Market Report U.K.

Overall Growth Forecast in 2015 for U.K. Hotel Industry

Overall UK hotels are expected to see a 5.6% gain in RevPAR (revenue per available room) in 2015 (to £67.39), driven by a 4% rates growth (to £86.49) and a 1.6% increase in occupancy (to 78%). This is underpinned by a continued strong recovery in the Provinces as well as strong growth in London, especially next year.

PwC London hoteliers reported a great start to 2014, according to new PwC analysis. The first half of the year saw the capital’s occupancy averaging 80%, ADR averaged £136.60 and RevPAR reached £87.30 - up 5.5% driven mainly by rate increases of over 3%.

Overall for 2014, PwC expects London to see marginal 0.5% occupancy growth taking occupancy to a heady 83%, almost 3% ADR growth to £140.52 and 3.4% RevPAR growth to £116.41.

Liz Hall, head of hospitality and leisure research at PwC, and author of the PwC UK hotels forecast 2015, said:

“2014 saw a great start but then hit some summer trading turbulence. Hotels are confident that the remainder of the year will get back on track. The wobbles in summer trading were a combination of fewer sporting events; the impact of the euro and dollar exchange rates making London expensive; the earlier timing of Ramadan and a weaker Farnborough ‘effect’.”

“The continuing economic recovery and strong travel fundamentals means that in 2015 for London, PwC forecast occupancy to pick up quite briskly with a 1.5% gain taking occupancy to 84% and a 3.6% growth in ADR will mean rates of over £145 - £5 higher than 2014. This combination will drive a 5.1% RevPAR advance to take yields to £122.

Regions off to a blazing start in 2014

Regional hotels got off to a blazing start this year, following a strong 2013 performance. Many cities around the country have seen double digit RevPAR growth in the first six months to June including Aberdeen, Bristol, Cardiff, Coventry, Manchester, York, Plymouth and Southampton. Belfast and Glasgow saw over 15% RevPAR growth.

Overall strong trading and low supply mean that for 2014, PwC expect 3% occupancy growth taking occupancy overall to 75% – the highest for 14 years, almost 4% ADR growth to £62 and 7% RevPAR growth to £46.37, which is the highest since 2001.

Liz Hall, head of hospitality and leisure research at PwC, said:

“Despite the poor weather and floods at the beginning of the year there have been many positives to help lift hoteliers’ fortunes, ranging from the continued economic recovery across the regions, muted new supply, sunny summer weather and some great sporting events.

“We expect further growth in 2015 from demand to attend Rugby World Cup matches. The event will be held across the country in Birmingham, Brighton, Exeter, Cardiff, Gloucester, Milton Keynes, Leicester, Leeds, Newcastle and Manchester as well as London. With a third of matches set to be played on a Sunday - traditionally a low occupancy night - the event is a great opportunity for hotels. ”

PwC forecast occupancy growth to moderate a tad in 2015 with a 1.6% gain taking occupancy to 76%. We anticipate 4.3% growth in ADR will mean rates average almost £65. This combination will drive further RevPAR growth of 6% to take yields to almost £50 – the best result ever in nominal terms although there is still some ground to make up in real terms.

23,000 new rooms to open between now and 2015

At the end of June there were around 23,000 rooms in the UK development pipeline expected to open in 2014 and 2015, over 10,000 of these new rooms are expected in London.

Liz Hall, head of hospitality and leisure research at PwC, added:

“Overall, the general feeling is that supply is not currently an issue. However, in some areas more new hotels may exacerbate any demand weakness. We would expect the development pace to accelerate more steeply as economic growth takes hold and access to financing improves.”

The M&A market in the UK

UK hotel deal volumes have historically tracked market trading fundamentals with the recent growth in M&A activity reflecting the solid return to RevPAR growth. In the last two years the banks have continued to offload their hotel interests through asset and, more recently, debt transactions, while investor confidence has returned to the UK hotel sector especially in the provinces which will likely make up nearly 60% of the total UK hotel transactions in 2014.

Looking ahead to deal activity in 2015, Sam Ward, UK hotels leader at PwC, said:

“Continued strong RevPAR growth should drive further investor interest although deal volumes in 2015 could be constrained by a potential limit to available supply in provincial portfolio deals. PE houses will remain active and interested buyers, especially where there are opportunities to improve efficiencies by bolting on new portfolios of hotels to existing assets. Middle East and Asian investors will also be significant players in London, though in the long term this could leave the market less liquid, as they tend to hold their assets longer term.”

David Trunkfield, hospitality and leisure leader at PwC, concluded:

“The UK economic recovery is gathering pace and should bring good news for London and regional hotels as travel and consumer confidence pick up. However, the hotel sector does face ongoing geopolitical uncertainty, both in the UK and further afield, as well as other challenges.

“New products and business models could represent a challenge for existing hotels. An example is the potential impact of so called sharing economy models such as Airbnb.

“Sharing economy platforms provide new entrants and individuals the opportunity to present travellers with non-hotel alternatives in large scale under a trusted brand, and travellers are taking them up on the offer. Sharing platforms such as AirBnB are growing rapidly, and are expected to continue to do so. Some of this growth could come at the expense of hotels - hoteliers need to look at what steps can be taken to ensure the impact on the hotel industry is minimised.”

PwC U.K. hotels forecast 2015

PwC ‘s latest forecast for UK hotel performance expects growth across the board for the 2014 outturn and into 2015. Overall UK hotels are expected to see a 5.6% gain in RevPAR (revenue per available room) in 2015 (to £67.39), driven by a 4% rates growth (to £86.49) and a 1.6% increase in occupancy (to 78%). This is underpinned by a continued strong recovery in the Provinces as well as strong growth in London, especially next year.

Graphic of a trophy and rugby ball

The sector however still faces plenty of challenges and geopolitical uncertainty. New products and business models can sometimes represent a challenge for existing businesses. Every so often a profound change to the established way of doing business can leave some businesses ill prepared for the new order. A case in point that is relevant to the UK hotel sector is the potential impact of so called shared economy models. In this edition of the UK Forecast we provide an insight into this growing global phenomenon and provide our views on what steps can be taken to ensure the impact on the hotel industry is minimised.

At a glance

  • Growth across the board for hotels for the 2014 outturn and for 2015, underpinned by a resilient economy, buoyant business travel and a knock-on effect from the Rugby World Cup in 2015
  • Modest growth in occupancy should be mirrored in both the Provinces and London and is enough to lift occupancies to record levels
  • With occupancies high, we anticipate ADR growth will drive a strong RevPAR resurgence in nominal terms. In real terms we hope we are seeing the beginning of a sustained and bedded-in period of growth in the Provinces – which is very good news
  • The sector continues to face plenty of challenges and geopolitical uncertainty
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