Time to turn disruption into opportunity as Belfast’s hotel sector faces a surge in supply, rising costs and political volatility

A surge in room supply, rising costs and ongoing Brexit uncertainty suggests hotel trading growth in Belfast is set to stall next year, according to the Hotel Forecast 2020 from PwC NI.

The research analyses market conditions for hotels over the next twelve months, and predicts dips in performance across all UK hotels, aside from marginal growth in London.

Open Championship-related demand and screen tourism driven by Game of Thrones combined with a focused drive by Visit Belfast to double out-of-state tourists to the city contributed to a 10% jump in rooms sold during the 12 months between June 2018 and June 2019, an increase five times that of the national average. 

The Open, one of the biggest sporting events ever held in Northern Ireland, delivered a 27% RevPAR gain over the same month in 2018, highlighting the pronounced impact sports events can have.

However, the increase in visitors was not sufficient to balance the increase in new rooms across the city  (up 494 to 5,287), with overall room availability increasing by 20% and total occupancy levels falling by 8.5%.

In 2018, Belfast enjoyed above average growth (4.6%) in the key benchmark Revenue Per Available Room (RevPAR); but fortunes sharply reversed in 2019 with a percentage change of -15.4%. This is the greatest decrease across all 22 cities analysed in the report; average RevPAR across the UK regions fell by 1.8%.

The report suggests the UK hotel industry is at a pivotal point. Looking ahead to 2020, while performance will vary widely by geography, segment and business model, the outlook is cautious. In terms of economic growth, Belfast is predicted to lag behind the UK average rate of 1.4%, with growth of around 1% in 2019.  Scotland and the South East could well be the best-performing regions.

Regional hotel performance is tied to the strength of the UK and regional economies than London, where international demand is a key driver of travel. While the base economic scenario assumes an orderly Brexit, growth is still proving weaker.

Uncertainty and prospects of weaker economic growth is likely to impact domestic business demand and consumer expenditure on holidays and hotel accommodation. Meetings of all sizes make up a good portion of many cities' hotel business and currently this market remains soft. A disorderly ‘No Deal’ Brexit could lead to a significantly less favourable outcome for economic growth which in turn would impact the hotels and leisure sector negatively.

These combined with additional pressures in high industry cost inflation, recruitment and retention, means that companies need to adopt efficiency programmes and embrace tech-enabled solutions to increase efficiency, reduce processes, manage data and enhance the customer journey.

Martin Cowie, PwC NI Partner, commented:

“With continuing Brexit-related uncertainty, potential further volatility in economic growth and declining business confidence, the hotel sector is facing strong headwinds.

“Having already seen record growth in new hotel rooms over the last two years, around 640 more rooms are set to open in Belfast over the rest of the year, with an additional 165 planned for 2020. An increased spike is likely to create an even more competitive environment in the city.

“The challenge is to turn disruption into opportunity. Digital transformation continues to be an important focus, and it will be critical for companies to manage rapidly evolving guest expectations and the increased digitisation of hotel services, while retaining loyal visitors.”

Sam Ward, Hotels Leader at PwC said:

"This latest UK Hotels Forecast reflects trends we're seeing such as weaker business and leisure confidence and continued high new supply additions. Add this to the rising costs of operating hotels, which continue to increase above UK inflation, and the fact that hotel operators find it difficult to pass these increases on to guests through a higher room rate because of the competitive nature of the market.

“The devaluation of the pound has pushed up the cost of importing foods and drinks for hotels, plus the Low UK unemployment rates, reduction in EU nationals’ recruitment due to Brexit concerns, and above-inflation increases in the minimum wage have all contributed to increased costs associated with acquiring, training and retaining staff.

“The net result is that the potential drop through profitability from any increases in top line revenue is likely to be reduced in 2019. In the regions, gross operating profit has continued the negative growth trend seen in 2018 while London has been less impacted in H1 2019 because of higher revenue growth.

“We anticipate investor appetite to remain cautious, until there is further clarity on the outcome of Brexit. However, there is still an expectation for continued inward investment from Europe and the Far East in 2019 looking for good opportunities and strong returns, especially given relative low value of the pound, however there is a limited supply of potential investment opportunities."

 

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