Optimism for UK hotel sector as trading ‘remains strong’, report reveals

The UK hotel sector is “well placed to deliver resilient growth” in the new year after 2023 profits exceeded pre-pandemic levels, research has shown.

The UK Hotel Trading Performance Review 2023 compiled by property adviser Knight Frank and HotStats reported London’s 12-month occupancy increased by 16 percentage points to 77%, while London’s ADR (average daily rate) rose by 8% in the past 12 months and is up 22% on 2019 figures.

Trade was boosted by the surge in overseas visitors as well as strong demand for corporate meetings and events.

London recorded GOPPAR (gross operating profit per available room) of £97 for the 12-month period to September 2023, which is 1.7% ahead of 2019 rates.

Knight Frank forecasted the regional market would reach full year 2023 occupancy rates above 74%, with ADR expected to grow to £103, which would surpass £100 for the first time. The regions also recorded GOPPAR performance 5.1% ahead of 2019 profits.

The overall hotel market was estimated to be 2.4% smaller than at the end of 2019.

Some 35,000 rooms are believed to be in exclusive-use government contracts, 40% of which would have previously traded under a global hotel brand.

London is due to see 7,000 new rooms in 2024, which would lead to a 4.6% rise in supply, while the regions are expecting an increase of 8,600 rooms.

Glasgow, Manchester and Edinburgh have been identified as the top three cities for hotel development besides London, each with more than 1,000 rooms under construction.

The outlook for supply growth beyond 2024 is expected to soften due to the cost of development and high interest rates impacting the number of new projects.

Karen Callahan, partner, head of hotel valuations at Knight Frank, said: “Fundamentals of the UK hotel sector remain strong, despite its challenges and 2024 is set for another exciting year of growth and opportunity. The sector has proven repeatedly its ability to weather turbulence and the strong trading performance is serving to counter the increase in yields in a high-interest rate environment, with hotel values holding up strongly and performing well compared to other sectors.

“The pound staying low, improving flight schedules, and a more stable economic outlook will all serve to boost international demand. Following a slow start to 2023, Q1-2024 presents a real opportunity to drive growth and we remain optimistic that the UK hotel sector is well placed to deliver another year of resilient growth.”