Economy puts fizz back into the UK hotel sector, says PwC

By Luke Nicholls

- Last updated on GMT

Related tags: Hotel, Pwc

Despite the good news, PwC warns that there is no room for complacency just yet
Despite the good news, PwC warns that there is no room for complacency just yet
The hotel sector has been boosted by an 'improving economic backdrop' in 2013, with properties in London recovering well after a sluggish start to the year, and those in the Provinces seeing a remarkable recovery with continuously strong demand. 

That's according to the latest PwC analysis, which claims the economy has 'put the fizz back into the UK hotel sector' this year, with a return to confidence and stronger demand. 

Liz Hall, head of hospitality and leisure research at PwC, said: “Despite ADR levels still reflecting continuing consumer and corporate price sensitivity, it’s a very positive story. Continued economic recovery should mean sustained and enhanced prospects for hoteliers in 2014.”

The conference and meeting market remains below past peaks. However, the economic recovery in the UK and a calmer euro zone will help stimulate international and domestic business and leisure demand and aid its recovery.  

Despite the good news, PwC warns that there is no room for complacency just yet, as it’s likely to remain a challenging environment for hoteliers to operate in, with consumer spending expected to remain squeezed until 2015. New supply remains relatively high especially in London and improved trading will encourage more development and competition in the sector.  

Return to normal

Hall added: “The sector keeps evolving and London has continued to soak up all the new supply that has opened through 2012 and 2013 and no doubt it will in 2014 as well, when a further 6,000 rooms and some exciting new brands open.

“In the regions, while there remain pockets of oversupply with budget chains adding to hoteliers’ pricing pressures, many cities have performed very well. But it does mean a more crowded UK hotel landscape. For the consumer, new supply is progress, with new brands, more choice and more price competition.”

In London, a return to ‘normal’ in 2014 will be welcomed with stronger pricing and record RevPAR (a key industry metric) expected. “It looks like occupancy, ADR and RevPAR are heading in one direction, with the right kind growth to keep London on its upward trajectory in 2014," said Hall. "With occupancy already very high its likely to be ADR where the growth potential is largest.”

The outlook for the regions is also positive for 2014. Occupancy and ADR have improved quicker than we expected in 2013. PwC expects ADR to reach almost £60 in 2014, still below the 2008 peak, even in nominal terms, but the best result since 2009. PwC expects 1.8 per cent RevPAR growth in the Regions in 2014, taking RevPAR to nearly £42.50 - again the best result since 2008.

 “Overall, the forecast economic growth in 2014 should put smiles on hoteliers’ faces as they see further strengthening of demand in both London and the Regions," concluded Hall.

Bank lending

Commenting on hotel deal activity in 2013 and looking ahead to 2014, Samantha Ward, hotel deals leader at PwC, said: "As the UK regional hotel performance begins to show signs of turning the corner to recovery, 2013 has seen a significant growth in hotel transaction volumes with both large portfolio and single asset deals.

"In addition to some legacy deals from prior year sales processes, the momentum seems set to continue as the banks are showing a much greater willingness to deleverage from hotel assets, either through the sale of the business or the loans directly, and more recently portfolios of hotel loans.

"Improved investor confidence off the back of forecast growth in UK hotel performance, a substantial pool of private equity capital and better availability of debt financing have all helped to boost deal flow. The current level of UK hotel transaction activity seems set to stay for 2014, with a significant pipeline of deals for the New Year." 

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