The UK hotel sector risks being damaged by Brexit unless steps are taken to ensure that the country remains friendly to investors and retains the ability to employ foreign staff.
With the long and complicated negotiations involving the UK's exit from the European Union under way, the newly published Hotel Bulletin: Q2 warned that the lack of clarity surrounding the terms of the deal is causing uncertainty for hotels.
The immediate impact of the Brexit vote, including a weaker sterling and a reduction in expected economic growth, has created a mix of good and bad news for the UK hotel sector as highlighted in the quarterly report produced by AlixPartners, AM:PM, HVS and HotStats. While the fall in the pound will encourage more overseas visitors to the UK as well as increase staycations, it warned that it could also lead to a rise in food prices. However, the recent fall in oil prices may enable hotels to absorb some of the wider price increases.
When it comes to transactions, a weaker sterling will make hotels relatively cheaper for overseas investors. "This will be a welcome effect given that the UK hotel market has become more fully valued in recent times, with many of the US funds that had been so active in the UK market redirecting their efforts to mainland Europe," said the report.
However, on the downside, foreign investors who already have a stake in UK hotels may experience a drop in the value of existing assets.
The focus of investors will, therefore, be to assess future trading, which "given the uncertainty over Brexit, could be challenging", said the report.
In conclusion, the Hotel Bulletin: Q2 said it remained "cautiously optimistic" that UK hotels will remain an attractive source of investment, but warned that this is reliant on the country remaining "investor-friendly" post-Brexit.
"If not, London as a financial centre could be badly hit, which in turn could lead to companies relocating to Europe and jobs being lost in the City.To avoid damaging the UK hotel sector, those negotiating the terms of Brexit need to be wary of this while also finding some way of ensuring that the UK maintains the ability to employ suitably skilled, relatively low wage staff from overseas."
Hotel Bulletin: Q2 also reported a polarisation in the operating figures of 12 UK cities. Birmingham and Bath were the quarter's star performers with revenue per available room (revpar) up 16% and 11% respectively, compared with the second quarter of 2015. Meanwhile, Aberdeen's recent woeful performance continued with a 24% decline in revpar. Three other cities also recorded negative revpar figures for April to June 2016 - Newcastle (-4%), London (-2%) and Glasgow (-1%).