Facing the future: UK hotels forecast 2017
While the full impact of the UK vote to leave the EU will not be known for some time, economic growth is expected to slow. A weak pound should provide a boost to inbound leisure travel, but security concerns, tight corporate travel budgets, above average supply growth (especially in London) and consumer and corporate uncertainty will create an unfavorable backdrop. The industry is also tackling ongoing disruption via the Sharing Economy. We retain a cautious outlook.
London
It's a mixed outlook for London, which has recently seen weak demand chasing too many rooms, uncertainty around the EU referendum and security concerns. Businesses are also cutting travel budgets. 2016 also faces comparison with the boost from 2015's Rugby World Cup year.
Forecast for 2017
Uncertainty following the EU referendum, security concerns and 7,000 new rooms in the pipeline, will act as a drag on performance. However, the weak pound may bring short term benefits for international leisure travellers. While we forecast a decline on key KPIs with RevPAR down 0.5%, it is important to remember however that London will still have some of the fullest rooms by global standards, at 80% occupancy in 2017, with average room prices reaching £142 in 2017.
Regions
The regional hotel sector is still a growth story. Most cities have had a good 2016 so far, even if the pace of growth slowed. For 2017, despite the forecast economic slowdown we expect 2.3% RevPAR. An increase in "Staycations" for domestic travel, attempts by the UK to boost tourism to the regions and the attraction of a weak pound to international leisure travellers will boost some cities. In fact, despite some high active room pipelines hoteliers are telling us that Manchester, Edinburgh and Birmingham will be star performers in 2017. Glasgow, Cardiff and Liverpool are also expected to do well. We forecast occupancy to hit a record 77% and remain there in 2017. In 2017 the price of a room in a regional hotel could hit £70 in nominal terms.
What's driving the bus?
A slowdown in economic growth
The EU Referendum drove uncertainty but there are signs that the business community is coming to terms with the new reality and the pound has fallen making the UK a more attractive tourist destination. We expect UK GDP growth to slow in 2016 but remain positive on average in 2017, with the UK economy starting to recover later next year as negotiations with the EU proceed. We expect annual consumer spending growth to fall to around 1.3% in 2017. In terms of international tourist markets, the US continues its moderate economic growth trajectory, Russia and Brazil are bound by recessions, while India sees projected growth of 7.7% for 2016. Overall, global economic growth is expected to slow to 2.6% in 2016, before picking up again in 2017.
A mixed travel outlook
2015 was a record breaking year with 36 million visits to the UK and inbound travel held up to June 2016. We have also noted the weak pound's ongoing attraction to international visitors. However, security concerns, political and economic uncertainty and falling corporate confidence may impact budgets and travel decisions. Further, lower oil revenues have reportedly impacted high spending travellers from the Gulf States. And 18% fewer Russian nights were reported in 2015 with this trend expected to continue. The upcoming elections in the US, Germany and France may also contribute to political uncertainty in those markets.
Above average supply growth, especially in London
There will be around 625,000 rooms open across the UK by the end of 2016 with a further 18,000 rooms forecast to be added in 2017. Of this total, over 7,000 rooms are expected to open in London in 2017 – about the same as Edinburgh, Manchester, Aberdeen, Belfast, Birmingham, Cambridge, Liverpool, Leeds, Glasgow and Bath combined. In total 11,400 rooms are forecast to open in the regions. Trend wise it's still branded budget rooms dominating the active pipeline of new rooms. We expect net supply growth of around 4 5% in London and 2.4% for the regions in 2017.
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David Trunkfield
PwC | UK Head of Hospitality & Leisure
PricewaterhouseCoopers
