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Brexit could hinder hotel industry growth, warns STR

23 June 2016 by
Brexit could hinder hotel industry growth, warns STR

A vote to exit the European Union today (23 June) in the EU Referendum could hinder future growth in the hotel industry, according to STR.

The UK hotel industry has seen 30 consecutive months of moving average revenue per available room (revpar) growth. London and regional UK hotels have experienced the longest 12-month moving average period of revpar growth since January 2007, although growth has slowed recently.

Figures for May 2016 show that while London's monthly performance has been positive, its year-to-date May revpar was down 3.0% to £99.88, driven by a 2.7% decline in occupancy levels. On the other hand, regional UK witnessed an increase in revpar of 2.2% to £46.87, as a 2.9% increase in average daily rate (ADR) offset the 0.6% decline in occupancy.

A report by data and analytics specialists STR and Tourism Economics suggests the recent fluctuation of the British pound on the currency market exchange is an early indicator of the impact Brexit could have on the economy, which would filter down to the hotel industry.

Short-term impact

Weaker domestic hotel demand, in line with weaker GDP, consumer spend and higher unemployment can be expected should Britain vote to leave the EU. Larger falls would be expected in capital investment, including hotel investment, because of the uncertain business environment. That would affect business travel, which is a large component of the London hotel market.

However, the sharp drop in currency exchange rates expected following a Brexit would also make London more affordable to some extent. It is possible this would be enough to offset the negative impact from weaker domestic demand. Market sentiment will play some role and could accentuate any negative effects if a vote to leave is followed by souring relations with EU countries. A smooth transition and a continued perception of London as a positive place to visit and do business could accentuate positive price effects.

Long-term impact

Long-term impact may be positive for the industry due to increased affordability of the UK and London as a destination derived from a weaker exchange rate. However, some uncertainty is likely to remain, particularly from the potential impact of lower investment, which would affect business travel decisions.

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