BDO forecasts further growth for hotels in 2014

By Carina Perkins contact

- Last updated on GMT

Related tags: Cent, Hotel, Investment

The outlook is good for hotels in 2014, although three-star independents might struggle against the budget brands, according to BDO
The outlook is good for hotels in 2014, although three-star independents might struggle against the budget brands, according to BDO
Record visitor numbers, movement in the MICE market and resurgence in the regions should drive further growth in the UK hotel sector this year, according to business advisors BDO LLP.

BDO’s latest Hotel Britain report revealed that daily room yields rose 2.6 per cent year-on-year in 2013 to £81.5 per cent, while occupancy hit 77 per cent, up from 75.6 per cent in 2012 and its highest level for some years.

London remains the “engine room” of the UK hotel industry, and BDO said occupancy in the capital rose 1.3 per cent in 2013 to an impressive 83.1 per cent.

Average room rates in the capital were marginally down but room yield increased 1.1 per cent to £126.66.

Regional hotels saw even stronger growth last year, with average room rates up 0.6 per cent to £71.22, room yields up 3.5 per cent to £51.99 and occupancy up 2.1 per cent to 73 per cent.

BDO attributed this growth to the warm summer and lower disposable incomes, which encouraged more Brits to holiday in the UK.  Modest growth in the meetings, incentives, conferences and exhibitions (MICE) market helped boost performance in the regions.

With the UK economy expected to grow 2.7 per cent this year and inbound tourism set to continue its record-breaking run, BDO said the 2014 outlook was “positive” for hotels in London and the regions.

Investment

A return to optimism amongst UK hoteliers and interest from foreign investors is also helping drive growth in the UK hotel deal market.

UK hotel investments surpassed all other EU countries in 2013 and the total transaction value hit £2.5bn – the highest level since 2007.

Average transaction values rose a staggering 55.9 per cent to £50m, although the dominance of portfolio deals resulted in a 25.8 per cent decrease in average price per key, said BDO.

Although London continued to dominate the market, with 75 per cent of all hotel deals happening in the Capital, regional activity also picked up in 2013, with the regional market enjoying improved trading conditions “for the first time since the recession.”

BDO predicted that investment would continue to grow in 2014, particularly in regions outside of London.

“After a particularly successful year, both investors and operators are seeing regional hotels as good value for money when it comes to driving investments and deals,” said the report.

“Investments are expected to be 138% up in the regions, according to Jll. recent months have already seen hotel groups actively consolidating and investing in potential development sites.”

Pipeline recovery

2014 should also see some recovery in the pipeline of new hotels, which slowed down considerably in 2013.

Just 7,659 new rooms opened last year, a 51.7 per cent drop on 2012 levels, although there was a 104.3 per cent increase in re-branded rooms entering the market.

In 2014, BDO said London will see supply increase by 4 per cent, or 4,500 new rooms, while the regions will see modest growth of 2 per cent, or 6,500 rooms.

Branded budget hotels, which dominated the group sector with a 31.4 per cent market share last year, are set to be the biggest driver of new rooms.

BDO warned that this is putting pressure on independently owned three-star hotels, which saw market share fall from 25 per cent to 15.9 per cent in 2013 and are set to experience further losses in 2014.

 “As brand proliferation continues, with growing pressure on independents to improve their offering, we can expect to see some of this supply reduced or converted,” said the report.

Related topics: Business, Hotels, Trends & Reports

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