Published on : Tuesday, August 9, 2016
Hotel occupancy in London showed its sixth consecutive quarter of year-on-year decline with Brexit poised to subdue the sector further, according to the latest Hotel Bulletin: Q2 2016, published this week by HVS, AlixPartners and AM:PM.
Hotel occupancy in the capital, in common with other major European cities, continues to be affected by increased global terrorist activity. London has also seen a decline in the number of US tourists travelling because of the presidential election. The impact has been a 2% decline in Londons RevPAR compared with Q2 2015 and average room rates failing to increase for the second consecutive quarter.
Whilst this is significant in the short term, London is, and will remain, a huge magnet for inbound tourism so the longer term future of the capitals hotel sector is still positive, even when taking account the new hotels in the pipeline and the potential impact of the Brexit implementation causing economic wobbles, commented HVS chairman Russell Kett.
Across the UK the picture was more varied, although with overall demand sluggish average RevPAR growth only reached 2%. This is seen as further evidence we may be approaching the top of the property cycle in some locations.
Performance of hotels across the 12 UK cities reviewed varied significantly in Q2. Birmingham was top with RevPAR growth of 16%, while hotels in the Roman city of Bath saw RevPAR up 11% year-on-year on the back of a boost in international tourists.
In contrast Newcastle recorded another quarter of RevPAR decline, down 4%, as the combined effects of a 10% increase in hotel supply over the past 12 months and strong comparators last year came into play. Aberdeen saw RevPAR decline 24% year-on-year as hotel occupancy continues to suffer from the citys exposure to the oil and gas industry. If predictions that oil prices will continue to fall are correct, this will further suppress demand for the citys hotels.
Performance has always been very location-driven, commented Kett, with localised supply and demand issues having an impact on hotels operating performance. UK-wide averages tend to hide these fluctuations and even the performance within an individual city can vary quite markedly from hotel to hotel,” he added.
Apart from the £575m acquisition of Atlas Hotels by London & Regional, mergers and acquisitions in the sector have also been subdued throughout 2016 due to uncertainties surrounding Brexit, weaker economic growth in China, terrorism in France, Belgium and Turkey, and the US presidential elections.
Now the outcome of the referendum is known and Britain gears up to leave Europe, there is cautious optimism that the hotel sector will remain an attractive source of investment for global investors interested in the medium-to long-term growth perspective. However, this is reliant on the UK remaining an investor-friendly market post-Brexit.
The Brexit decision is having the double-impact of weaker sterling and a reduction in anticipated economic growth. This is both good, and bad, news for the sector in that Britain becomes a cheaper destination for overseas visitors, dampening outgoing UK travel but potentially increasing the F&B costs as some suppliers pass on price rises. Hotel transaction activity is also likely to slow down as investors assess the outlook of future trading but in the longer term we are optimistic the UK will remain an attractive source of investment for global investors, Kett concluded.
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