UK hotels’ profit has exceed pre-pandemic levels this year, according to research from Knight Frank and HotStats.
Researchers said the sector had also delivered strong revenue growth, despite “a particularly challenging macroeconomic environment”.
London’s 12-month occupancy rate rose by 16 percentage points to 77%, ahead of regional occupancy performance for the first time since the post-pandemic recovery began.
The high inflationary environment has supported pricing, with London’s average daily rate up by 8% in the past 12 months and up 22% on 2019.
The report cited the ongoing recovery of overseas visitor numbers as the key driver behind the uptick in occupancy, with trading further supported by strong growth in corporate and meetings and events business, as well as “robust” leisure demand.
The regional market remained buoyant throughout 2023, with Knight Frank forecasting full-year occupancy will top 74% and the average daily rate envisaged to grow to £103, which would be the first time it has exceeded £100.
Year-on-year growth to soften
While macroeconomic uncertainties remain and global tensions intensify, all of which could potentially dampen economic activity and travel, the research did not find evidence of a slowdown. Instead, a cautiously optimistic picture is forecast, with year-on-year growth rates expected to soften.
Full-year 2023 occupancy is predicted to lag behind 2019 levels by 2.6 percentage points. However, researchers expect ADR will grow by up to 26% compared with 2019, buoyed by conference business returning and continuing strong demand for short-break leisure trips.
The findings also show London’s revenue growth outpaced rising costs, with gross operating profit per available room surging ahead of its 2022 performance by 40%. GOPPAR reached about £97 in the 12 months to September 2023.
London’s GOPPAR performance was 1.7% ahead of 2019, achieving a gross operating profit of 42% of total revenue, almost two basis points higher than the previous year.
Across the regions, total costs PAR increased at a faster pace than total revenue PAR, with costs rising by 17% over the same 12-month period. Despite the GOP margin falling by 1.5 basis points to 29.1%, respectable GOPPAR growth of 9% was achieved, rising to more than £34. GOPPAR performance is now 5.1% ahead of 2019 profit.
London supply levels to rise
In terms of supply, Knight Frank estimated that the market has become 2.4% smaller than at the end of 2019, which has supported trading performance.
It is estimated some 35,000 rooms are in exclusive-use government contracts, with some 40% of those rooms previously trading under a global hotel brand.
Some 7,000 new rooms are planned to open in London in 2024, equating to a rise of 4.6% in supply, while more muted growth of 1.6% is forecast in the regional market, reflecting an increase of 8,600 rooms.
Stable supply growth was found to be a key driver of strong RevPAR performance.
Beyond 2024, the outlook for supply growth is more subdued, with the cost of construction and high interest rates affecting the number of new projects that break ground.
Glasgow, Manchester and Edinburgh are the top three regional hotspots for hotel development, each with more than 1,000 rooms under construction.
Karen Callahan, partner, head of hotel valuations at Knight Frank, said: “Fundamentals of the UK hotel sector remain strong, despite its challenges and 2024 is set for another exciting year of growth and opportunity. The sector has proven repeatedly its ability to weather turbulence and the strong trading performance is serving to counter the increase in yields in a high-interest rate environment, with hotel values holding up strongly and performing well compared to other sectors.
“The pound staying low, improving flight schedules, and a more stable economic outlook will all serve to boost international demand. Following a slow start to 2023, Q1 2024 presents a real opportunity to drive growth and we remain optimistic that the UK hotel sector is well placed to deliver another year of resilient growth.”
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