Brexit Boost For The UK Hotel Sector

–  Opportunities for investors as hotel industry benefits from the increase in tourism and devaluation of sterling –

The UK hotel sector is experiencing a strong trading performance, both in London and the regions, with 2017 seeing record RevPAR levels[1], robust growth in GOPPAR[2] and an increase in occupancy rates nationwide, according to the latest research from Knight Frank.

Knight Frank, in partnership with HotStats, has launched its inaugural review of trading performance in the UK hotel sector, analysing the revenue, cost and profitability of hotels in the UK, encompassing 112,000 rooms.

The UK Hotel Trading Performance Review 2017 report forecasts an increase in ADR[3] of 7.1% in London (to £168) and 3.8% in the regions (to £86) to year end. Furthermore, the weakened pound has continued to attract greater than anticipated tourist numbers and also invited more staycation holidays, which has ensured that occupancy rates have grown, with the regions seeing record high occupancy rates of 77%.

Consequently, nationwide RevPAR levels had reached record highs of £89 by August YTD, an increase of 7.4% on the same period in 2016, and they are also expected to grow by over 7% for the full year 2017. Consequently, there has been strong growth in GOPPAR of 10.1% in London and 4.8% in the regions meaning that the sector remains a compelling proposition for investors.

Whilst there remain opportunities for investors due to the depreciation of the pound, operational costs are increasing, largely driven by labour costs, which have risen by 4.7% in London and 3.3% regionally. This is compounded by the economic uncertainty arising from Brexit, causing staff shortages and further intensified costs, in addition to the introduction of the National Living Wage, which has had a domino effect on rising costs in the industry.

Julian Evans, Head of Healthcare, Hotels & Leisure at Knight Frank, commented: “Whilst the wider economic picture may be deterring investors in other real estate asset classes, the devaluation of sterling is boosting UK tourism benefiting the UK hotel sector’s trading performance due to increased tourism and investors capitalising on the weaker pound.

“We expect that there will be continued growth in RevPAR and GOPPAR in 2018 however we retain a cautious outlook, as we anticipate that the resilience of the UK hotel sector will be persistently scrutinised in the uncertain times ahead.

“We believe that opportunistic investors will continue to seek investment in both London and key regional cities across the UK in 2018, however this will be impacted by some major challenges ahead including greater intensity in operational cost pressures, ongoing security concerns, tighter travel budgets, and a narrowing pool of labour.”

Knight Frank predicts that despite current economic uncertainty, the sustained and solid income generated from the hotel sector is likely to continue to drive increased investor appetite over the next 12 months due to continued growth in RevPAR and GOPPAR in 2018. This comes as investors seek long-term resilient asset classes, which provide strong economic fundamentals and income security.

[1] Rooms revenue divided by total number of available rooms

[2] Total gross operating profit across all revenue streams divided by total available rooms during the period

[3] Average daily rate