Domestic Short-Stay, Leisure Demand Leading The Recovery Of The UK Hotel Sector

The COVID-19 pandemic has become the impetus for transformation within the UK hotel market, with a greater focus on sustainability and experience-led hospitality. The serviced apartment sector has proved resilient due to the versatility and flexibility of the business model offering self-contained, spacious, independent living; whilst the short-stay leisure market is expected to lead the recovery of the UK hotel sector, according to leading global property adviser Knight Frank.

Knight Frank’s Hotel Dashboard – Covid-19 UK Hotel Market Recovery research analyses the performance of the UK hotel sector looking at monthly and YTD regional UK performance, up until September 2020, in addition to projections around its anticipated recovery. The pandemic has produced clear challenges for the sector, reflected in reduced Total Revenue Per Available Room (TRevPAR) volumes of approximately 55% for regional UK select and midscale hotels and a decline of 66% for full-service, upper and upper-upscale hotels in the regions.

However, there have been certain subsectors that have proven their resilience. The aparthotel sector has outperformed the UK hotel market, achieving Gross Operating Profit (GOP) (as a percentage of total revenue) of 34% as at September 2020 YTD.  Regional select-service properties have also proven their buoyancy, with GOP of 23% for the same period. For both subsectors these are respectable performances given the deeply challenging operating environment, despite being severely reduced profit margins compared to historical performance. Notably, these subsectors secured a profit, albeit at a substantially reduced level.

Knight Frank predicts that short-stay leisure demand will continue to lead the recovery of the UK hotel market, with improving demand for UK towns and cities as leisure destinations likely during the winter period, where restrictions permit. Demand for travel remains strong when it is safe to do so, as demonstrated by provincial hotels achieving a strong performance during the month of August, fuelled by robust domestic leisure demand, in the absence of international travel. The price point and value proposition of the budget and select service hotels is expected to drive recovery in occupancy, whilst the resilience and out-performance of the serviced apartment sector is set to continue.

Karen Callahan, Head of Hotel Valuations at Knight Frank, said: “Whilst the COVID-19 pandemic is having an unprecedented impact on the UK hotel market, it is also accelerating the growth in demand for both experience-led hospitality and the health and wellness sector.

“Whilst offering an opinion on how and when the UK hotel sector will recover remains highly subjective, in the absence of a global vaccine, with new tiered restrictions in place and whilst overseas travel to the UK also remains heavily restricted, the focus in the short-term remains one of survival. Learning to constantly adapt to the changing landscape is critical.

“We predict that the UK Staycation market will remain robust in 2021, as continued restrictions, confidence to travel and forward planning remains dependent on the control of the on-going pandemic. This will be crucial for the UK hotel sector’s recovery, which will be led by the short-stay, leisure market.

“We also envisage there will be some structural changes in demand during the recovery period. Changes in the office sector are already starting to generate additional demand for hotel meeting space, with further growth likely as companies downsize or even do away with their office space over the coming years. With remote working set to continue post the pandemic, larger cities are expected to benefit from a rise in short-stay corporate and meeting demand, as people who have relocated return for face-to-face meetings.”