Brexit and beyond – STR Global analysis
11 October 2016The result of the UK’s Brexit referendum in June shook every major industry, ranging from clear, short-term impacts to speculated long-term scenarios. Our partner STR Global considers the likely responses of hotel operators and consumers.
The hospitality industry has become a crucial pillar of the UK’s economy, accounting for nearly 4% of its gross domestic profit and 9% of its total workforce. Its properties have consistently recorded higher occupancy levels and average daily rates (ADR) than those in most European countries, particularly in recent years.
Following the London Olympics in 2012, hotel performance has thrived as a result of demand outpacing supply. In terms of profitability, UK hotels recorded a gross operating profit per available room (GOPPAR) of £58.80 with a margin of 39.2% in 2015, which is considerably higher than those in other European countries.
Dwindling demand, largely due to Europe-wide security concerns, saw London’s RevPAR performance slip towards the end of 2015, but results following the decision to leave the EU have been surprising. July was the first month in 2016 in which London posted RevPAR growth, thanks mostly to major events. Daily data shows that the capital’s year-on-year occupancy increased 12.3% to 84.3% on 10 July, the day upon which Wimbledon ended and the Farnborough International Airshow began.
That month also recorded regional UK’s highest occupancy (83.5%) and ADR (£73.85) since 1995, which is as far back as STR’s data goes. This uplift was largely driven by the leisure segment, with RevPAR up 7% during weekends versus 3% on weekdays.
Preliminary data for August indicates that London’s occupancy and ADR both fell by 1%, but the regional RevPAR increased by 4% compared with the same month in 2015.
STR forecast
For London, although demand is expected to increase during 2017, it will likely be outpaced by supply growth. ADR is projected to continue dropping, resulting in a 4% decline in RevPAR. In the longer term, compound annual growth rate (CAGR) is expected to recover as demand grows by 3% between 2015 and 2020, outpacing supply growth.
Outside the capital, RevPAR is expected to reach 4% growth by the end of 2016 and rise again to 5% in 2017, with Edinburgh, Manchester and Birmingham expected to experience the greatest demand, and annual ADR increasing by just under 3%.
