2018 could be a tough year for the UK's hotel operators with flat occupancy levels and increasing overheads, despite positive global and EU economic growth.
But new insights from hotel consultancy firm HVS offer some hope, however: Average room rates in UK are poised to see see some modest growth.
Looking ahead to 2018, HVS London chairman Russell Kett expects the combination of wage increases, staff shortages, increasing food and utility costs, the impact of higher property taxes and business rates as well as a strong pipeline of new properties will put pressure on UK hotels' operating margins over the next 12 months.
However, despite little or no occupancy growth, yields are likely to increase slightly with average daily rate [ADR] and rooms revenue per available room [RevPAR] rising by an anticipated 5 percent in London and 3 percent in the regions.
European hotels are also likely to see RevPAR increases next year and conceivably beyond, while those in Paris and Brussels will continue to recover more strongly from the impact of recent terrorism atrocities.
Leisure travel for the year ahead will remain strong in the UK, Kett predicted, particularly while the pound is relatively weak, although corporate business looks set to be squeezed as companies seek to contain costs. Likewise, domestic consumer spending could remain somewhat dampened as the looming Brexit affects confidence. The threat of security concerns in key cities also remains in the background, but has yet to have a material effect on hotel demand.
The slowdown in growth will drive competition in the country’s hotels, particularly in cities with an increasing supply, like London. Operators need to maximize revenue from every bit of space and keep a tight control on overheads, said Kett. “The message to tourists must be that the UK is still very much open for business.”
The coming year will also bring further consolidation across Europe's hotel sector as institutional investors look to buy or sell properties and companies. Recent takeovers by Marriott and Accor have intensified the appetites of global investors to see the macro financial benefits of such consolidations—potentially bringing together the likes of IHG or Hyatt with other hotel groups, Kett said. “Both could be the target of others—or they could be the acquirers,” he concluded.