London hotels report revenue boost while UK regions drop

London England
London hotels reported like-for-like RevPAR up 3.6 percent year over year while occupancy reached 77 percent, up 1.7 percent. Photo credit: QQ7/iStock/Getty Images Plus/Getty Images

Revenue per available room (RevPAR) in the U.K.’s regional hotels dropped 2.8 percent in Q1, according to the latest U.K. Hotel Market Tracker: Q1 2019 from HVS London, AlixPartners and STR.

This was in marked contrast to London’s hotels, which saw like-for-like RevPAR up 3.6 percent year over year while occupancy reached 77 percent, up 1.7 percent, and average room rates rose 1.9 percent to £134.05. Strong performance in the last two quarters lifted the last 12 months’ RevPAR 4.1 percent, despite a relatively subdued six months trading, the report noted.

Hotel occupancy in the regions dropped 0.7 percent to 68 percent in Q1, with average room rate down 2.1 percent to £64.95 and RevPAR down 2.8 percent to £44.04, the first quarterly decline since 2012.

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“London’s performance in the early months of 2019 was helped by the Six Nations rugby tournament and Passenger Terminal Expo at ExCel,” said HVS Chairman Russell Kett. “Conversely, outside London hotel performance was adversely affected by supply growth causing hotels to discount more aggressively in many locations. Ultimately this new supply should be absorbed but the effects of Brexit are also to blame for this.” 

2019 and Beyond

The tracker predicts that with further cost increases expected for the remainder of 2019 and CapEx requirements continuing, regional hotels and investors will be keeping a close eye on cash flow through the remainder of the year.

Q1 proved active for transactions, with £2 billion worth of hotels being acquired in some 91 transactions, compared with 85 the previous year. Major London deals in Q1 included the sale of four Grange hotels to Queensgate for £1 billion and the acquisition of Dalata’s Clayton Hotel, Aldgate for £91 million. Regional transactions included Topland’s sale of 26 Hallmark Hotels for £250 million, according to the report.

London's active pipeline for hotels grew from 8 percent to 10 percent as a percentage of supply during Q1.

“London will always be a popular destination for both business and leisure hotels, but the ever-growing supply of rooms will mean that RevPAR growth will be more limited going forward as hotels vie to remain competitive and as the uncertainty over Brexit remains unresolved,” said Kett. “There continues to be a significant amount of available capital in the hotel market with multiple investors looking closely at opportunities but not wanting to overpay, meaning that yields have not seen a discernible change this quarter.”