Hotel occupancy in London showed its sixth consecutive quarter of year-on-year decline with Brexit poised to subdue
the sector further, according to the latest Hotel Bulletin: Q2 2016, published this week by HVS, AlixPartners and
AM:PM. Hotel occupancy in the capital, in common with other major European cities, continues to be affected by
increased global terrorist activity. London has also seen a decline in the number of US tourists travelling because of
the impending presidential election. The impact has been a 2% decline in London's RevPAR compared with Q2 2015
and average rates failing to increase for the second consecutive quarter. 'Whilst this is significant in the short term,
London is, and will remain, a huge magnet for inbound tourism so the longer-term future of the capital's hotel
sector is still positive, even when taking into account the new hotels in the pipeline and the potential impact of the
Brexit implementation causing economic wobbles,' commented HVS chairman Russell Kett. Across the UK the
picture was more varied; although, with overall demand sluggish, average RevPAR growth reached only 2%. This is
seen as further evidence that we may be approaching the top of the property cycle in some locations. Performance
of hotels across the 12 UK cities reviewed varied significantly in Q2. Birmingham was top with RevPAR growth of
16%, while hotels in the Roman city of Bath saw RevPAR up 11% year-on-year on the back of a boost in
international tourists. In contrast, Newcastle recorded another quarter of RevPAR decline, down 4%, as the
combined effects of a 10% increase in hotel supply over the past 12 months and strong comparators last year came
into play. Aberdeen saw RevPAR decline 24% year-on-year as hotel occupancy continues to suffer from the city's
exposure to the oil and gas industry. If predictions that oil prices will continue to fall are correct, this will further
suppress demand for the city's hotels. 'Performance has always been very location-driven,' commented Kett, 'with
localised supply and demand issues having an impact on hotels' operating performance. UK-wide averages tend to
hide these fluctuations and even the performance within an individual city can vary quite markedly from hotel to
hotel,' he added. Apart from the £575 million acquisition of Atlas Hotels by London & Regional, mergers and
acquisitions in the sector have also been subdued throughout 2016 owing to uncertainties surrounding Brexit, weaker
economic growth in China, terrorism in France, Belgium and Turkey, and the US election. Now the outcome of the
referendum is known and Britain gears up to leave the EU, there is cautious optimism that the hotel sector will
remain an attractive source of investment for global investors interested in the medium- to long-term growth
perspective. However, this is reliant on the UK remaining an investor-friendly market post-Brexit. 'The Brexit
decision is having the double-impact of weaker sterling and a reduction in anticipated economic growth. This is both
good and bad news for the sector in that Britain becomes a cheaper destination for overseas visitors, dampening
outgoing UK travel but potentially increasing the F&B costs as some suppliers pass on price rises. Hotel transaction
activity is also likely to slow down as investors assess the outlook of future trading, but in the longer term we are
optimistic the UK will remain an attractive source of investment for global investors,' Kett concluded.