Lean years ahead for hotels outside of London

Regional UK hotel top-line performance could take up to five years to recover, according to research by business advisory firm Deloitte. The survey of almost 100 senior hospitality figures, conducted ahead of the 24th Deloitte European Hotel Investment Conference, revealed that 41 per cent expect regional UK hotel top-line performance to take up to five years to return to its previous peak. A further 19 per cent believed it would take longer and a third, 35 per cent, thought it would take around three years to return to figures seen before the economic down turn. Expectations are that the South East hotel market, excluding London, will recover more quickly than the rest of the UK and more than half surveyed, 54 per cent, envisaging a return to pre-2008 levels within three years. London, however, continues to perform exceptionally with revenue per available room (RevPAR) well ahead of its previous peak. Nick van Marken, global head of hospitality at Deloitte, said: “Regional hotel performance is closely linked to the health of the domestic economy, with a close correlation between RevPAR and Gross DomeseticProduct (GDP). The real concern is that, unless volume returns, hoteliers are unlikely to be able to drive pricing. He continued: “The consequences of this are already all too evident, with a significant erosion of the bottom line and little sign that an improvement in profitability will be seen for some time.” He added that London benefits from its business roots and being an “established international gateway. As a cultural, economic and political hub, the city enjoys a pre-eminent position both domestically and internationally, contributing to robust market performance and a thriving investment market.” Other predictions were that London’s strong transaction pricing was expected to continue into 2013 and beyond, with 61 per cent of the respondents commenting that it comes as a result of the city’s position as a “true global gateway” and the high barriers to entry. A further third said the top-end of the market will dominate where investment from overseas sovereign wealth funds and high net worth individuals in particular is expected to continue to be strong. While only eight per cent of respondents to the survey believe financing is hard to obtain in London, it remains the major issue outside the capital. More than half said it is still impossible to secure financing for any projects in regional UK. Where financing is available, it has been easiest to obtain for budget and mid-scale acquisitions and developments. Staggeringly, some 70 per cent believe it will take three to five years before the regional UK transaction market returns to more normal conditions, though almost a quarter, 24 per cent, expect it will take significantly longer. The Deloitte boss added: “We may see more regional portfolio deals coming to market and certainly several possible transactions are being mooted. Barring any global demand shocks, London should continue to be a highly attractive investment market with high barriers to entry. “That said, difficulties in accessing debt funding and the continued disparity between buyer and seller in terms of price expectation mean disposal processes are likely to continue to be longer and more difficult to complete. “The market will continue to favour cash buyers or those not totally reliant on bank financing to close a deal,” he remarked.