Britain after Brexit - STR Global

While it is currently impossible to quantify the exact impact of Brexit, it will most likely affect current hotel performance in the UK. London and regional hotels have experienced the longest 12-month moving average period of RevPAR growth since January 2007, albeit growth has slowed recently.

Figures for May 2016 show that while London’s monthly performance has been positive, its year-to-date May RevPAR was down 3.0% to £99.88, driven by a 2.7% decline in occupancy levels. On the other hand, regional hotels witnessed an increase in RevPAR of 2.2% to £46.87, as a 2.9% increase in ADR offset the 0.6% decline in occupancy. Most of the impact will probably be in travel confidence, especially business travel, that will likely stem from the uncertain environment.

STR concurs with Oxford Economics’ belief that one possible Brexit scenario would be negative for London’s hotel industry, although the depth of the negativity is difficult to gauge. Weaker domestic hotel demand, in line with weaker GDP, lower consumer spending and higher unemployment can be expected. Larger falls in capital investment, including hotel investment, are likely because of the ensuing uncertain business environment. That will affect business travel, which is a large component of the London hotel market.

On the other hand, the sharp drop in currency exchange rates will make London more affordable to some extent. It is possible that this might be enough to offset the negative impact from weaker domestic demand. Market sentiment will play some role and could serve to enhance any negative effects if the vote to leave is followed by a souring of relations with the remaining EU countries. By contrast, a smooth transition, and a continued perception of London as a positive place to visit and do business could accentuate positive price effects.

While Oxford Economics predicts that the longer-term impact on overall domestic economic activity will be negative, there is a potential positive outcome for the hotel industry, due to the increased affordability of the UK and London as a destination, derived from a weaker exchange rate. However, uncertainty is likely to remain, not least from the potential long-term impact of lower investment, which would continue to affect business-travel decisions.