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Despite the challenges, the hotel industry will be resilient

Blog Despite the challenges the hotel industry will be resilient hero

Julian Troup, head of Hotels Agency takes a look at the performance of the sector in 2022 and which headwinds are a concern in 2023.

Just as the hotel business was starting to recover following a devastating pandemic, the war in Ukraine and resultant hikes in energy and other input costs arrived to challenge us once more. Add to this inflationary pressures – particularly on wages – and the picture is less rosy than we might have hoped.

The sector is nothing if not resilient though and in most market areas revenue per available room (RevPar) has recovered to pre-pandemic levels. This has mostly been achieved with slightly lower occupancies albeit much improved average daily rates (ADR).

2021 saw UK provincial hotels in tourist destinations experiencing their most profitable trading period of all time. Hugely inflated room revenues, unprecedented occupancies plus actual savings from government support measures including VAT, business rates, furlough and CBILS loans artificially boosting profit for that year.

Whereas last year we saw an overall fall back in revenue for provincial hotels, as costs increased substantially, and the government support initiatives whittled away. Unfortunately, many owners were caught out believing that 2022 would be a repeat of the previous year, nobody predicted the level of fall in revenue coupled with the extent of the increase in costs. Particularly with interest rate hikes resulting securing funding becoming a greater challenge, and ultimately more expensive.

International travellers returning

The UK staycation has continued to drive leisure business in many UK cities and RevPAR in London in the last quarter of 2022 has never been higher. The level of UK hotel trade appears to be much more favourable than is being reported by daily news and media outlets; rate growth has been particularly strong and in spite of the looming recession this looks set to continue, albeit at a slower pace. Occupancies remain strong leading to good and growing revenues – which we expect to continue into 2023.

Prevailing fuel costs may result in the cost of flying rising, whilst the disruption experienced at airports in 2022 could see many going back to holidaying in the UK as a preferred alternative, even if this is just for short breaks.

Weaker sterling is encouraging travellers from overseas to come to the UK. Although restrictions adversely affected the flow of visitors from the likes of China, authorities there have ended their restrictive COVID policy, resulting in an immediate spike in online travel searches and bookings. There has also been a strong kick back in the return of business and leisure travellers from the USA. It is anticipated that this will continue to be the case in 2023, where weaker sterling and less of a concern about travelling will see higher volumes of this type of traffic this year.

The outlook for hotel operators

Some hoteliers are continuing to profit by taking Home Office contracts for housing asylum seekers, this will however temporarily reduce the flow of certain hotels from coming to the market. Meanwhile, the government has recently offered to extend energy bill support, although the subsidies until 31 March 2024, will be reduced from April 2023.

We continue to see well-heeled “cash buyers” still prepared to pay equitable prices, being driven by shortage of quality stock on the hotel market. However there remains many waiting in the wings to see if the “headwinds” transform into anything more sinister and the widely expected distress comes to the market. Whilst there is some pressure from banks, we expect the stand-off to continue well into 2023. There is evidence that the hospitality sector is still attracting funding support from traditional bank lending, however this is also buoyed by the increase in new banking and institutional lending to the sector.

Prospects of a fall in inflation, interest rates and energy costs (which are already dropping) are hopefully dispelling the picture being painted by the UK media, and with the FTSE 100 trading at record levels so far this year, there are hopefully signs of confidence already returning.

Despite the above we are seeing transactions involving a wide range of buyers: since the beginning of 2021 Colliers’ Hotels Team has completed 132 UK hotel and associated business sales, 72 of these have been in the last 12 months.

View some of our recent transactions here

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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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