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UK Hotel Market Summary & Forecast 2020 - 2021

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There's no doubt that 2020 has been a challenging year for the UK Hotel market, but 2021 brings renewed optimism for hoteliers and investors alike.


Despite the rocky start, the announcement of a third vaccine to be approved shows that the market can begin to change focus from endurance to recovery. 
 
In this article, I highlight key market conditions and our forecast for 2021.

Trade

After the easing of Lockdown 1.0 restrictions the UK domestic leisure market had a boost.  The “Staycation” market was extremely strong throughout the months of July, August, September and even for some of October, as we correctly predicted in our Hotel Market Index, with numerous examples of unprecedented trading performances in coast and countryside areas as people chose to holiday across the UK. 

The announcement of tiered systems in England and Scotland, as well as further restrictions in Wales, caused an increasing flow of cancellations and uncertainty. This then converted into temporary closure for many hotels due to Lockdown 2.0, which interrupted this resurgence in domestic travel. Following Lockdown 2.0, a new variant of the virus was discovered in the South East of England, which caused further serious disruption for hotels and leisure businesses due to additional restrictions. This has now developed into a Lockdown 3.0, which is likely to stay in place until the vaccine roll-out can take hold. 

The general feel of most of our clients in “Staycation” areas is one of cautious optimism. Although Christmas demand was significantly curtailed due to regional and operational restrictions, we know from the way the world reacted after previous Lockdowns that there is a pent-up demand from most of the population who are keen to go on holiday. Those that have been stuck in a home working environment will most likely be desperate to get away and out of the house, with these bookings taking effect throughout the year, once lockdown restrictions have eased sufficiently. The continued overseas travel restrictions will result in a popularity in domestic short stay breaks, with the likelihood that people will continue to run to the coast and countryside to get away within a perceived safe and secure environment.

While, town, city centre, and airport hotels; as well as those assets relying on events and functions, have struggled and are likely to continue to  do so until there is more clarity over the roll out of the vaccine, events driven hotels are anticipating a strong level of wedding business for 2021, due to the number of those that were postponed this year. 

Trends

Quality and location are the main drivers in the market at present and there does indeed continue to be examples of quality hotels holding their value. As an example, we have unconditionally exchanged contracts on a large country house hotel close to the Cotswolds where the agreed price continues to reflect “potential” and pre COVID-19 market conditions. This was on the back of a formal bidding process that generated in excess of 10 formal offers. 

Also, distressed or prescribed sales are attracting a huge volume of serious interest, with formal offers to deals being agreed close to and even over guide prices in some cases. We have been to the market on four hotels owned by a charity with a fixed marketing process. The result of the invitation for “best and final offers” has led to competitive bidding, with offers from over 20 parties in place with the results far exceeding the valuation figures.

We are still seeing a steady flow of buyers looking to invest into hotels and hospitality, particularly in the UK regions, where buyers and their funders feel more comfortable about the more immediate prospects of trade. 

The London hotel market has until recently been all but devoid of new instructions. Despite very poor trading performance there has been no real pressure from banks, and hotel owners have largely been able to sit out the pandemic. However, demand has not gone away, as we discovered recently when we launched a portfolio of eight small hotels and hostels in Central London. Viewings are now underway and we expect deals will soon be tied up on all of these. Despite the ups and downs over the years, London hotels have always bounced back with trading going on to reach new heights. Shrewd buyers are well aware of this and are prepared to invest now ready to ride the next up-wave.

Although it may be currently perceived as a buyers’ market - with plenty of opportunistic parties - for the right assets there continues to be a good flow of interest supported both by cash, as well as overseas interest often backed by Private Equity. 

Government Support

The Government continues to support hospitality at levels which have never been seen before. Whilst some do not feel it is enough, the business rates “holiday”, VAT cuts, loans and grants, Eat Out to Help Out and of course the Job Retention Scheme has seen many hotels and hospitality businesses surviving through the period where they wouldn’t have otherwise.

However, this will not carry on indefinitely, and at some stage hotels may find themselves struggling as they try to manage cash flow and operational costs. 

Seller and Buyer Sentiment

At present more cash buyers are contacting us due to current lending sentiment, with some seen as opportunistic; making offers based on the fact they have cash available. In addition, we are seeing certain buyers, both private and corporate, who are waiting and watching to see what happens with regard to pricing and availability in 2021. We are encouraged that some of the banks are looking to finance hotels, whilst there has also been an increased appetite from alternative lenders. 

Those vendors who are looking to sell their hotels do appear to be coming to terms with the realities of the pandemic and corresponding reduction in trade and how this may affect pricing in due course.

Transactional Activity

Colliers International consistently has around 200 hotels and hospitality businesses for sale across the UK. Whilst the number is down on previous years, since 23rd March when the first Lockdown was announced, we have concluded 25 sales of small, medium and large UK Hotels and Hospitality business assets, and sold or exchanged on 47 over the year. It may be challenging at the moment, but these figures prove there is a market out there and provides clear evidence that there are still buyers prepared to commit to investing in the UK hotel and hospitality sector.

Alternative Use Interest

During the last few months, we have seen a marked increase in enquiries and approaches from buyers looking to re-purpose hotel assets, showing a real opportunity exists to extract worth in excess of going concern levels. 

Whilst vendors can easily have their heads turned by such offers, we are consistently advising them to be beware of the pitfalls of these offers. They need to ensure they deal with a qualified and experienced agency team, with an in-house planning and/or development team in place with first-hand experience of handling a going concern as well as any form of alternative use scenario.

Conclusion: Future Prospects

2020 has been a difficult year but ended with a mix of new tier restrictions and cautious optimism due to recent positive news concerning vaccines and of course a BREXIT trade deal with the EU. This news provides hope and confidence in the sector and is behind a more positive stance being taken by both buyers and sellers, with an increasing number of funds being put together focussing on the Hotels and Hospitality sector.

Two national lockdowns have drawn to a close with a third lockdown national announced, but whenever hoteliers are able to / choose to re-open (dependent on a number of factors), many have used the period between lockdowns to hone their skills in terms of new cleaning and operating procedures. Hoteliers should be ready to reopen safely when they are ready, but if they need any advice on operational improvement opportunities, I would recommend they got in touch with our Hospitality Asset Management team. 

Hotels have been one of the hardest hit sectors by the Pandemic and at one time more than 90% of hotels were closed for business with only a few remaining open to service key workers and homeless people.

The good news is that we believe that this is a hiatus rather than structural change.  Evidence from mainland China, which is already achieving occupancies ahead of 2019 levels on a month by month basis, shows that business can recover very quickly once the disease is back under control.  The prognosis is for a widespread vaccination roll-out in the UK during Q1 and with similar roll-outs across incoming markets, we might see travel restrictions from source markets eased by summer 2021. Until then, and after lockdown 3.0 draws to an end, the domestic market will lead the recovery.  This will pick up pace as events such as sport and culture open again to larger crowds and the travelling public. Additionally, as the UK is currently ahead of most other countries in terms of the vaccination programme, this could mean a greater focus by overseas buyers on UK hotels as things return to some form of normality. 

We expect budget hotels and those reliant on the domestic market will recover first, with international travel taking longer. This is good news for the likes of Devon, Cornwall and the Lake District, but not so good for traditionally strong market such as London and Edinburgh.

On the transactions side we expect deal levels may pick up from Q2 2021.  Indeed, with close to £2.5bn of equity raised specifically to target distressed hotel sales alone, this could lead to some disappointment from vendors in the long term as they hold onto their assets. This is aided by banks which are exhibiting a far greater level of support than was evidenced in the aftermath of the financial crash.

About the Author

With over 34 years hotel property market experience, Julian Troup has led Collier's UK Hotels Agency team since 2011.  Working on behalf of larger private and corporate hotel clients, Julian has successfully sold or acquired over 100+ provincial hotels with prices ranging from £1.2m to in excess of £20m.

For more information, please email julian.troup@colliers.com


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Julian Troup

Head of UK Hotels - Agency

Hotels Agency

London - West End

I originally trained with a long established firm of Chartered Surveyors based in Manchester and have been working in the licensed, leisure and hotel property market since 1987. I joined Colliers in 2007 to head up our UK Corporate hotel operation. I was appointed Head of UK Hotel Agency during 2011.  Since the beginning of 2003 I have sold or acquired over 100 provincial hotels on behalf of clients of asking prices ranging from £1.2m to in excess of £20m.  In addition to the managerial responsibilities, I remain focused on handling larger private and corporate hotel transactions throughout the UK.

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