Improved demand drives ADR and RevPar to record levels in Q2

Improved hotel demand has driven average daily rates (ADR) and RevPAR to “record” highs in Q2, as hoteliers increase their pricing to reflect rising occupancy levels and inflationary costs, according to BNP Paribas Real Estate. It found that while UK total average hotel occupancy rose to 80% in Q2 up from 70% in Q1, the highest seen since pre-pandemic (81% in Q4 2019), ADR increased from £97.90 in Q1 to a new UK record of £122.86, with RevPAR increasing from £68.41 to £98.60. Nonetheless, transactions in the sector have slowed down amid increased economic uncertainty and the rising cost of capital in Q2, with investment volumes totalling £1.2bn. This was still the strongest Q2 since £1.9bn was recorded in 2018. BNP Paribas Real Estate added this was “significantly influenced” by the £420m purchase of the majority shareholding in the owner of Point A hotels by Tristan Capital Partners at the beginning of Q2 2022. Rebecca Shafran, senior associate director, Alternative Markets Research at BNP Paribas Real Estate commented: “The latest ADR growth figures are a reflection of the current confidence of hotel operators to raise their rates in light of high demand levels and in spite of the challenging economic backdrop. “Generational change and increased sentiment towards international travel, events and return to work has a lot to do with this. They know consumers within the key 18-65 demographic are willing to spend for experiential or convenience stays, and have reflected this in the rate alongside their various overheads.” She added: “However, with the Office for Budget Responsibility (OBR) forecasting a 2.2% per-person reduction in real household disposable incomes (RHDI) in 2022-23, the biggest fall in living standards in any single financial year since ONS records began, we do anticipate some downward rate pressure during Q4.” Richard Talbot-Williams, senior director, Hotels at BNP Paribas Real Estate said: “Increased interest rates have led to a reduction of transactional market pace with hotel deals agreed whilst rates were lower currently taking longer in due diligence whilst pricing is re-analysed by buyers. “The UK still has a substantial hotel development pipeline, and whilst in some markets, new openings can be expected to dampen market RevPAR initially, the newest product with the strongest ESG credentials is anticipated to remain relatively more attractive to the majority of investors.”