Economic uncertainty, weak business demand and an influx of new rooms are set to flatten growth in hotel performance during the year ahead, according to the results of PwC's Hotels Forecast 2019.
Following strong trading in 2017, this year has been held back by slower economic growth and a potential 5,000 new rooms opening in London, with a further 4,300 expected to launch in 2019. This is on top of the 38,000 rooms added over the previous five years. Meanwhile, the regions are expected to see an additional 40,000 rooms opening in 2018 and 2019.
Occupancy in London this year is due to grow by only 0.1%, with a marginal fall of 0.5% to 81% expected in 2019. Average daily rate (ADR) is expected to rise by 0.2% this year to £149 and by 0.8% to £150 in 2019; while revenue per available room (revpar) will remain flat at around 0.3% growth to £122 in both 2018 and 2019, a big contrast to the 4.6% increase in 2017.
Liz Hall, head of hospitality and leisure research at PwC, said that following a number of years of strong revenue growth, operators now need "to adopt a stringent approach to operating costs growth in 2019 to preserve profitability".
She added: "2017 was a hard act to follow for hotel trading… despite the weak pound buoying leisure travel, the Royal Wedding and the International Farnborough Air Show effect.
"However, trading in absolute terms remains extremely high by historic and global standards for London and by 2019 we forecast both ADR and revpar to reach new records in nominal terms.
"For a sector heavily reliant on people to deliver its products and services, the shortfall in availability of EU nationals remains a concern for hotels and the weak pound has pushed up the costs of retaining staff and importing goods within the sector."
In the regions, where occupancy levels have been averaging 76% since 2015 and are forecast to remain around this level for the next year, PwC suggested there will be a 0.3% decline in 2018 and no growth next year.
ADR growth is forecast to slow down to 1.3% this year to £72, compared to 3.1% in 2017, with the increase dropping further to 1.2% to £73 in 2019. Revpar is expected to see a 1% uplift in 2018 and a further 1.2% in 2019, taking it to £55.
Hall said: "Our forecast shows revpar in the regions to end 2019 23% ahead of pre-recession peaks in nominal terms but lagging in real terms by 7%. Demand continues to be driven by inbound tourism, domestic holidays and events."
The Hotels Forecast 2019 also forecasts that the total value of hotel deals by the end of 2018 will amount to around £6.8b, up 40% from £4.9b last year. If achieved, this will be the second highest volume of hotel investment in the UK after record levels of £9.3b in 2015.
Deal activity is expected to drop by around 34% next year to around £4.5b as a result of longer term investors entering the UK hotel market, US funds refinancing their hotel portfolios and uncertainty around leaving the European Union in March.
Sam Ward, UK hotels leader at PwC, said: "The UK hotel market has generally shown deal volumes closely tracking revpar growth over the past decade. However with a swathe of significant portfolio deals completed in the first half of this year and with more in progress, deal volume for 2018 is set to buck this trend. This will mark only the second year deal volumes are expected to exceed revpar growth."