It looks like all signs are pointing to a generally positive picture in 2021 for UK domestic hotels, with some fortunate establishments benefitting from the boom in staycations and emerging with record summer takings.
The good news for the industry is that there has been no mood music from the Government on when, if at all, any COVID restrictions will return. There is also the return of corporate travel with levels picking up week on week, albeit on very short booking windows.
Hotels that offer leisure experiences or are centrally located are experiencing the benefits that come from pent-up demand for these sorts of leisure offerings and weekend occupancy remains strong.
All of this points to the hotel sector ending 2021 on a generally positive note, but what is the outlook for occupancies and average daily rates (ADRs) for UK hotels next year?
There will be winners and losers. Never before has there been such disparity of performance from different types of hotels in the same markets and recovery will look very different for a 400-room city centre conference hotel, compared to a 50-room boutique hotel. The former will need to rebuild its corporate base and at the same time target as much non-corporate group demand (weddings and other events) as possible, and the latter will need to target the pent-up leisure demand with attractive midweek offers, whilst maximising pricing on the weekends.
Overall, ADRs will make good progress, although some hotels which saw strong summer performances in 2021 could see their annual ADRs actually go down in 2022 – for three main reasons;
- Low seasonal leisure demand in January to March
- The return of midweek corporate demand at lower daily rates
- VAT increases from 5% to 12.5% (and likely 20% next year) which cannot all be passed onto clients.
But, for the hotels facing restraints on their ADR growths, there should be much higher occupancies. This in turn increases total rooms revenues, potentially by 50-60 per cent in 2022 due to corporate activity and large scale events returning.
Other revenue boosts will come from those that have a comprehensive food and beverage offer, and can cater to the backlog of weddings and other events that have suffered from the social distancing restrictions. Luxury hotels with spas and wellness facilities will also continue to be in demand.
The challenge next year will be how hotels can adapt their operating models in order to win back customers whilst attracting new ones. At the same time hotels must absorb and adapt to the significant existing cost pressures and convert these higher revenues into much needed profits. For some, this will mean a new and highly flexible approach.
About the author:
Richard Eaton-Hart has more than three decades experience in the hotel sector, both operationally and within consultancy positions in the UK and Europe. His expertise is in underwriting, operator negotiations , and asset management.
To contact Richard, email Richard.Eaton-Hart@colliers.com