Brexit stalls hotel deals across UK

Sea Containers London
Sea Containers London rebranded from a Mondrian earlier this year. London displayed stronger hotel performance during the final quarter of 2018 than the U.K. regions outside of the capital. Photo credit: Lore Group

London’s hotels saw a stronger final quarter of 2018 than the U.K.'s provinces did as occupancy in London rose 5 percent year-over-year compared with a more modest 1-percent increase in hotels outside the capital.

According to the latest "U.K. Hotel Market Tracker: Q4 2018" from HVS London, AlixPartners and STR, average rates in London’s hotels also rose 5 percent for the quarter to £157.20, boosting revenue per available room 10 percent. RevPAR grew 3 percent for the full year.

Conversely, in Q4 hotels outside London failed to see any growth in average rates, causing RevPAR to plateau. For the full year, however, RevPAR outside London grew 2 percent.

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"For the U.K.’s hotels, Q4 was a very different trading picture in London compared with outside the capital," HVS chairman Russell Kett said in a statement. "Hotel supply outside London grew 1.8 percent in Q4 of last year, causing supply to exceed demand. As a result of more intense competition, operators were unable to lift average rates. While supply growth was also strong in London at 2 percent, in 2018 demand resulting from a number of high-profile events boosted visitor numbers and meant that in Q4 London’s operators were able to mitigate the impact of the increasing number of hotel rooms available."

According to the report, HVS expects supply to grow further in 2019 both in London and in the regions, with a 4-percent rise in inventory in the capital and 3.3 percent supply growth outside London.

"This increase in supply to the U.K. market means that hotel operators will have to work harder to boost their average rate unless demand for rooms grows significantly. This, as well as rising costs and the impact of Brexit, means that 2019 will be another tough year for hotel operators," said Kett.

The U.K. also reported a £1-billion fall in the sale of hotels during 2018. This can be attributed to both buyers and sellers awaiting a Brexit solution and sellers keen to avoid selling too cheaply.

"If a Brexit solution is found quickly that is well received by the financial markets, we could see some of the remaining [private equity] funds’ holdings making a dash for the market. Otherwise, buyers and sellers will wait for the outcome, so transaction activity will remain sluggish for the time being," said Kett.