The outlook for hotel trading in the UK this year remains flat as a surge in room supply, slowing global and UK economic growth and ongoing uncertainty relating to Brexit is expected to provide a challenging environment for performance growth.

PwC's latest UK Hotels Forecast Update shows that London should still boast high occupancy levels but as high room supply levels impact, occupancy growth this year will be marginal at 0.3%.

Average Daily Rate (ADR) is forecast to continue to see growth with an uplift of 1.4% in London for the next two years taking ADR up £2 to £151 in 2019 and £153 in 2020. Gains in ADR will drive Revenue per available room (RevPAR) growth by 1.7% in 2019, taking RevPAR to £126. In 2020, growth is anticipated to see a further 1.4% rise, taking RevPAR to £128.

Source: PricewaterhouseCoopersSource: PricewaterhouseCoopers
Source: PricewaterhouseCoopers

Commenting on the latest forecast, David Trunkfield, head of hospitality and leisure at PwC, said:

"London saw stronger than expected demand in the last three months of 2018 which transformed the year for the capital.

"Early signs in 2019 are that January has continued to see some good growth, with record occupancy levels and ADR gains driving RevPAR growth to over 5%. Weekend demand remains strong and the weak pound continues to support tourism and hotels, however there are worries that tourists, especially from the EU, may adapt a "wait and see" attitude towards visiting the UK in 2019.

"While new supply grew by 2% in 2018 it is forecast to increase by a further 4% in London this year and with uncertain demand, weaker corporate travel trends and no blockbuster events scheduled this year, this could dampen hotel performance.

Outlook for the regions

January 2019 data from STR indicates that the regions are already seeing softer demand and we expect this to continue in 2019, as high supply additions in many cities continue to affect hotel trading. Our latest forecast for 2019 predicts a marginal decline in occupancy of -0.1% still meaning an absolute rate of 76% - very high by historical standards. As supply squeezes occupancy, ADR is expected to see only around 0.5% growth, taking regional ADR to £73.

RevPAR is forecast to edge up by 0.4% taking RevPAR to £55.1. In 2020, it's anticipated RevPAR will follow a similar pattern as weak occupancy (-0.1%) and ADR growth of 0.8% lifts ADR to £73 and buoys RevPAR by 0.8%, taking it to £55.5.

David Trunkfield added:

"The regions have enjoyed solid RevPAR growth in recent years but 2019 is looking more difficult as domestic economic growth slows and high levels of new supply dampen hotel trading. While demand should be supported by festival, exhibitions and events around the country such as the ICC Cricket World Cup, the increase in new rooms remains a concern in many cities. A 3% increase in supply is expected in the UK as a whole this year. Edinburgh has seen around 3,000 new rooms open over the past five years and is expected to see a further 2,000 rooms open over the next two years. If trading weakens as we expect it will become harder to fill all the new rooms around the country."

Outlook for deals in the hotel sector

Total deal volume for 2018 reached c. £6.6 billion, a 36% increase on the previous year making it the second highest ever year in terms of deal volume behind 2015 which saw a high of c. £9.3 billion. Looking ahead to 2019, PwC forecasts for deal activity to decrease by around 10% to £6 billion.

Sam Ward, UK hotels leader at PwC, said:

"Deal activity for 2018 was a tale of two halves. The first half was dominated by portfolio transactions with the second half dominated by single asset deals. Despite the continued uncertainty in the market caused by Brexit, this did not deter investors and deal volume reached near record highs.

"Investor appetite has remained strong so far this year with some portfolio deals having already taken place. However, the current uncertainty surrounding conclusion of the Brexit deal will likely overshadow the expectation for the same levels of continued inward investment from Europe and the Far East, despite the low value of the pound."

Notes to editors.

  1. Full report is available on request, contact Felix Ampofo on [email protected] or 07841 468 245
  2. RevPAR (Revenue Per Available Room) is a key industry benchmark. It can be calculated by multiplying the average achieved room rate by the average annual room occupancy rate.
  3. The full forecast can be viewed online at:
  4. * Room data provided by AM: PM
  5. The PwC hotels forecast is based on quarterly econometric analysis of the hotel sector, using an updated PwC macroeconomic forecast released in September and historical statistics supplied by STR Global and other data providers.
  6. Data sources: STR Global; AM: PM Hotel Database (supply), January 2019

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Felix Ampofo