Hotels outlook ‘remains flat’ as room supply surges

The outlook for hotel trading in the UK is expected to remain static as a spike in new rooms squeezes occupancy levels, according to new findings by PwC. PwC said this supply increase, on top of slowing global and UK economic growth and ongoing uncertainty relating to Brexit, will present a “challenging environment” for the market. Deal activity is also expected to drop by around 10% this year to £6bn. This comes after total deal volumes for 2018 reached circa £6.6bn, a 36% increase on the previous year. The London market Occupancy levels in London climbed by 1.9% in 2018, PwC’s latest UK hotels forecast update has found. However, the accountancy giant predicts that London’s high occupancy levels will be offset by negligible occupancy growth of 0.3% in 2019, as a result of a “surge” in room supply. PwC has forecast that the average daily rate (ADR) will grow by 1.4% in London for the next two years, to £151 this year and £153 in 2020. Gains in ADR will drive growth in revenue per available room (revPAR) in London by 1.7% in 2019, to £126. In 2020, revPAR is anticipated to see a further 1.4% rise to £128. David Trunkfield, head of hospitality and leisure at PwC, said: “London saw stronger than expected demand in the last three months of 2018, which transformed the year for the capital. “Early signs in 2019 are that January has continued to see some good growth, with record occupancy levels and ADR gains driving RevPAR growth to over 5%. “Weekend demand remains strong, and the weak pound continues to support tourism and hotels. However, there are worries that tourists, especially from the EU, may adapt a wait-and-see attitude towards visiting the UK in 2019. “While new supply grew by 2% in 2018, it is forecast to increase by a further 4% in London this year, and with uncertain demand, weaker corporate travel trends and no blockbuster events scheduled this year, this could dampen hotel performance.” Regional outlook January 2019 data indicated that the regions are already seeing softer demand. PwC said it expected this to continue in 2019, as high supply additions in many cities continue to affect hotel trading. This year, occupancy is expected to decline marginally by 0.1%. ADR outside London is expected to grow by 0.5% to £72.50 in 2019, and by 0.8% to £73.10 in the following year. RevPAR is expected to increase by 0.4% to £55.10 in 2019, and by a further 0.8% to £55.50 in 2020. Trunkfield said: “The regions have enjoyed solid revPAR growth in recent years, but 2019 is looking more difficult as domestic economic growth slows and high levels of new supply dampen hotel trading. “While demand should be supported by festivals, exhibitions and events around the country – such as the ICC Cricket World Cup – the increase in new rooms remains a concern in many cities. “A 3% increase in supply is expected in the UK  as a whole this year. Edinburgh has seen around 3,000 new rooms open over the past five years and is expected to see a further 2,000 rooms open over the next two years. If trading weakens as we expect then it will become harder to fill all the new rooms around the country.” Deals activity With regard to the 36% year-on-year increase in total deal volume for 2018 to circa £6.6bn, PwC said this marked the second-highest-ever year in terms of deal volume, behind 2015, which recorded a high of around £9.3bn. Looking ahead to 2019, PwC forecasts that deal activity will reduce by around 10% to £6bn. Sam Ward, UK hotels leader at PwC, said: “Deal activity for 2018 was a tale of two halves. The first half was dominated by portfolio transactions, with the second half dominated by single-asset deals. Despite the continued uncertainty in the market caused by Brexit, this did not deter investors, and deal volume reached near-record highs. “Investor appetite has remained strong so far this year, with some portfolio deals having already taken place.  However, the current uncertainty surrounding conclusion of the Brexit deal is likely to overshadow the expectation for the same levels of continued inward investment from Europe and the Far East, despite the low value of the pound.” To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette