Region’s hospitality sector pins hopes on Commonwealth Games for business boost

UK hotel trading performance is set to improve in 2022 following a volatile period due to the pandemic as demand continues to return, with the West Midlands pinning its hopes on the Commonwealth Games for a boost in business.

PwC’s UK Hotels Forecast 2021-2022 says that although there are encouraging signs for hoteliers, trading is still not anticipated to return to pre-pandemic levels by the end of 2022.

The prediction forms part of its analysis into market conditions for hotels over the next 12 months. The forecast for occupancy rates by the end of 2022, is between 70% and 90% of pre-pandemic levels in London.

Meanwhile in the Midlands  the forecast is even higher at between 87% and 96% of pre-pandemic levels.

The speed of recovery will be the major issue in 2022, but will be driven by factors outside of the sectors’ control; the pace and size of the return of tourism, international and domestic business and events. An encouraging sign for hoteliers, when surveyed, 63% of people said they plan to take either more or the same number of holidays in 2022.

However, a difficult start to 2022 is widely expected, with the end of the majority of government financial support and rent and tax bills due, managing cash flow and operations will be critical to ensure success for hotels across the UK.  Meanwhile, rising payroll cost pressures are likely to continue into 2022 as labour shortages in hotels are at a critical level, leading to an above inflation increase in wage rates as hoteliers struggle to retain and attract staff.

The Midlands has seen mixed fortunes throughout the pandemic. Staycations have provided a boost to the sector, with occupancy rates and ADR in August 2021 significantly outperforming pre-pandemic August 2019.

For those areas boosted by staycation demand, summer 2022 may again see difficult trading conditions if international travel is back on the agenda for the domestic market, and pent up demand for guaranteed sun is released. The latest PwC research shows that 37% of people still plan to holiday within the UK in 2022. On balance, it is expected overall staycation demand to be similar to the summer of 2021 but be more evenly spread throughout the year.  High occupancy rates will help regional hoteliers raise their ADR and a moderate recovery could see it reach £67.05  in 2022, up from £61.59 in 2021. RevPAR could also increase to £42.36 in the regions.

In many regional cities decreased demand and increased supply have suppressed occupancy. The viability of large scale events, conferences and meetings with long planning cycles means the events market may take further time to recover, especially if uncertainty persists around potential restrictions.

Sarah Phillips, Midlands retail and consumer markets leader, PwC, said: “The hotel sector recovery has a long way to go. The speed of recovery in the region is likely to be dependent on international tourism and the speed at which business travel returns as markets lift their own restrictions on citizens travelling to the UK.

“In the Midlands, we hope to see a real boost to hotel occupancy resulting from the Birmingham 2022 Commonwealth Games and generally from Business Tourism as we move to more in person events.

“Hotels must continue to innovate and adapt to the markets available to them. Many businesses have publicly stated their ambitions to cut business travel even as restrictions are lifted. Hotels that previously focussed on the business market should think about how to capture domestic tourism, looking at this as a real opportunity and, as it returns, the international tourism market.

“In what could be described as a perfect storm, a raft of operational cost increases coincide with the increase in the rate of VAT next April. The ability for hoteliers to endure these costs and preserve profitability, will present a challenge in markets where demand is weaker and more hotel rooms are available.

“Recovery will not be easy or straightforward, but with the right planning and strategy, hotels across the UK can look forward to significantly better trading over the next 12 months”

Becky Frall, head of visitor attraction at West Midlands Growth Company, said: “It has been an undeniably tough 18 months of trading for the hotel industry, but this report backs up the experiences of our hotels across the region, demonstrating a return to more buoyant levels of business.

“The tourism sector in the West Midlands Combined Authority area generates more than £13billion a year for the regional economy and is expected to experience a significant uplift in visitor numbers during the Birmingham 2022 Commonwealth Games.

“Large events, such as the Games and Coventry UK City of Culture, will enhance the region’s profile as a top destination for local, national and international travellers, providing a welcome boost for the hotel industry in the region.”