Regional hotel market ‘deteriorates’ while London market softens

Performance amongst regional hotels “deteriorated” towards the end of last year, according to the latest UK Hotel Market Tracker published by AlixPartners, HVS and STR.

Regional RevPAR declined 2.7% in the fourth quarter of 2019. The regions also posted a decline of 1.9% for the full year, which marked the first annual decline since 2015.

RevPar in London increased 0.9% in the fourth quarter. While AlixPartners said this was “encouraging”, it warned hoteliers to “keep a close eye on softening occupancy”. Despite this, London RevPAR increased 3.7% in the full year. 

Meanwhile, UK transaction volumes decreased by £900m in the full-year. In London, an uplift of £1.2bn in portfolio activity was “partially negated” by single asset transaction volumes decreasing by £0.7bn. 

This decline in London was said to be partly due to “investments being deployed into regional forward-sold development projects and the lack of available assets in the capital”. 

The report said that the recent UK election result and ensuing Brexit is “likely to make the UK more attractive to many investors”, which would have an “immediate impact” on yields in London during 2020. 

However, the report warns that improvement could be “tempered by the pipeline of luxury hotels in inner London”, and that “it may take a little longer for the UK regions to catch up”.

HVS chairman Russell Kett said: “Softening occupancy will be a concern in London, particularly given the high number of hotels projects in the pipeline, although the fact room rates have risen by nearly 2% is encouraging.

“Any improvement in yields will take longer to reach provincial hotels but they should start to see some change as we move through 2020. However, the active hotel pipeline, currently at 6% of supply outside London, will continue to prove challenging as it will in the capital.”