London hotels expected to rebound but impact on regional sites more long-lasting

Knight Frank has said UK hotels particularly in London could rebound strongly post-coronavirus, after analysing modelling based on the SARS outbreak and global financial crisis.

The property advisor has said it expects to see a surge in investment volumes in the fourth quarter of the year, with a full market recovery possible in London by the end of the fourth quarter of 2021 – if the market reopens by the end of the second quarter this year.

The strict measures imposed to control the spread of COVID-19, mean that the immediate economic impact is anticipated by many to be more severe than past economic downturns, with hotels likely to be severely affected from the challenges coming from a period of lockdown.

Despite this, Knight Frank forecasts a V-shaped, stepped recovery, with occupancy growth beginning slowly in Q3 followed by substantially stronger growth in Q4 as travel confidence returns. A full rebound in revpar is anticipated once international borders properly reopen and long-haul inbound visitors return, enabling growth in average daily rate.

Shaun Roy, head of hotels and specialist property investment at Knight Frank, said: “The COVID-19 pandemic is an unprecedented event and is having a severe impact on the UK hotel market, which is disproportionately affected in many ways.

“Whilst the lock down continues, the current focus for the hotel market remains one of survival, with cash conservation and liquidity of immediate concern. Yet as we look beyond this, and at how the UK hotel market has fared following other significant global events, we believe that the UK hotel market will recover and rebound strongly.

“Assuming the UK hotel market reopens by the end of Q2 2020, this will, lead to a potential full recovery in London by the end of Q4 2021, whilst the severity of the economic downturn will determine how quickly regional UK returns to a level of trading enjoyed prior to COVID-19. Together with the ongoing negotiations surrounding Brexit, the pound is expected to remain attractive to investors and support an uplift in investment volumes nationally.”

Knight Frank predicts that the severity of the economic downturn will likely have a more lasting impact on the performance of the regional UK hotel market as corporate budgets are likely to be squeezed, while the level of unemployment will dictate the disposable income available.

Knight Frank remains cautiously optimistic for the recovery of the UK hotel market in 2020, anticipating that a recovery plan will be focused on domestic demand, particularly in the regions.

The report also suggested many hotels, particularly those with multiple properties in the same geographic markets, may delay reopening until demand and occupancy has increased significantly, to ensure that any operating losses are less than the holding costs of keeping the hotels closed.

Knight Frank added that hotels which depend to a large extent on the meeting and conference segment might well stay closed for prolonged period, until customer confidence is restored and government restrictions allow for large events to be held.

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