London & regional UK RevPAR growth rates versus real GDP growth — Photo by Knight Frank
  • Hotel performance rallies, recording 70% occupancy*
  • Regional UK and London record an uplift in RevPAR** of 3.5% and 2.4% respectively
  • Total utility costs** for Regional UK hotels have increased by 56%
  • Pace of growth in UK hotel supply set to slow to 1.4% per annum between 2022 and 2025, despite a pipeline of some 10,000 new hotel rooms in London and 18,500 in regional UK

The UK hotel market has continued in its recovery, delivering a strong trading performance. Domestic leisure demand fuelled the early recovery, but this has been supported by robust demand for business travel as well as flexible working trends generating new sources of demand. This comes despite continued challenging market conditions including accelerating costs causing profit margins to decline, according to the latest UK Hotel Trading Performance Review 2022 by leading global property adviser Knight Frank, in partnership with HotStats.

Knight Frank’s latest comprehensive review of the UK’s hotel trading performance provides a unique and detailed review of hotel revenues, costs, and profitability. The trading performance of the UK hotel sector has improved significantly in 2022, with London showing a remarkable rebound from the pandemic over the past seven months. Occupancy rates in the capital have recorded 70% occupancy for the seven-month period to the end of October 22.

Fuelled by strong demand across multiple segments, despite international visitor arrivals remaining lower than pre-pandemic, the ability to drive rates within a high inflationary environment has resulted in ADR[1] surging ahead by 22% when compared to 2019 prices, and by 2.8% in real terms. The Regional UK hotel market now exceeds its RevPAR[2] performance by 3.5%** and London by 2.4%.

The report also identifies the top12 performing regional cities, with the top five cities ranked by their TRevPAR[3] recovery**, named as Brighton, Leeds, Liverpool, Glasgow and Bristol. The Top 12 regional UK cities have shown a robust recovery during the past seven months, achieving a RevPAR penetration of 122% versus the wider regional UK market.

At the same time, Golf & Spa hotels have outperformed the market, achieving a RevPAR penetration of 158% over the same period which demonstrates significantly improved demand for experiences post the pandemic. This represents a large uplift on the same period in 2019 where RevPAR penetration for Golf & Spa hotels versus the wider regional market stood at 132%.

Stable supply growth is a key driver of strong RevPAR performance and looking ahead, Glasgow, Brighton Manchester, Liverpool and Birmingham are the leading regional UK cities in terms of future hotel supply. Of these five cities, Glasgow and Manchester are set to record the highest annual supply growth of 5.0% and 4.7% respectively between 2022 and 2025, compared to a national average of 1.4% growth forecast.

Despite the significant adverse impact of the pandemic on the UK hotel sector, the pipeline of new hotel openings has remained buoyant. Over 30,000 new rooms have opened in the UK since the start of 2020, with regional UK accounting for 70% of this new supply. Over the next three years, London’s supply is set to grow by 2% per annum, with some 10,000 rooms either under construction or with a proposed date of opening, equivalent of 8% of the existing hotel supply. Meanwhile, annual supply growth in regional UK is set to contract to 1.2% per annum over the next three years, as compared to a longer-term average of 1.6%, this being a function of the increasing cost of debt, supplies and labour. Some 18,500 new rooms are currently forecast to open in regional UK by the end of 2025, with 51% of this pipeline confined to just ten regional UK cities.

A key challenge facing the hotel sector is the rise in utility costs, which have been increasing month-on-month. For the month of October, total utility costs for London hotels have increased by 56% and by 79% for regional UK hotels, compared to the same month in 2019.

Hotels have rebounded impressively since the challenges of the pandemic, with both London and regional hotels rallying significantly, especially in the last seven months. Weakening consumer sentiment may place downward pressure on demand, but the high ADRs continue to provide a cushion to the current high cost-inflation. Although the recovery is likely to be slowed by the economic downturn, there are many influences that will enable the sector to ride out the storm, for which the pandemic has been the catalyst for many of these factors. Hotel owners and operators are now increasingly savvy about their cost base and existing supply levels have been kept in check by the weight of hotel closures and modest future supply growth.

Faced with rising costs and increased service levels, retention and the motivation of staff will be one of the critical factors for survival, stability and a profitable longevity, whilst ensuring that hotels are prepared for new opportunities and the ongoing upward swing of the sector’s recovery.

Looking ahead to 2023, city centre hotel markets will need to recover more of the transient, midweek demand to achieve higher occupancy levels. Critical to the continued well-being of the sector, is having a balanced segmentation mix, generating year-round hotel demand. The value of the pound, if it remains low, is also expected to yield a greater number of international visitors, with key events such as the King’s coronation and the Eurovision song contest driving overseas demand at key periods. Philippa Goldstein, Senior Analyst, Hotels & Leisure at Knight Frank

  • [1] Average daily rate
  • [2] Revenue per available room
  • [3] Total revenue per available room
  • *For the seven-month period April to October 2022
  • **For the seven-month period April to October 2022, versus the same period in 2019

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