline.

Even worse, the Brexit is poised to enervate the sector further.

By the Numbers

Hotel occupancy in the capital, as with other major European cities, has been impacted by increased global terrorist activity. London has also seen a decline in the number of U.S. tourists, which HVS credits to the upcoming presidential election. The impact has been a 2-percent decline in London’s RevPAR compared with Q2 2015 and average room rates failing to increase for the second consecutive quarter.

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RELATED: What the Brexit could mean for travel and investment

“Whilst this is significant in the short term, London is, and will remain, a huge magnet for inbound tourism, so the longer term future of the capital’s hotel sector is still positive, even when taking account the new hotels in the pipeline and the potential impact of the Brexit implementation causing economic wobbles,” HVS chairman Russell Kett said.

Beyond London

Across the UK, the picture was more varied, although with overall demand, sluggish average RevPAR growth only reached 2 percent. This is seen as further evidence that the industry may be approaching the top of the property cycle in some locations. 

The fluid UK hotel market will be the focus at The Annual Hotel Conference, October 12-13, at the Hilton Manchester Deansgate. A keynote from Thomas Dubaere, COO HotelServices, AccorHotels UK and Ireland, will shine more light on the UK after the Brexit. To learn more and to register for the conference, click HERE.

Performance of hotels across the 12 UK cities reviewed varied significantly in Q2. Birmingham was top with RevPAR growth of 16 percent, while hotels in the Roman city of Bath saw RevPAR up 11 percent year-on-year on the back of a boost in international tourists.

Newcastle, meanwhile, recorded another quarter of RevPAR decline, down 4 percent, as the combined effects of a 10-percent increase in hotel supply over the past year and strong comparators last year came into play. Aberdeen saw RevPAR decline 24 percent year-on-year as hotel occupancy continues to suffer from the city’s exposure to the oil and gas industry. If predictions that oil prices will continue to fall are correct, this will further suppress demand for the city’s hotels. 

“Performance has always been very location-driven,” Kett said, “with localized supply and demand issues having an impact on hotels’ operating performance. UK-wide averages tend to hide these fluctuations and even the performance within an individual city can vary quite markedly from hotel to hotel.” 

Facing Challenges

Apart from the £575-million acquisition of Atlas Hotels by London & Regional, mergers and acquisitions in the sector have also been subdued throughout 2016 due to uncertainties surrounding Brexit, weaker economic growth in China, terrorism in France, Belgium and Turkey, and the US presidential elections.

As Britain gears up to leave Europe, there is “cautious optimism” that the hotel sector will remain an attractive source of investment for global investors interested in the medium-to long-term growth perspective. However, this is reliant on the UK remaining an investor-friendly market post-Brexit.

RELATED: The CEO of the British Hospitality Association talks Brexit impact

“The Brexit decision is having the double-impact of weaker sterling and a reduction in anticipated economic growth,” Kett said. “This is both good, and bad, news for the sector in that Britain becomes a cheaper destination for overseas visitors, dampening outgoing UK travel but potentially increasing the F&B costs as some suppliers pass on price rises. Hotel transaction activity is also likely to slow down as investors assess the outlook of future trading but in the longer term we are optimistic the UK will remain an attractive source of investment for global investors.“ 

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