Category: Analysis

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PwC Hotels Forecast update

According to PwC’s latest UK Hotels Forecast Update, the outlook for hotel deals 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.

Hotels in London are expected to maintain high occupancy levels, but supply growth is poised to  limit occupancy growth this year to a “marginal” 0.3 percent.

PwC expects average daily rate (ADR) to keep growing with an uplift of 1.4 percent 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 percent in 2019, taking RevPAR to £126. In 2020, growth is anticipated to see a further  1.4 percent rise, taking RevPAR to £128.

“London saw stronger-than-expected demand in the last three months of 2018 which transformed the year for the capital,” said David Trunkfield, head of hospitality and leisure at PwC. “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 percent. Weekend demand remains strong  and the weak pound continues to support tourism and hotels; however, there are worries tourists, especially from the EU, may adapt a ‘wait-and-see’ attitude toward visiting the UK in 2019.”

New supply grew by 2 percent in 2018, and Trunkfield expected new supply to increase by a further 4 percent in London this year. “With uncertain demand, weaker corporate travel trends and no blockbuster events scheduled this year, this could dampen hotel performance,” he said.

Outlook for the regions

January data from STR indicates the regions already are seeing softer demand and it expects this to continue this year, as high supply additions in many cities continue to affect hotel trading.

PwC’s latest forecast predicts a marginal decline in occupancy of -0.1 percent. As supply squeezes occupancy,  ADR is expected to see only around 0.5 percent growth, taking regional ADR to £73.

PwC expects RevPAR to edge up 0.4 percent to £55.1. In 2020, RevPAR will follow a similar pattern as weak occupancy (-0.1 percent) and ADR growth of 0.8 percent lifts ADR to £73 and buoys RevPAR by 0.8 percent, taking it  to £55.5, according to PwC.

“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,” said Trunkfield. “While demand should be supported by festivals, 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 percent 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 about £6.6 billion, a 36 percent increase on the previous year, making it the second highest ever year in terms of deal volume behind 2015, which saw a high of about £9.3 billion. Looking ahead, PwC forecasts for deal activity to decrease by around 10 percent to £6 billion.

“Deal activity for 2018 was a tale of two halves,” said Sam Ward, UK hotels leader at PwC. “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.”

The full forecast can be viewed online: https://www.pwc.co.uk/industries/hospitality-leisure/insights/uk-hotels-forecast-update-for-2019-and-2020.html

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Brexit – the good news for London City venues

Nearly 77% of London City venues, according to a recent survey, are expecting an increase in revenue in the next 12 months, in spite of the uncertainty caused by Brexit.

The survey, carried out by London City Selection (LCS) – a consortium of City venues and suppliers – uncovered several other positive findings. Notably, that 70% of respondents are optimistic about the coming year and 70% have seen no movement or an increase in confirmed booking when comparing 2018 to 2019.

The State of the Industry survey was sent to LCS members to explore the affect Brexit has been having on the events industry in 2019. “Brexit is something everyone across every industry in the City is speculating about,” says Sarah McQueen, Venues & Hospitality Manager at the London Museum, “We wanted to go out there and pull together some facts so we could give our members, and the industry, some clarity about what’s really going on.”

Although the results of the survey look as though 2019 is going to be a good year for the events industry in the City, there are a few areas that may cause some concern including customer spend. Nearly 70% of those surveyed said they felt “client budget is becoming an issue in the face of Brexit”.

It also appears that more venues have seen a dip in overseas bookings (15.38%) compared to only 7.9% enjoying an increase and that venues are concerned about recruiting and maintaining staff in the future. “Brexit is definitely playing a role in recruitment and staff retention,” one respondent said. “The recruitment pool seems to be smaller and overall time to fill a position is longer.” Over half (53.85%) of individuals completing the survey were concerned about this area.

Paul Martins, LCS Chair says: “There’s no doubt that the uncertainty of Brexit is going to affect us all but it’s encouraging to see that, certainly in the short term, LCS member venues are generally optimistic about the next 12 months.”

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European hotel profits fall as hotel openings increase competition

Profit per room at hotels in mainland Europe fell by 9 per cent year-on-year in January – the largest margin of decline in this measure since August 2016 – as revenues dropped and costs escalated, according to the latest data from HotStats.

However, conference average room rate in January was up 3.7 per cent year-on-year. Total conference and banqueting revenue exclusive of rooms was up 0.5 per cent in the month.

A glut of new hotel bedrooms throughout Europe seems to have created more competitive pricing.

David Eisen, director of Hotstats hotel intelligence and customer solutions, said: “I’d say that new supply does have an impact on demand, weakening it to some degree. In 2018, more than 53,000 rooms opened throughout Europe, which was reportedly the highest number of new hotel openings ever recorded. This has an impact on occupancy levels.”

January is historically a slow month for hotels in Europe and the dip should not portend gloom for the full year, according to the report. Hotstats says that this is evidenced by mainland Europe’s very successful year of operation in 2018, during which hotels in the region recorded a 9 per cent increase in GOPPAR (total gross operating profit for the period divided by the total available rooms during the period.)

But within the average figures, the story varied throughout Europe with Lisbon, for example, recording a 6.4 per cent decrease in profit per room while Madrid’s total gross operating profit GOPPAR soared by 31 per cent in the month. The growth in profit was led by a 9 per cent increase in average room rate, which hit €151.61 and was a fourth consecutive month of significant growth in rate.

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Marriott, Hilton, IHG and Accor dominating global hotel pipeline

The global pipeline for new hotels is being dominated by four groups, according to a new report by Lodging Econometrics (LE).

At the end of 2018 Marriott, Hilton, IHG and Accor accounted for over half (55 per cent) of all projects, according to the Global Construction Pipeline Trend Report, which compiles the construction pipeline counts for every country and market around the world.

Marriott International had the most pipeline projects with 2,544, followed by Hilton with 2,252, Intercontinental Hotels Group with 1,716, and Accor with 966. In terms of individual brands, IHG’s Holiday Inn Express had the most pipeline projects with 731.

Analysis shows that the total global construction pipeline hit 13,753 projects at the end of last year, up 7 per cent year-on-year.

Over 5,500 of these projects are in the US, with over 2,700 in China. The two countries between them accounted for over 60 per cent of all global projects, while the UK had a total of 266 pipeline projects (38,590 rooms).

The individual city with the most projects was New York with 171, followed by Dubai with 168, Dallas with 163, LA with 147 and Guangzhou with 132.

LE forecasts that a total of 2,844 hotels will open in 2019 (compared to 2,675 in 2018), with this figure growing to 3,088 in 2020.

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‘Unprecedented’ growth boosts UK hotel investment to £7.4b

Investment in the UK hotels industry hit £7.4b in 2018, a £1.7b increase year-on-year, a rise of 29% and 102% above the 12-year average.

That is according to the latest research by global property adviser Knight Frank. The “unprecedented” growth in 2018 was due to a 50% increase in international investment, with overseas buyers responsible for £4.9b invested into the UK hotel market. There was a 50-50 split of the capital invested between London and the UK regions.

UK investors were responsible for a third of the investment (£2.5b), European investors 27% (£2b) with £1.6b from France. Inbound capital from the US increased by 77% to £1.5b (21%), due to significant institutional interest.

London continues to remain an attractive target with total investment climbing to £3.3b. The acquisition of hotel sites and the forward funding of hotel projects equated to 21% of the total investment. The interest from international investment was the leading driver of the capital’s hotel market, accounting for £2.4b of total investment.

Outside of London, Edinburgh was ranked the most attractive regional UK city for hotel investment, accounting for transactions totalling around £525m with a 13% share of the UK regional investment market.

A new trend that emerged in 2018 was the increase in activity from local authorities, capitalising on low-interest central government loans to purchase commercial property. In 2018, local councils invested a record £93m in the hotel sector, an increase of 182% on 2017 (£33m).

Shaun Roy, head of hotels at Knight Frank, said: “With rising interest rates and prolonged Brexit negotiations, there is a strong demand for secure, long-term fixed income assets which has led to an increase in investment in hotels.

“The capital continues to remain an attractive destination for global and domestic investors, with opportunistic hotel investors stimulated by the attractive levels of growth prospects in London over the long-term.

“Furthermore, the proportion of capital allocated to specialist property is evident from the growing trend for the inclusion of hotel real estate in institutional funds. There is now a much greater understanding of the fundamentals of hotels as a specialist sector, which has led to over £1.1b invested in hotel development and forward funding for future hotel projects.

“We envisage further inbound investment, should sterling weaken further following the UK’s exit from the EU. Overseas capital flows and institutional investment is expected to remain buoyant as greater strategic importance is placed on investing in alternative specialist sector businesses

“Thus far, the pace of investment in 2019 has been strong, with London in the alluring position of being the world’s most liquid and transparent real estate market, cementing its reputation as a safe haven for international capital.”

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Edinburgh remains top UK location for hotel investment

Edinburgh is still the top location for hotel investment in the UK, with Belfast second and Liverpool third, thanks to strong performance and low building costs.

The Colliers International UK Hotels Market Index said that Edinburgh had consistently strong occupancy and average daily room rate levels in 2018, while revenue per available room (revpar) had grown for the past four years.

The UK Hotels Market Index analyses 34 locations across the UK. London remains the strongest performer in terms of revpar, but only places sixth due to the high cost of land.

Plymouth and Oxford had been strong performers in the past, but have since fallen out of the top 10. Oxford recorded strong revpar levels in 2018, but has dropped due to high land costs, while Plymouth saw a decline in revpar last year.

Marc Finney, head of hotels and resorts consulting at Colliers International, said: “Overall, the UK hotel sector is in rude health. Operating performance is holding up well in most UK markets and London continues to perform well.

“The UK hotel market adds about 10,000 new rooms each year and this has increased in pace recently, with almost 18,000 new rooms expected to open in 2019. This leaves hotels as a rare bright spot in a property market that is facing challenges in other sectors.”

The top 10 UK spots for hotel investment and development are:
1 Edinburgh
2 Belfast
3 Liverpool
4 Chester
5 Bath
6 London
7 Glasgow
8 Brighton
9 Cambridge
10 Leeds.

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HBAA hails promising trends and positive outlook for 2019

HBAA chair Angie Mason hailed the findings of the report, saying that “promising trends provide good reasons for a positive outlook on 2019”.

The report, developed in partnership with The MeetingsBenchmark Ltd. indicates that the average spend per meeting increased again from £1,954 in 2017 to £1,971 in 2018, an increase of almost 1 per cent. However, the average spend per delegate went down slightly from £88.35 in 2017 to £85.71 last year, a decrease of 3 per cent.

While the average day delegate rate (DDR) rose imperceptibly from £32.88 in 2017 to £32.89 last year, the average number of delegates also increased slightly from 53 to 54. With the average size of meetings booked to date for 2019 currently 72, forward prospects so far this year are encouraging.

There were also positive indications in the reduction of lead and conversion times. The average lead time for forward booking of events went down from 83.5 days to 79.7 days while the average conversion time went down slightly from 19 days to 18.5 days,

The HBAA Meetings Barometer also reveals a wide range in the average DDR across the country. There is a major difference between London (£39.97) and Newcastle (£24.91) with Manchester (£31.92), Birmingham (£29.87), Scotland (£27.54), Bristol (£27.51) and Leeds (£26.56) between them.

Angie Mason, HBAA chair said: “The HBAA Meetings Barometer once again provides a fascinating snapshot of the market and highlights several good reasons to be positive and optimistic about the year ahead.”

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European hotel rooms see ‘strong growth’ in value

European Landmarks

Hotel values across Europe registered another strong year in 2018 showing 3% growth and reaching new highs, according to the annual European Hotel Valuation Index (HVI), compiled by global hotel consultancy HVS.

Although it was a more modest growth than that of 2017 at 3.9%, 2018 saw recovery for many cities as well as a levelling off in values for some markets, which had previously been depressed compared with the European average.

The annual HVI ranks the percentage change in the values of typically four-star and five-star hotels across 33 major European cities, both in Euro and local currency terms, as well as ranking each market in terms of the average price per hotel room.

Hotels in Lisbon, Moscow, Paris, Brussels and Berlin filled the top five slots in terms of highest percentage growth in values in euro terms, with Lisbon (9%), the year’s biggest climber.

On the back of the FIFA World Cup Moscow’s hotels recorded 8% growth in this year’s index with a RevPAR increase in euros of over 180% for June and July. St Petersburg showed a 6% increase, ranking it sixth in the HVI. In local currency value growth in these markets was even more pronounced.

Paris returned to the top five in this year’s index up 7%, while Berlin completed the top five also with 7% growth.

Only six of the 33 markets analysed experienced a value drop, with those at the bottom of the index, in euro terms, including Barcelona, which was badly impacted by the civil unrest caused by the strengthening of the Catalan independence movement; Hamburg, Manchester and Warsaw, which all suffered from an influx of new supply in the market; and Geneva and Stockholm, which were impacted by currency dynamics in 2018.

In terms of the absolute value of hotel rooms, those in Paris, London, Zurich, Geneva and Rome filled the top five slots for the most expensive in Europe, with Birmingham, Sofia, Bratislava, Bucharest and Manchester at the bottom end of the ranking.

Sophie Perret, director at HVS London, said: “Demand for hotel accommodation remains vigorous across most markets in Europe, and while economic growth for this cycle might be beyond its peak hotel demand is unlikely to suddenly fall away.

“For investors the advice is to factor in a slightly longer exit window and be cautious, but there are some good deals to be had by those seeking to acquire hotels in many European cities.”

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Research shows companies fail to carry out meetings risk assessments

New research reveals that many companies are failing to carry out proper risk assessments for every meeting despite the fact that 62 per cent of travel buyers say this is a growing priority.

A survey conducted by the Global Business Travel Association (GBTA) in partnership with WorldAware found that a quarter of organisations never or rarely conduct a formal risk assessment of specific venues.

Furthermore, 24 per cent never or rarely assess the risk of meeting locations, such as a particular city or neighbourhood.

While most travel programmes have a risk management solution in place, less than half (49 per cent) have one that includes MICE data. The GBTA says this lack of itinerary data makes it difficult for companies to track their travellers and, in turn, ensure their safety, with a third of travel buyers saying it is more difficult to track employees when they travel for meetings than for transient travel such as a sales trip.

In the event of an emergency, 80 per cent of respondents say they sometimes have a crisis communication plan for meetings, but only 36 per cent say they always have plans in place.

Some of the travel buyers responding to the survey admit they don’t have a risk solution that includes MICE data, but 28 per cent plan to adopt one within the next year.

Michael W McCormick, GBTA executive director and COO, commented: “Organisations are certainly making strides in the meetings risk management field, but current efforts leave something to be desired. Proper risk management can be the difference between a successful event and a catastrophic disaster. Although it’s encouraging to see more organisations do assess the risk of meeting locations, the research shows that many companies have some catching up to do.”

Theresa Thomas, senior VP of strategic partnerships at WorldAware, added: “Successful risk management for meetings and events requires organisations to clearly assign risk management responsibilities to an individual or team of individuals, and that responsibility must be comprehensive. In other words, those responsible for risk management must be empowered to assess risks related to location at a city and neighbourhood level, the venue itself and ground transportation, including public transit as well as private transportation.”

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New Cvent research suggests corporate travel budgets are expected to rise

According to new research, seven in ten European corporate travel buyers anticipate an increase in travel budgets this year, with 16 per cent expecting significant growth, but many said they face multiple challenges over the next 12 months.

The survey of 500 corporate travel decision makers by meetings, events and hospitality technology provider Cvent found German buyers are the most optimistic, predicting a significant increase in their budget for 2019. Only a quarter overall believe their allocation of company funds will remain the same.

Forty-four per cent of respondents manage spend of more than €1 million.

Nearly six in ten (57 per cent) of those surveyed said their hotel sourcing process occurs once a year, showing many buyers are still focused on the annual Request for Proposal (RFP). Meanwhile one in five undertake this task every two years and 16 per cent look for properties more than once a year.

Furthermore, buyers pointed to rising hotel costs and value for money (both 44.5 per cent) as the top challenges they face this year, with German decision makers especially worried about the latter (46.5 per cent).

Nearly six in ten UK respondents (59 per cent) said Brexit uncertainty was their main concern. The UK’s exit from the EU is also creating a challenge for buyers in Spain (31.7 per cent), Germany (30.7 per cent), Italy (30 per cent) and France (17.8 per cent).

Safety and security were regarded as less of an issue compared to costs (37.4 per cent overall).

Cvent says the research highlights clear opportunities for the corporate hospitality industry. When asked about their biggest challenges when negotiating with hotels, more than a quarter (26 per cent) cited rate increases that were above city or benchmark averages, followed by a lack of transparency (17.4 per cent) and bids that do not meet the requirements set out in the RFP (15.8 per cent).

A lack of transparency was the biggest issue for 24 per cent of UK decision makers.

Meanwhile, 13 per cent across Europe highlighted poor, slow, or incomplete responses from hotels and 11 per cent said chain account managers were not relaying their company information to specific hotels.

And when choosing which hotels to use in their programme, location tops the list, with 69 per cent of respondents prioritising this, followed by rates (59.7 per cent), amenities (53.6 per cent), star rating (30.8 per cent) and loyalty programmes (25.1 per cent). One per cent said they don’t prioritise any particular features, with the remaining 0.6 per cent citing other factors.