Hotel sector benefits from improving economy

19 December 2013 by
Hotel sector benefits from improving economy

The UK hotel industry has been boosted by improvements to the economy, with a return to confidence and stronger demand evident in 2013.

The hotel sector in London saw a slow start and had to overcome challenging Olympic comparisons over the summer, but according to analysis by PwC, the capital recovered well and performed better than it had anticipated earlier in the year.

Recent months saw a surge in average daily rates (ADR) on the back of very high occupancy levels, with an annual average of 83%.

Meanwhile PwC said the regions had seen remarkable recovery with continuously strong demand growth this year, despite some variable performances around the country.

Liz Hall, head of hospitality and leisure research at PwC, said: "The economy has put the fizz back into the UK hotel sector with a return to confidence and stronger demand. Despite ADR levels still reflecting continuing consumer and corporate price sensitivity, it's a very positive story. Continued economic recovery should mean sustained and enhanced prospects for hoteliers in 2014."

The conference and meeting market was found to remain below past peaks, but the economic recovery in the UK and a calmer eurozone is expected to help stimulate international and domestic business and leisure demand and aid its recovery.

However, PwC warned that despite the good news there is no room for complacency with the environment in which hoteliers operate likely to remain challenging and consumer spending expected to remain squeezed until 2015.

New supply remains relatively high, particularly in London, and improved trading will encourage more development and competition in the sector.

Hall added: "The sector keeps evolving and London has continued to soak up all the new supply that has opened through 2012 and 2013 and no doubt it will in 2014 as well, when a further 6,000 rooms and some exciting new brands open.

"In the regions, while there remain pockets of oversupply with budget chains adding to hoteliers' pricing pressures, many cities have performed very well. But it does mean a more crowded UK hotel landscape. For the consumer, new supply is progress, with new brands, more choice and more price competition."

In London, a return to ‘normal' in 2014 will be welcomed with stronger pricing and record revenue per available room (revpar) expected.

"It looks like occupancy, ADR and revpar are heading in one direction, with the right kind of growth to keep London on its upward trajectory in 2014," said Hall. "With occupancy already very high, it's likely to be ADR where the growth potential is largest."

The outlook for the regions was also positive for 2014, after occupancy and ADR having improved quicker than expected in 2013. PwC said it expects ADR to reach almost £60 in 2014, which is still below the 2008 peak even in nominal terms, but the best result since 2009.

PwC expects 1.8% revpar growth in the regions in 2014, taking revpar to nearly £42.50; again, the best result since 2008.

Commenting on hotel deal activity in 2013 and looking ahead to 2014, Samantha Ward, hotel deals leader at PwC, said: "As the UK regional hotel performance begins to show signs of turning the corner to recovery, 2013 has seen a significant growth in hotel transaction volumes with both large portfolio and single asset deals.

"In addition to some legacy deals from prior year sales processes, the momentum seems set to continue as the banks are showing a much greater willingness to deleverage from hotel assets, either through the sale of the business or the loans directly, and more recently portfolios of hotel loans.

"Improved investor confidence off the back of forecast growth in UK hotel performance, a substantial pool of private equity capital and better availability of debt financing have all helped to boost deal flow. The current level of UK hotel transaction activity seems set to stay for 2014, with a significant pipeline of deals for the new year."

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