According to PwC analysis, the hotel sector has been boosted by the improving economic backdrop. While 2013 has been a bit of a rollercoaster for London, after a slow start and tough Olympic comparisons over the summer, the capital has recovered well and performed better then PwC anticipated earlier in the year. Recent hefty rate (ADR) growth has come on the back of very high occupancy levels, with an annual average of 83% meaning the capital is effectively full up.
The Regions have seen a remarkable recovery with continuously strong demand growth this year and, despite some variable performances around the country, have made real headway.
Liz Hall, head of hospitality and leisure research at PwC, said: “The economy has put the fizz back into the UK hotel sector with a return to confidence and stronger demand. Despite ADR levels still reflecting continuing consumer and corporate price sensitivity, it’s a very positive story. Continued economic recovery should mean sustained and enhanced prospects for hoteliers in 2014.”
The conference and meeting market remains below past peaks. However, the economic recovery in the UK and a calmer euro zone will help stimulate international and domestic business and leisure demand and aid its recovery.
Despite the good news there is no room for complacency just yet, as it’s likely to remain a challenging environment for hoteliers to operate in, with consumer spending expected to remain squeezed until 2015. New supply remains relatively high especially in London and improved trading will encourage more development and competition in the sector.
Liz Hall, head of hospitality and leisure research at PwC, added: “The sector keeps evolving and London has continued to soak up all the new supply that has opened through 2012 and 2013 and no doubt it will in 2014 as well, when a further 6,000 rooms and some exciting new brands open.
“In the Regions, while there remain pockets of oversupply with budget chains adding to hoteliers’ pricing pressures, many cities have performed very well.
“But it does mean a more crowded UK hotel landscape. For the consumer, new supply is progress, with new brands, more choice and more price competition.”
In London, a return to ‘normal’ in 2014 will be welcomed with stronger pricing and record RevPAR (a key industry metric) expected.
Liz Hall, head of hospitality and leisure research at PwC, added:
“It looks like occupancy, ADR and RevPAR are heading in one direction, with the right kind growth to keep London on its upward trajectory in 2014. With occupancy already very high its likely to be ADR where the growth potential is largest.”
The outlook for the Regions is also positive for 2014. Occupancy and ADR have improved quicker than we expected in 2013. PwC expects ADR to reach almost £60 in 2014, still below the 2008 peak, even in nominal terms, but the best result since 2009. PwC expects 1.8% RevPAR growth in the Regions in 2014, taking RevPAR to nearly £42.50, again the best result since 2008.
Liz Hall, head of hospitality and leisure research at PwC, added: “Overall, the forecast economic growth in 2014 should put smiles on hoteliers’ faces as they see further strengthening of demand in both London and the Regions.”
Commenting on hotel deal activity in 2013 and looking ahead to 2014, Samantha Ward, hotel deals leader at PwC, said: "As the UK Regional hotel performance begins to show signs of turning the corner to recovery, 2013 has seen a significant growth in hotel transaction volumes with both large portfolio and single asset deals. In addition to some legacy deals from prior year sales processes, the momentum seems set to continue as the banks are showing a much greater willingness to deleverage from hotel assets, either through the sale of the business or the loans directly, and more recently portfolios of hotel loans.
"Improved investor confidence off the back of forecast growth in UK hotel performance, a substantial pool of private equity capital and better availability of debt financing have all helped to boost deal flow. The current level of UK hotel transaction activity seems set to stay for 2014, with a significant pipeline of deals for the New Year."