Hotel RevPAR continues to grow, but increasing competition likely

By Noli Dinkovski

- Last updated on GMT

UK hotels have enjoyed RevPAR growth but room rates are starting to plateau
UK hotels have enjoyed RevPAR growth but room rates are starting to plateau

Related tags: Hotel

Average RevPAR (revenue per available rooms) was in double-digit growth in the fourth quarter of 2014, but room rates are beginning to plateau – the latest Hotel Bulletin report has found.

The report, put together by HVS, Zolfo Cooper and AM:PM, found that hotels across 12 UK cities surpassed pre-downturn RevPAR, with a 19 per cent average year-on-year increase. Only Belfast, Birmingham and Newcastle remained short of this target.

Boosted by a number of high-profile events held in the city during the quarter, Glasgow was the top performer with a 32 per cent RevPAR increase.

In London, occupancy rates stagnated for a third consecutive quarter, but RevPAR still increased by 13 per cent.

Increasing supply

However, the report also found initial signs that 'performance maturity' is beginning to influence the hotel market.

It suggested that increased competition from new supply is also likely to make growth more challenging and this may prompt some investors to consider selling.

More positively, the report believed that lower petrol prices and the expected increase in disposable income will enable consumers to spend more money on hotels and leisure.

This will enable hoteliers who can control costs and fend off new entrants to realise profitability growth beyond RevPAR increases, it claimed.

HVS chairman Russell Kett said: “The strong performance by UK hotels should have resulted in improved profitability and helped to boost values.

“We would expect this to be sustained throughout 2015 and potentially beyond with the sector remaining attractive to investors.”

Kett added: “As occupancy starts to level out the emphasis for operators now has to be on improving achieved room rates, although this is more difficult in areas where there is strong growth in supply.”

Budget boom

In terms of new builds, budget hotels still dominate development with the sector representing 34 per cent of current supply and 47 per cent of the market’s active pipeline.

The report cited Travelodge, which opened 506 rooms in the first three quarters of 2014, and has a further 1,400 in its pipeline for 2015. Premier Inn, meanwhile, continues to increase its market share, opening 10 new sites (1,043 bedrooms) in the last quarter of 2014 alone.

“The market for budget hotels continues to grow as guests, both leisure and business, maintain a tight rein on their accommodation budget and are reluctant to pay for amenities they won't use,” said Kett.

The report also found that transaction activity in the hotel sector has increased significantly, with £1.1bn worth of transactions completed in Q4, resulting in a total of £4.4bn in transaction sales last year.

This tied in with a seperate report from CBRE Hotels, which found that the UK attracted the highest level of global hotel investment activity in 2014 – taking a 36 per cent share of all investment volumes.

Large deals in 2014 included the QMH portfolio bought by Marathon and the LRG portfolio purchased by Kew Green.

Related topics: Business, Hotels, Trends & Reports

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