Specialist business property adviser, Christie & Co, has launched a new report, The UK Hotel Market: New challenges on the road to recovery, providing a snapshot of the UK hotel market in 2022, as it emerges from the pandemic and faces a new wave of economic and operational challenges.

The report also shares a market outlook from major industry players, Accor and Pygmalion.

The snapshot suggests that the UK hotel market proved resilient throughout the pandemic and has recovered at a faster rate than first anticipated since January 2022, with overall performance nearing or surpassing 2019 levels since May 2022. However, the coming months may prove more challenging for the sector’s different stakeholders due to the cost-of-living crisis, weakened GDP, and increasing inflation rates.

The snapshot analyses the performance and outlook for the UK’s top ten cities, which includes London, Manchester, Liverpool, Birmingham, Edinburgh, Glasgow, Belfast, Cardiff, Bristol and Newcastle.

Regional UK markets such as Edinburgh, Birmingham and Liverpool saw the highest increase in RevPAR in H1 2022, surpassing 2019 levels by 6.9%, 8.5% and 7.5% respectively. In comparison, London has been slower to recover as the capital relies on international source markets and business travellers.

Since January, operators have maintained high ADRs in order to balance some of the increasing cost pressures as well as partly protecting their profit conversions. The success of this strategy has been made possible by a change in consumer behaviour in the face of rising costs, with holiday spending being prioritised.

Transactional volumes have remained strong and a total of £1.9 billion was spent on UK hotel transactions in H1 2022, an increase of 32% compared to H1 2021. Interestingly, domestic buyers are far more active in the market compared to last year. In 2021, cross border investors represented 52% of the buyers yet this number dropped to 23% in H1 2022, likely due to international travel restrictions imposed over the past few years due to the pandemic, although this is unlikely to be a long-lasting trend.

Key factors impacting the market

The report provides insight into the positive and negative factors that are impacting the hotel market. Following the pandemic, hotels that were considered popular ‘staycation’ destinations have seen increased performance, particularly in more rural areas such as Belfast, Cardiff, and Newcastle. Hybrid hotels have also continued to perform well since the pandemic, as guests seek more flexibility in these spaces.

The impact of the Ukrainian war on the rising cost of gas and electricity bills has already affected hoteliers’ financial decisions in 2022, with many maintaining high ADRs to balance increasing cost pressures. Rising interest rates are predicted to directly impact financing options for hoteliers next year.

Emerging Trends and Outlook

Since 2020 with the rising popularity of “staycation” destinations, the UK market has seen an increase in domestic buyers. At present 77% of the UK volume is credited to domestic investors, a number which may continue to rise.

Inflation rates and GDP are expected to have a direct impact to the hotel market, with the BOE base rate expected to rise by 3% by the end of 2023. The market is full of active buyers, which may continue as a trend throughout 2022 as the rising inflation rates will encourage more hoteliers to buy rather than develop greenfield projects. Lenders may also grow more cautious in the next half of 2022 despite the upwards trend in the market over the last 12 months.

Diane Loubeyre, Senior Consultant – Hotels at Christie & Co, comments,

“Despite having to navigate a new wave of challenges in 2022, the UK hotel market has remained resilient, and we are pleased to report the encouraging performance levels witnessed across the country so far this year. Inbound international travel is also picking up and might grow further into 2023, and with the pound at an all-time low compared to USD or Euros, the UK is now more affordable to visit. This will only act to further support the sector’s recovery next year.

“Off the back of this, market sentiment amongst hotel investors remains positive albeit more cautious due to the challenging economic backdrop, and many investors continue to seek out a range of opportunities in the market.

“Christie & Co’s Consultancy team has experienced a busy year so far, and much of our work has focused on feasibility studies, development advice and buyer due diligence. However, we are starting to see more demand for operational and strategic reviews from lenders trying to support their clients facing increased interest rates and costs pressures.”

Carine Bonnejean, Managing Director – Hotels at Christie & Co, adds,

“This publication clearly shows the opposite forces currently shaping the UK hotel market, as hotel performance is positive and improving yet significant economic and operational challenges pose a serious threat to the sector’s recovery. The next few months will be another litmus test for the various stakeholders. We are starting to see the first signs of distress but to date there is still a functioning yet cautious transactional market.”

To read The UK Hotel Market: New challenges on the road to recovery, click here: https://www.christie.com/news-resources/publications/uk-hotel-market-snapshot-2022/