Hotel property market plateaus

THE UK’s hotel market saw its first decline in average RevPAR in four years, with occupancy levels dropping 3% in Leeds.

Birmingham one of the strongest performing hotel markets in the UK in the first quarter of the year with room rates rising despite the increase in supply.

The average room rates increased by 6% which, helped by a very slight improvement in occupancy levels, resulted in 7% growth in the revenue generated per available room – RevPAR, a key industry metric.

Analysis by HVS, AlixPartners and AM:PM found that occupancy fell in eight of the UK’s 12 major city markets, which included 4% and 3% drops in Manchester and Leeds respectively and a 14% decline in Aberdeen.

This had a knock-on effect on RevPAR despite increases in room rates in most cities. Only Cardiff, with 8% growth, outperformed Birmingham’s 7% increase.

The report said: “Despite supply increasing by nearly 800 bedrooms over the past two years, the city has recorded average quarterly RevPAR growth of 12% during this period.

“Birmingham Airport has received significant investment during this time, resulting in 12 consecutive months of passenger number increases. This trend is set to continue as a number of airlines including Qatar Airways, CSA and Iberia are due to set up routes from Birmingham.”

London, Glasgow, Belfast, Newcastle and Aberdeen all saw RevPAR fall in the first three months of the year, leading HVS chairman Russell Kett to warn that the figures give a “strong indication that the peak of the UK’s hotel occupancy market has been reached” and the growth is rate driven rather than occupancy driven.

He said: “For the moment there continues to be strong interest in hotel investment in most parts of the UK, which could continue into 2017, but investors are currently delaying decisions because of uncertainty fuelled by a combination of terrorism concerns, the forthcoming Brexit vote, China’s economic situation and the US elections.

“There is a risk that some operators will cut rates in an attempt to stimulate demand, forcing competitors to follow suit. Once room rates fall across the hotel sector the likelihood is that values will soften.”