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Pandemic prompts most volatile outlook for UK hotels in 50 years

27 October 2020 by
Pandemic prompts most volatile outlook for UK hotels in 50 years

UK hotel trading performance is set to decline significantly in 2021 due to the impact of the Covid-19 pandemic, according to research from PwC.

In the bleakest outlook since benchmarking began in the 1970s, hotel occupancy rates in 2021 are forecast to be 55% across the UK and could take four years to return to pre-pandemic levels.

The prediction forms part of PwC's UK Hotels Forecast 2020-2021 and analysis into market conditions for hotels over the next 12 months. Although seeing some relief to the precipitous decline of 2020, the forecast for occupancy rates in 2021 is 52.4% for London and 59.2% for the regions, assuming there will be a vaccine by next summer. This is in comparison to pre-Covid-19 2019 occupancy rates of 83.4% and 75.4%, respectively.

A slow recovery in corporate international travel and weak demand for business trips, meetings and events means the forecast is particularly bleak for London, where the overall revenue per available room is forecasted to fall significantly in 2020 to £28.72, £100 less than in 2019. With a vaccine, it is expected to recover to £64.81 in 2021 but in the long-term it's unlikely that occupancy, average daily rate (ADR) and revenue per available room (revpar) will return to 2019 levels until at least 2023.

The regions are expected to fare better than the capital in 2021, whether a vaccine is developed or not. A stronger staycation market will remain a fixture, while unpredictable overseas travel, ongoing restrictions and local lockdowns, will further fuel demand for domestic leisure tourism.

Sam Ward, UK hotels leader at PwC, said: "As the UK travel and tourism sector bears a considerable brunt of the impact of Covid-19 this is far from business as usual. No previous event has had such a deep and long-lasting negative impact on hotels and there is no quick fix. The silver lining is that UK regions should benefit from increased staycation demand in 2021 and coast and country properties offer potential. Meanwhile the fall in corporate demand, coupled with the complete lack of sports and music events will see big city hotels suffer disproportionately.

"Amid so much uncertainty, it's imperative that hotels ready themselves for a difficult winter and act swiftly to demonstrate their adaptability. This is the time for hoteliers to look at their business model and find ways to cut costs. Those who can shift their focus to new customers, reorganise their operations and find innovative solutions stand the best chance of weathering the storm."

Angus Johnston, UK real estate lead at PwC, added: "The forecast is another example of the short-term impacts and structural changes being wrought by Covid-19 on the real estate industry. With no end in sight to the collapse of international business travel, city centre operators will inevitably struggle. Longer term, whilst iconic properties will no doubt recover, the future viability of many locations must be in doubt if both international travel and corporate events fail to bounce back. Hotel owners may therefore need to consider how to repurpose or divest any non-core existing assets."

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