Staycations, staff and stock: a look at the hotel market in 2022

It’s easy to sum up my predictions for this year, it will be a mixed one once again. Thankfully the hotels market is fairly resilient, we’ve weathered storms like this in the past such as foot and mouth disease, the global financial crisis and 9/11, but the common thread with hotels is that people always need a break from their norm to recharge their batteries. It might only be a weekend break, or it could be a two-week sojourn to seaside, but when we’ve all experience prolonged periods of isolation in our homes, a getaway is top of the order books.

So it’s hardly surprising that I’m going to suggest that the UK staycation will still be strong this year. In fact many think it will last until beyond 2023, and that’s not unrealistic seen as we’re currently battling the latest variant of COVID-19. Many are still uncertain about the prospect of overseas travel, coupled with the fact that many have had enjoyable experience of places that they have never visited in the UK before: prospects for leisure driven hotel businesses in 2022 are strong. Hoseasons parent, Awaze UK says 2022 bookings are 62% ahead of 2020 levels.

While it is likely overseas travel will come back to an extent; an American Express survey found that 44 per cent of respondents are considering both a UK holiday, and an international break.

Business travel return

Similarly we anticipate that domestic and international corporate travel will come back to the aide of corporate destinations, London in particular. According to the GBTA, business travel is expected to grow in 2022, after a slower than expected return in 2021 and a full recovery to 2019 levels will be achieved around 2024, all being well on the COVID front. Business travel expenditure has grown by 14% in 2021 and is expected to grow 38% in 2022. However, the pandemic and inflation, are all risk factors threatening a smooth commercial market recovery. As well as the fact a number of corporations have stated plans to cut business travel even once restrictions are lifted in line with a move towards becoming more carbon neutral.

Hotel cash flows

Significant challenges undoubtedly remain however for those operating hotels. The removal of most of the Government support initiatives will continue to apply pressure on cash flow, especially with business rates and VAT due to rise back to “normalised” levels. Staffing difficulties will continue with rising wage costs and the fact that it is anticipated that many of the people that have been away from the sector may not return as they have gone on to new industries, which offer a better work-life balance or more sociable hours.

Whilst many hoteliers have seen occupancy and rate come back stronger than expected, many of these businesses are operating using short term debt provided by supportive banks. It is likely that lenders will take a tougher approach in the coming year as the Government relieves the pressure on them to support these businesses. This may result in more distressed assets coming to the market providing opportunities for investors and reducing the scarcity of stock, which is helping to underpin asset values at present, especially on well located quality assets.

On the market

There remains a significant level of interest from domestic and international investors, with pent up demand to place their cash in non-traditional commercial assets meaning the beds sector has become extremely attractive in COVID-times.

We anticipate that after holding off for better times, this waiting period will come to a crescendo in 2022 with patience running out for hoteliers eager to get on with other lifestyle and business plans or retirement. With expectations around environmental sustainability due to start coming from customers and government, this could also push more people to divest of their assets in 2022.

By Julian Troup, Colliers’ head of Hotels