Growth in NW hotels sector forecast to flatten in coming year

Trading growth will flatten across the North West hotels sector over the coming year, although it continues to hold its own compared with UK levels, says the latest annual Hotels Forecast, today, from business adviser PwC.

Economic uncertainty, weak business travel demand, and an influx of new rooms are blamed for the stalling in progress.

Overall occupancy levels in the UK regions have been averaging 76% since 2015 and are forecast to remain around this level for the next year, with -0.3% growth for 2018 and no growth forecast for 2019.

Hoteliers in Liverpool have seen a positive level of occupancy growth (3.9%) over the last 12 months, compared with Manchester which has seen a very slight fall in levels.

Regionally, the average daily rate (ADR) growth is also forecast to slow, with an anticipated 1.3% increase for 2018 taking ADR to £72 and a further 1.2% in 2019 to £73.

Revenue per available room (RevPAR) is forecast to see a 1% uplift and a further 1.2% in 2019 taking it to £55, up from £54 in 2017.

While Manchester has seen a fall in its RevPAR of -1.7%, it is still performing above the regional average at £59.

Similarly, Liverpool’s figures show an increase of 1.2% in ADR and an increase of 5.2% in RevPAR.

Manchester is forecast to add around 900 new rooms in 2018, and a further 1,200 in 2019.

Liverpool is also increasing its hotel stock by 600 new rooms this year, and 960 rooms in 2019.

The report says the outlook for London looks flat with year-on-year occupancy growth of only 0.1% for this year and a marginal fall of -0.5% forecast for 2019, which will see occupancy levels drop one percentage point to 81% in 2019.

ADR is forecast to see a marginal uplift over the next year with 0.2% growth for 2018 taking ADR up £1 to £149 and 0.8% for 2019, taking the average rate up another £1 to £150.

RevPAR growth will remain static with 0.3% forecast for both 2018 and 2019, a big contrast to the 4.6% growth in 2017.

Overall, RevPAR is expected to remain at £122 for 2018 and 2019.

According to data from the global hotels data company STR, a potential 5,000 new rooms could open in London in 2018 with a further 4,300 in 2019.

This is on top of the 38,000 rooms added in the previous five years.

Commenting on the latest forecast, Liz Hall, head of hospitality and leisure research at PwC, said: “2017 was a hard act to follow for hotel trading, in terms of growth, and 2018 has been held back by uncertainty, slower economic growth, significant supply additions and reported stuttering business travel.

“This is despite the weak pound buoying leisure travel, the Royal Wedding and the International Farnborough Air Show effect.

“However, trading in absolute terms remains extremely high by historic and global standards for London, and by 2019 we forecast both ADR and RevPAR to reach new records in nominal terms.”

And she warned: “For a sector heavily reliant on people to deliver its products and services, the shortfall in availability of EU nationals remains a concern for hotels and the weak pound has pushed up the costs of retaining staff and importing goods within the sector.”

Liz Hall

Commenting on the regional impact, Ms Hall added: “Our forecast shows RevPAR in the regions to end 2019 23% ahead of pre-recession peaks in nominal terms but lag in real terms by 7%.

“Demand continues to be driven by inbound tourism, domestic holidays and events. The ICC Cricket World Cup is being held across 11 locations in England and Wales which could help regional hotels.”

She added: “Occupancy rates have been creeping up from 66% in 2009 to an average of 76% in 2015.

“We forecast rates to remain at this level, despite over 40,000 rooms to be added in the regions. A continuing structural supply shift towards a greater proportion of budget rooms will sustain occupancy levels.”

Looking at the prospect for deals in the hotels sector, PwC revealed that total deal volume for 2017 reached £4.9bn, up 34% on the year prior, driven by a series of large portfolio deals.

In the first half of 2018 there has already been £3.8bn worth of deal activity, an 80% rise on the first half of 2017.

The report says: “We forecast total deal volume to reach around £6.8bn by the end of the year, a 40% increase on last year and the second highest volume of investment in the UK after record levels of £9.3bn in 2015.

“For 2019, deal activity is forecast to slow down with activity to fall by around 34% from 2018 to around £4.5bn.”

Sam Ward, UK hotels leader at PwC, said: “The UK hotel market has generally shown deal volumes closely tracking RevPAR growth over the past decade.

“However, with a swathe of significant portfolio deals completed in the first half of this year and with more in progress, deal volume for 2018 is set to buck this trend.

“This will mark only the second year deal volumes are expected to exceed RevPAR growth.”

He added: “We anticipate a slowdown in portfolio deal activity in 2019 due to a combination of longer term investors entering the UK hotel market, US funds refinancing their hotel portfolios to take advantage of the favourable debt terms currently available, and uncertainty around leaving the European Union in March.”