In the current economic climate the London hotel market has remained resilient, boosted by its unique gateway city status and a relatively weak pound. Regional hotels have seen contrasting performances, depending on location, and many cities have struggled to raise prices against the weak economic backdrop.
One of the key trends in the UK is the rapid expansion of the budget hotel sector offering competitive rates for business and leisure travellers in a recessionary climate. Overall, the UK hotels sector has seen room supply increase at record levels in many cities, especially London, in recent years. A key question for the sector is how easily it will absorb this additional capacity. There are a number of other factors impacting the sector at the current time:
The power of brands is proving to be a key influence on the hotel sector, particularly in the new “asset light” or “asset right” era which has emerged in the last decade of increasingly franchising out or managing hotels. All of the large international hotel companies are now effectively brand managers and need to build, maintain and differentiate their brands across all segments from budget to luxury and in all markets, whether global or local. In each case they need to understand and appreciate what their customers are looking for in order to achieve the levels of customer loyalty seen in some other sectors but which historically have eluded the hotel industry.
Rapid technological developments are now embedded in the consumer travel experience. It is no longer an option for hotel companies to watch from the sidelines. Knowing how and where consumers across the globe do their travel research, engage with hotel brands online, book and share their experiences in real time from their mobile device is becoming ever more important. Understanding exactly what a particular brand stands for and how this translates into interaction with the consumer via social media is going to be critical for success.
As part of a greater transparency and engagement with their consumers, all companies are increasingly trying to understand and quantify their total impact on society. That means going beyond simply cash and profits and measuring the wider contribution to society such as job creation and taxes, alongside environmental and social impact from carbon emissions, skills development and community contribution. With some notable exceptions, the hotel sector has been slow to respond to this “new normal” of the corporate world, but it is now firmly on the minds of CEOs who are grappling with how best to respond.
The separation of “bricks and brands” in recent years has created a whole new class of hotel real estate investors alongside traditional owner-operators. Generally speaking, London hotels are considered the most attractive in Europe due to their high performance and profitability and high barriers to entry, closely followed by other key capital cities such as Paris and Amsterdam. But investors are also attracted to the hotel sector more broadly as an asset class where competition from institutions and pension funds is low. At the luxury end of the market sovereign wealth funds in particular have built up a portfolio of iconic properties and brands in London and other capital cities and investor attention has recently turned to the budget segment as well.
Our hotels team advises clients on the opportunities and challenges in the hotels sector including: supporting investors, lenders and management through the deal continuum, financial and commercial due diligence, restructuring and fund-raising, real estate valuations and corporate and real estate tax planning.
We also advise clients on organisational, operational and financial effectiveness, strategy and market entry into new and emerging markets, sustainability and corporate social responsibility, managing royalty and franchise programmes, as well as auditing, accounting and risk assurance.
Our bi-annual UK hotels performance forecast is the leading forecast publication for the industry.