UK hotel market thrives on weaker pound

By March 21, 2017Blog
UK hotel markets

We were in Berlin recently for IHIF, the premier annual European hospitality financial conference. The event, a gathering place for 2,000 hospitality leaders, is where top executives meet each year to share ideas and make deals that will affect the global hotel industry for the next year.

This year, one of the major conversations focused on Brexit – the UK’s eventual exit from the European Union.

Anecdotally, the people we spoke with said they had no idea what would really happen regarding financial policy in the future. So, for now, hoteliers are going about their business by ignoring the elephant in the room. The attitude is that politics will play out over time, but it could take years and years.

Overall, the eventual Brexit is casting a shadow on the future financial health of the UK, suppressing the value of the British pound, for example. But that weaker pound is making inbound travel to the county more affordable this year, according to Liz Hall, head of hospitality and leisure research with PwC. “A strengthening dollar will make trips to Europe popular, with a weak pound making London in particular, more attractive. However, this will be balanced by unprecedented geopolitical uncertainty and travelers’ security and safety concerns remain.”

PwC believes the London market, for example, will see moderate growth this year and next, predicting 3.3% and 2.5% RevPAR growth forecast respectively in each year. That will lift overall market RevPAR to £120 in 2017 and £123 in 2018.

Occupancy, however, will grow more anemically at 0.9% up to 82% in 2017. But ADR will increase an expected 2.4% to £146. In 2018, there’s an additional 0.5% gain expected with an increase in ADR of 2%, raising the average hotel room to £149.

Throughout the region, UK hoteliers should experience RevPAR growth of 3% this year to £54 driven almost exclusively by an improving ADR of £71, the highest ever according to PwC. Additionally, occupancy is forecast to remain high at 76% with negligible growth in 2017 (0.1%) and 2018 (0.2%). Expect RevPAR growth to slow to 1.7%, supported by a 1.5% ADR improvement taking rates to £72 next year.

Also, according to Lodging Econometrics, there are 100 new hotels in the construction pipeline in London alone. This could put more pressure on the market.

To be sure hoteliers are receiving a higher percentage of customers than their comp set, it is essential to price rooms perfectly. The power of forecasting is the key to wooing customers, because when done correctly, it aligns with customer expectations regarding the price they expect to pay on any given night.

This can only be achieved, however, by examining data in a different way than tradition has taught. Hoteliers in the UK and beyond should look at more data streams to arm themselves with a more well-rounded understanding of actual demand.  Look at data points such as flight patterns, weather, and local events to help better determine true demand.

Though the UK is in the middle of an uncertain time, one thing is clear; people will continue to travel to the region in large numbers even as its political climate remains cloudy.

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