Mixed fortunes predicted for UK hotel industry in 2023

30 January 2023 by
Mixed fortunes predicted for UK hotel industry in 2023

The UK hotel industry ended 2022 on a positive note, but 2023 is expected to be a "see-saw" of mixed fortunes, audit, tax and consulting firm RSM UK has warned.

There were some positive signs for the sector at the end of 2022, with improving room rates in December, despite a fall in occupancy, according to RSM's hotels tracker.

The data, which is compiled and produced by Hotstats and analysed by RSM UK, showed that average daily rate (ADR) was up from £144.55 (November) to £152.68 (December) in the UK, and from £226.62 (November) to £246.89 (December) in the London market. More positive data showed ADR of UK hotels was still 22% higher than the same period in 2019, and 30% higher for London hotels.

However, occupancy dipped from 71.5% (November) to 63.1% (December), with London hotels also decreasing (73.9% in November compared to 68.7% in December), and was still behind pre-pandemic levels of 70.2% (UK) and 78% (London) in December 2019.

Revenue per available room (revpar) also dropped from £103.41 (November) to £96.27 (December) in the UK, but increased in the London market, from £167.48 to £169.72. Gross operating profits of UK hotels fell from 35.2% (November) to 32.7% (December), and from 43.4% to 42.7% in London, highlighting that, although room rates remained strong, profits were still under significant pressure due to rising costs.

Chris Tate, head of hotels and accommodation at RSM UK, said: "Despite the fall in occupancy rates, which is usual at this time of year, and not helped by the heavy industrial action on the railways last month, the spike in room rates for December shows hotels' resilience at still being able to pass on higher prices to consumers."

However, he said: "Like a see-saw, there will be ups and downs for the hotel industry. Operators are managing their cost base whilst juggling other financial pressures. As for 2023, there's going to be a mixed bag of fortunes for the industry. Events like the King's Coronation and the extra bank holiday, along with Liverpool hosting Eurovision and international sporting events across the UK, will boost both domestic and inbound tourism.

"But fragile consumer confidence and increasing cost pressures will impact on the profitability of the hotel industry. With many having recently renewed, or having to renew their energy contracts shortly, it remains to be seen if hotels can continue to enjoy passing on costs to consumers and to maintain their revpar. The sector has a great opportunity in 2023 to capitalise on demand but challenges will remain."

Thomas Pugh, economist at RSM UK, added: "‘As you might expect, spending on most discretionary areas, such as clothes and household goods, has fallen sharply recently as the cost-of-living crisis has caused consumers to cut back. However, more surprisingly, spending on hospitality services has continued to grow over the last three quarters, despite the huge headwinds as consumers have favoured experiences over goods.

"However, even hospitality spending will suffer in the face of a near 2% drop in real incomes this year. Indeed, with consumer confidence near a record low, meaning that consumers are still adding to their pile of excess savings rather than spending them, we think total consumer spending will fall by about 2% in 2023.

"The good news is that inflation should fall rapidly this year reaching 3% by the end of the year, or even lower if the recent falls in energy prices are maintained. That means households' real incomes should be rising again by the end of this year, setting the stage for a decent recovery in 2024."

TagsHotels, revpar and RSM
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