Regional UK hotels could take up to five years to recover from the recession

14 November 2012 by
Regional UK hotels could take up to five years to recover from the recession

Regional UK hotels could take up to five years to recover from the recession, according to research conducted ahead of today's 24th Deloitte European Hotel Investment Conference, at London's Dorchester hotel.

The survey of almost 100 senior hospitality figures revealed 41% expect it could be 2017 before regional hotels return to their previous peak in business. Almost one in five (19%) believe it will take longer, whilst a third (35%) anticipate it will take up to three years.

Expectations are that the South east (excluding London) hotel market will recover more quickly than the rest of the UK. Over half (54%) of respondents envisage a return to pre-2008 levels within three years. London continues to perform exceptionally with revenue per available room (revpar) well ahead of its previous peak.

Nick van Marken, global head of hospitality of business advisory firm Deloitte, said: "Regional hotel performance is closely linked to the health of the domestic economy, with a close correlation between revpar and GDP. The real concern is that unless volume returns, hoteliers are unlikely to be able to drive pricing (average rate). The consequences of this are already all too evident, with a significant erosion of the bottom line and little sign that an improvement in profitability will be seen for some time.

"By contrast, London is an established international gateway. As a cultural, economic and political hub, the city enjoys a pre-eminent position both domestically and internationally, contributing to robust market performance and a thriving investment market."

London's robust pricing of hotel acquisitions is expected to continue in 2013 and beyond. Almost two-thirds (61%) of the survey respondents said it comes as a result of the city's position as a global gateway and the high barriers to entry. A third said the top-end of the market will dominate, with investment from overseas sovereign wealth funds and high net worth individuals, in particular, expected to continue to be strong.

Traditional bank debt is expected to make up just 38% of UK financing/refinancing in 2013,according to the survey. Private equity (33%) and insurance companies (15%) are identified as other major alternative funding sources.

Whilst only 8% of respondents to the survey believe financing is hard to obtain in London, it remains ta major issue outside the capital. Over half (52%) say it is still impossible to secure financing for any projects in regional UK. Where financing is available, it has been easiest to obtain for budget and midscale acquisitions and developments.

As a result, some 70% believe it will take three to five years before the regional UK transaction market returns to more normal conditions, though almost a quarter (24%) expect it will take significantly longer.

Van Marken added: "Barring any global demand shocks, London should continue to be a highly attractive investment market with high barriers to entry. We may see more regional portfolio deals coming to market and certainly several possible transactions are being mooted. This said, difficulties in accessing debt funding and the continued disparity between buyer and seller in terms of price expectation mean disposal processes are likely to continue to be longer and more difficult to complete. The market will continue to favour cash buyers or those not totally reliant on bank financing to close a deal."

The survey was conducted by Deloitte, in conjunction with TNS.

By Janet Harmer

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