PwC research predicts UK hotel trading growth is set to stall due to slower economic growth and tougher market conditions. PwC’s prediction forms part of their UK Hotels Forecast 2019-2020, their analysis into market conditions for hotels over the next 12 months. The forecast shows performance dips across UK hotels, and marginally slower growth in London.
Outlook for London
PwC expects London to hold on to growth for the rest of 2019, buoyed mainly by international tourism as a result of the weak pound. However, with a relentless supply of new rooms, maintaining that growth will get harder in 2020, with occupancy forecast to slip marginally by -0.3% in 2020 to 84%. Average Daily Rate (ADR) is forecast to see a marginal lift of 1.3% for 2020 taking the average rate up to £153.4. Overall Revenue per available room (RevPAR) growth is forecast to rise by 3% and 1% for 2019 and 2020 respectively, reaching £128.9 in 2020.
Outlook for UK regions
Overall, it’s been a difficult year so far for the regions. While the one-off cricket world cup related demand probably helped slow regional decline in the summer, it wasn’t enough to balance an overall decline in the regional business market and stop a fall in RevPAR for the second consecutive quarter of 2019. And being more reliant on UK GDP, regional hotel market conditions are expected to get tougher. PwC’s forecast for the regions for 2020 is a -0.6% decline in occupancy growth, a slight gain in rate but a drop in RevPAR of -0.3%.
Globally, tourism is on the rise. In 2018 there were a record 1.4 billion international tourist arrivals. The UNWTO World Tourism Organisation reports that international tourism continues to grow, above the rate of global economic growth, forecasting a moderate growth of between 3% and 4% in international arrivals in 2019.
Outlook for deals
For investors, cautiousness meant that UK hotel investment volumes have seen a decline of 35% in the first half of 2019 to c. £2.6 billion, compared to the higher than average levels in the first half of 2018. Despite this, there is still an expectation for continued investment from Europe and the Far East for the remainder of the year, given the relative low value of the pound. Assuming completion of some reported current deals, PwC forecasts deal volume to reach c£5.1bn in 2019, a 28% decrease compared to 2018.
Even if a Brexit deal is secured by the end of 2019, PwC forecasts a further period of time before stability is regained and investor confidence returns to the UK, with 2020 hotel transaction volumes forecast to marginally fall to c. £4.8 billion.
Sam Ward, UK Hotels Leader at PwC, said: “What we have seen in the first half of the year has been a more cautious approach by investors which has been dictated by the uncertainties of Brexit becoming more acute, ongoing volatility in the market and weakened business sentiment. Portfolio transactions are down more than a third in comparison to the same period last year and single asset transactions are down more than a quarter.
“Until there is further clarity on Brexit, we expect the cautious approach to investment to be reflected in the second half of the year. Even if a Brexit deal is secured by the end of the year, it will take some time before stability returns.”