- Revenue per available room (RevPAR) in 12 cities reviewed recorded average 3% decline compared with Q1 2015
- Cardiff top performer with 8% RevPAR growth
- Aberdeen continues to struggle with a 37% RevPAR decline
- Transaction levels fall amid market uncertainty
Demand
For the first time in four years, the average RevPAR for the 12 cities reviewed in the Hotel Bulletin declined compared with the previous year (3%). This result was skewed by Aberdeen which recorded a 37% decline in RevPAR; however, even with Aberdeen excluded the average RevPAR only increased by 1%, the lowest increase since Q1 2012.
Cardiff was top performer, recording a RevPAR growth of 8%, due in part to the city hosting over 20,000 participants for the World Half Marathon Championships in March. The city’s hoteliers continue to benefit from numerous events and limited new supply in recent years. Birmingham was the second best performer, benefitting from increasing passenger numbers and investment at Birmingham airport. London’s RevPAR decreased by 2%, continuing its trend of limited RevPAR growth or decline for the fifth consecutive quarter. This trend may continue due to high-levels of active pipeline, however, continued investment and visitor trends suggest that any further decline, should be limited in the absence of external shocks.
Supply/pipeline
Premier Inn has continued to expand aggressively adding over 500 bedrooms this quarter, and now has more than 64,000 bedrooms in the UK. In contrast, Travelodge only added 167 bedrooms this quarter but is set to open more than 2000 during 2016.
Transactions
Total transactions values in Q1 2016 were the lowest since Q3 2013 at £305 million, which is in line with M&A trends in a number of sectors. Transaction volumes seem to have been impacted by a number of factors including increased terrorism levels, the possibility of Brexit, the upcoming US election and below-expected growth in China. The hotel sector has not been insulated from this uncertainty.
Graeme Smith, Managing Director at AlixPartners, comments: “Following a sustained period of RevPAR growth through 2015, this quarter, excluding the impact of the oil price driven downturn in Aberdeen, has seen the lowest increase in year-on-year RevPAR growth in four years. The market will need to be watched closely to see if this is a pause for breath or a sign of the market reaching a peak”
Focus: UK RevPAR trends
The hotel sector has long been seen as a barometer of the wider economy, albeit with inevitable regional variances. Buoyed by several years of largely universal consecutive RevPAR growth the overall mood of the UK hotelier has been bullish.
However, recently there has been a slight shift in sentiment, particularly in the investment community where a much greater sense of caution is being adopted over future growth prospects.
Some commentators believe the market has reached a peak, whether in terms of asset values or trading. Inevitably, economic activity relies on confidence, so it will be important to monitor the extent to which any further shift in sentiment manifests itself more meaningfully in market activity during 2016.