The UK hotel market has delivered a solid trading performance this year, but the pace of recovery is predicted to slow in light of the downturn.
Findings from Knight Frank and HotStats show growth in hotel supply is set to slow to 1.4% per annum between 2022 and 2025, despite a pipeline of some 10,000 new hotel rooms in London and 18,500 in regional UK.
Domestic leisure demand has fuelled the early recovery, supported by “robust” demand for business travel as well as flexible working trends. This comes despite continued challenging market conditions, including accelerating costs causing profit margins to decline.
The report also found that London recorded a 70% occupancy rate for the seven-month period to the end of October.
Fuelled by “strong” demand across multiple segments, despite international visitor arrivals remaining lower than pre-pandemic, the ability to drive rates within a high inflationary environment resulted in the average daily rate surging ahead by 22% compared with 2019 prices, and by 2.8% in real terms.
The regional UK hotel market now exceeds its revenue per available room by 3.5% and London by 2.4%.
The report identified the top 12 performing regional cities, with the top five cities ranked by their total RevPAR (revenue per available room) being Brighton, Leeds, Liverpool, Glasgow and Bristol.
Researchers said the top 12 showed “robust” recovery during the past seven months, achieving a RevPAR penetration of 122% versus the wider regional UK market.
Golf and spa hotels outperformed the market, achieving RevPAR penetration of 158% over the same period, demonstrating improved demand for experiences post the pandemic. This represented a large uplift on the same period in 2019, where RevPAR penetration for golf and spa hotels versus the wider regional market stood at 132%.
Glasgow, Brighton Manchester, Liverpool and Birmingham are the leading regional UK cities in terms of future hotel supply. Of these five cities, Glasgow and Manchester are set to record the highest annual supply growth of 5% and 4.7% respectively between 2022 and 2025, compared with a national average of 1.4% growth forecast.
Despite the impact of the pandemic on the UK hotel sector, the report said the pipeline of new hotel openings has remained buoyant. Over 30,000 new rooms have opened in the UK since the start of 2020, with regional UK accounting for 70% of this new supply.
Over the next three years, London’s supply is set to grow by 2% per annum, with some 10,000 rooms either under construction or with a proposed date of opening, equivalent of 8% of the existing hotel supply.
Meanwhile, annual UK supply growth in regional settings is set to contract to 1.2% per annum over the next three years, compared with a longer-term average of 1.6%, being a function of the increasing cost of debt, supplies and labour. Some 18,500 new rooms are forecast to open in regional settings by the end of 2025, with 51% of this pipeline confined to just 10 regional UK cities.
The report added that a key challenge facing the hotel sector is the rise in utility costs, which have been increasing month-on-month. For the month of October, total utility costs for London hotels have increased by 56% and by 79% for regional UK hotels, compared to the same month in 2019.
Philippa Goldstein, senior analyst, hotels and leisure, at Knight Frank, said: “Weakening consumer sentiment may place downward pressure on demand, but the high ADRs continue to provide a cushion to the current high cost-inflation.
“Although the recovery is likely to be slowed by the economic downturn, there are many influences that will enable the sector to ride out the storm, for which the pandemic has been the catalyst for many. Hotel owners and operators are now increasingly savvy about their cost base and existing supply levels have been kept in check by the weight of hotel closures and modest future supply growth.”
Goldstein said that with rising costs and increased service levels, retention and the motivation of staff will be one of the critical factors for survival, stability and a profitable longevity.
She added: “City centre hotel markets will need to recover more of the transient, midweek demand to achieve higher occupancy levels. Critical to the continued well-being of the sector, is having a balanced segmentation mix, generating year-round hotel demand.
“The value of the pound, if it remains low, is also expected to yield a greater number of international visitors, with key events such as the King’s coronation and the Eurovision song contest driving overseas demand at key periods.”
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