Brexit boost for the UK hotel sector

The UK hotel sector is seeing record growth and occupancy rates this year thanks to the fall in sterling.

The year so far has seen record revenue per available room (revpar) levels, robust growth in gross operating profit per available room (goppar) and an increase in occupancy rates nationwide, according to Knight Frank.

In partnership with HotStats, the real estate consultancy has launched its inaugural review of trading performance in the UK hotel sector, the UK Hotel Trading Performance Review 2017, analysing the revenue, cost and profitability of hotels in the UK, encompassing 112,000 rooms.

The report forecasts an increase in average daily rate (ADR) of 7.1% in London to £168, and 3.8% in the regions to £86, to year end. The weakened pound has continued to attract greater than anticipated tourist numbers and more staycations, which has ensured that occupancy rates have grown, with the regions seeing record high occupancy rates of 77%.

Nationwide revpar levels reached record highs of £89 by August, an increase of 7.4% on the same period in 2016, and are expected to grow by over 7% for the full year 2017. Consequently, there has been strong growth in goppar of 10.1% in London and 4.8% in the regions.

While there remain opportunities for investors due to the depreciation of the pound, operational costs are increasing, largely driven by labour costs, which have risen by 4.7% in London and 3.3% regionally.

This is compounded by the economic uncertainty arising from Brexit, causing staff shortages and further intensified costs, in addition to the introduction of the National Living Wage.

Julian Evans, head of healthcare, hotels and leisure at Knight Frank, said: "We expect that there will be continued growth in revpar and goppar in 2018 however we retain a cautious outlook.

"We believe that opportunistic investors will continue to seek investment in both London and key regional cities across the UK in 2018, however this will be impacted by some major challenges ahead including greater intensity in operational cost pressures, ongoing security concerns, tighter travel budgets, and a narrowing pool of labour."

Knight Frank predicts that, despite current economic uncertainty, the sustained and solid income generated from the hotel sector is likely to continue to drive increased investor appetite over the next 12 months.

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