Luxury hotel sector reports record room rates over summer

The luxury hotel market has been the driving force behind the hotel industry’s recovery this summer, with record room rates and a boost to RevPAR across the UK, according to RSM. The RSM Hotels Tracker: Focus on Asset Classes found that whilst occupancy levels still sit behind pre-pandemic levels, many consumers are also trading down to budget hotels, meaning middle market hotels are being squeezed. The average daily room rates of UK luxury hotels reached a record £400.18 in July, falling to £333.33 in August. In the same period, rates of middle market hotels were £149.76 in July and fell to £131.89 in August and decreased from £108.70 to £101.49 for budget hotels. RSM said that while luxury hotels are able to charge much higher room rates than the budget market, the “gap has widened”, with luxury hotel prices being 268% higher than budget hotels in July 2023, when compared to the pre-pandemic peak season at 244%. Similarly with gross operating profits (GOP), luxury hotels were said to be benefiting the most, with GOP per available room reaching £186.32 in July but dropping to £119.49 in August. Despite this decline, GOP of the luxury market remains “significantly higher” than the middle market (£69.25 in July, down to £49.15 in August) and budget hotels (£48.44 in July, down to £37.24 in August). While GOP was lower in both the luxury market (-2%) and middle market (- 6%) in August 2023 when compared to the same period in 2019, budget hotels saw a rise of 4%. Occupancy of UK budget hotels was 83% in August (down from 86% in July), compared to 80% (down from 83%) for the middle market and 73% (down from 78%) for the luxury market. Across the board, occupancy is lagging behind pre-pandemic levels, at 84% in both the budget and middle market, and 80% in the luxury market during August 2019. Chris Tate, head of hotels and accommodation at RSM UK, said: “It’s clear to see the lion’s share of the growth in room rates is in the luxury market, as the gap between luxury and budget hotels widens. That said, budget hotels are experiencing exceptional occupancy rates and achieving higher gross operating profits than pre-pandemic levels, as people trade down due to the cost-of-living. With both luxury and budget doing well, it’s the middle market that’s being squeezed. “Since the pandemic, people have prioritised trips away, and with the return of international travel, the luxury market is thriving. This looks set to continue as high-end consumers are less likely to be impacted by cost-of-living pressures, so demand is unlikely to tail off during an economic downturn. However, occupancy rates aren’t quite at pre-pandemic levels, which may be a result of the removal of tax-free shopping impacting international travel plans.” He added: “On the other hand, the budget hotel market has benefited significantly from the cost-of-living crisis. Those that traditionally stay in budget hotels and the mid-range tend to be more cost-conscious consumers, so with the cost of goods, interest rates and inflation remaining high, many are opting for budget options at the expense of the middle market. “With a great deal of uncertainty still hanging over the UK economy and an unlikely boom in consumer spending over the next year, this trend looks set to continue which could put a large swathe of quality mid-range hotels under pressure.”