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A mixture of economic growth deceleration, the wearing off of the weak pound effect on inbound tourism and an increase in new hotel rooms will mean slower growth for the hotel industry next year, PwC’s latest UK hotels forecast shows.
The outlook for London remains positive, with year-on-year occupancy growth of 2.3% forecast for this year with a further marginal increase of 0.2% in 2018, taking occupancy up two percentage points to 83%.
Average Daily Rate (ADR) growth is forecast to increase 3.6% in 2017 with additional growth of 2.2% in 2018, taking ADR to £145 and £148 respectively.
This drives a robust revenue per available room (RevPAR) gain of almost 6% this year and a further 2.4% in 2018, taking RevPAR to £120 this year and £123 in 2018.
According to data from AM:PM, a further 19,000 rooms are to be added across the UK in 2018. Of this total, over 7,000 rooms are expected to open in London. Other cities with large pipelines for 2018 include Manchester, Belfast, Glasgow, Edinburgh, Liverpool and Bath.
Hotels in the UK regions have seen occupancy levels increase 1.2% in the six months to June this year compared to the same period last year. High occupancies helped hoteliers raise ADR in H1 which showed a 3.2% gain, taking rates to £69.50.
The regions have seen growth continue in July, according to STR, with RevPAR up by 4.4% to almost £49.
Cities that performed particularly well include Cardiff, which saw RevPAR reach almost 11% after the city hosted this year’s Champions League Final in June. Hull saw a 13% lift in occupancy after being awarded the City of Culture status in 2017. Edinburgh and Belfast have seen ADR gains of 15% and 13%.
With regard to deals in the sector, the total value of 2017 UK hotel M&A activity stood at around £2.3bn at the end of July, up 10% over the same period last year, reflecting a gradual recovery in investor sentiment following the slowdown in the second half of 2016.
PwC forecasts a further £3bn of deals to be completed during the remainder of the year bringing total deal volume for 2017 to around £5.3bn. This will be driven by strong RevPAR growth plus some of the larger deals that had been expected to close by the end of 2016 being completed this year.
In 2018, further overseas inbound and domestic investment into the hotel sector is expected. However, with China placing limits on foreign investment and slower RevPAR expected, PwC forecast deals volumes to reach levels 10% lower than 2017 at around £4.8bn.
Liz Hall, head of hospitality and leisure research at PwC, said: “The weak pound has encouraged record numbers of international leisure tourists to visit London in 2017 and our analysis shows many other cities have also benefitted.
“Next year, hotels are facing a number of challenges which could restrain growth, if supply decreases. While the pound is bringing leisure tourists in, it is also creating a harsher environment for hoteliers as they have to contend with rising costs and squeezed margins with the weak pound pushing up the cost of imported goods.”
Sam Ward, UK hotels leader at PwC, added: “The ongoing economic uncertainty has led to the majority of activity we are seeing this year involve single asset deals, with some vendors finding more investor appetite by breaking up portfolios into smaller assets.
“Despite this, investment levels are still up on last year and the majority of investors are still from overseas with the weak pound making prices more desirable.”
