Profits of the Top 100 UK hotel groups broke through £1bn last year, rising 83% from £583m in the previous year, as the weak pound and the appeal of ‘staycations’ boosts growth in the sector, says Boodle Hatfield, the leading private wealth law firm*.
The turnover of the Top 100 UK hotel groups increased at a more moderate pace, rising 1.5% from £6.8bn to £6.9bn.
Boodle Hatfield says the growth in UK hotel profits is partly being driven by the weak pound, which has made visiting the UK cheaper for foreign tourists.
The weak exchange rate has also led to more UK citizens choosing staycations over weekend breaks in cities like Barcelona or Berlin. That is driving demand in popular staycation cities like Edinburgh, London and York. Last year’s and this summer’s heatwave is also likely to convince more people to spend part of their holidays in the UK.
Rajeev Joshi, Partner in the Real Estate team at Boodle Hatfield, says: “Improving hotel standards and consistently warmer summers mean that staycations in the UK are becoming increasingly popular. Twenty years ago, a ‘staycation’ would have been chosen mainly on a cost basis but it’s now an increasingly fashionable choice.”
“Over the past year, London also seems to have won over many European tourists who may have otherwise visited other cities such as Paris, which has suffered from the high profile ‘gilets jaunes’ protests.”
“Last year the UK also benefited from events such as the Royal Wedding, which has boosted the status of UK in key markets like the US.”
Millennials helping to drive turnover of budget hotels
Growth in turnover at the budget end of the hotel market is now faster than the rest of market, with the turnover of five leading UK budget hotel groups up 7% in the last year from £1.7bn to £1.9bn.
Boodle Hatfield says that this growth in the budget hotel segment is being driven largely by demand from millennials, who are attracted to their affordability and their often-central locations in UK cities, close to local nightlife.
Increasing environmental concerns among millennials have also helped drive domestic demand for hotels in the UK. Younger generations are now more conscious that their carbon footprint will increase when they travel abroad, which is helping to drive more ‘staycations’.
Boodle Hatfield says the popularity of social media among millennials has also helped budget hotel groups, as millennials tend to spend more on leisure and experiences and so are more likely to explore the UK than previous generations.
Rajeev Joshi says: “UK hotels are thriving as the country fast becomes a staycation nation.”
“Millennials are the first generation actively trying to reduce the number of holidays they take abroad. Generation X is likely to be the last generation to travel abroad almost completely guilt-free. UK hotels are starting to reap the rewards from that capitalising on this seismic change in attitudes.”
“Even with the shadow of industry bugbear Airbnb looming over the industry, these numbers highlight just how strongly UK hotels are preforming.”
Rajeev Joshi points out that hotel profits over the last have been boosted by some asset sales that are unlikely to be repeated. That means hotel companies will need to continue to increase revenues and keep costs under control. He adds that even large hotels groups are outsourcing formerly core functions such as payroll, laundry and groundskeeping as a means to cut costs.