Overview : Confidence returns at last

Things may change of course, but right now in the first week of September things feel rosier for the UK economy than at any point over the past three years. The services sector in particular is experiencing a good run and signs are that prospects for the hotels sector have picked up as well.

For London, after a miserable end to 2012 and a poor start to 2013, June saw both occupancy and average daily rate in positive territory for the first time since last October. With occupancies at around 81-82%, London is technically full five and half nights a week and looks likely to remain so despite the new supply that continues to open especially in the east. Rates may have tumbled from their 2012 Olympic-fuelled peak, but they look set to rise again in 2014 – even if they still have some way to go to overhaul 2012’s record year.

The Provincial story has been a depressing one for past three years and long term average real revenue per available room has been in decline since 2007. But in 2013 and 2014 it looks as though this decline may have been halted. Occupancies have climbed back up slowly from 66% in 2009 and now stand at 71% – About as high as they get – having been on a rising trend since July last year. As we would expect, this improvement in occupancy is now feeding through into rates, which are beginning to harden and should continue to do so throughout 2014.

With some tangible improvement now expected for the top line, the challenge for hotels is to keep a tight rein on costs and remain nimble in the face of continued high levels of new supply. Embracing the opportunities of the new digital wave will be one of the features of those who succeed – as will the good ‘old-fashioned’ concepts of location, service and attention to detail.

We remain cautiously upbeat, but increasingly optimistic, on the outlook for UK hotels

  • While it’s early days for an economic recovery, GDP growth is good news for hotel revenues
  • But it remains a difficult trading environment as cost increases put margins under pressure
  • The Provinces have seen a stronger performance in 2013 and we expect more growth in 2014
  • London has experienced a weaker, more volatile performance but we anticipate stronger pricing in 2014 and record revenue per available room
  • New supply rumbles on, adding to the competitive environment, as budget hotels increase their share of rooms

Overview

Things may change of course, but right now in the first week of September things feel rosier for the UK economy than at any point over the past three years. The services sector in particular is experiencing a good run and signs are that prospects for the hotels sector have picked up as well.

For London, after a miserable end to 2012 and a poor start to 2013, June saw both occupancy and average daily rate in positive territory for the first time since last October. With occupancies at around 81-82%, London is technically full five and half nights a week and looks likely to remain so despite the new supply that continues to open especially in the east. Rates may have tumbled from their 2012 Olympic-fuelled peak, but they look set to rise again in 2014 – even if they still have some way to go to overhaul 2012’s record year.

The Provincial story has been a depressing one for past three years and long term average real revenue per available room has been in decline since 2007. But in 2013 and 2014 it looks as though this decline may have been halted. Occupancies have climbed back up slowly from 66% in 2009 and now stand at 71% – About as high as they get – having been on a rising trend since July last year. As we would expect, this improvement in occupancy is now feeding through into rates, which are beginning to harden and should continue to do so throughout 2014.

With some tangible improvement now expected for the top line, the challenge for hotels is to keep a tight rein on costs and remain nimble in the face of continued high levels of new supply. Embracing the opportunities of the new digital wave will be one of the features of those who succeed – as will the good ‘old-fashioned’ concepts of location, service and attention to detail.

We remain cautiously upbeat, but increasingly optimistic, on the outlook for UK hotels

  • While it’s early days for an economic recovery, GDP growth is good news for hotel revenues
  • But it remains a difficult trading environment as cost increases put margins under pressure
  • The Provinces have seen a stronger performance in 2013 and we expect more growth in 2014
  • London has experienced a weaker, more volatile performance but we anticipate stronger pricing in 2014 and record revenue per available room
  • New supply rumbles on, adding to the competitive environment, as budget hotels increase their share of rooms

Charts

London and Provincial RevPAR ups and downs

1979-2014 (% change on prior year)

UK hotels forecast 2014

UK hotels forecast 2014