Propiteer Capital - Investing in the Booming UK Hotel Sector
Despite some challenges in recent years, the hospitality sector shows great strength and optimism for the new year. Find out more about industry forecasts and hotel investment opportunities in 2023.
With domestic, tourist, and business travel on the rise, the UK hotel sector has been booming its way out of the pandemic. An industry that once crumbled under the pressures of lockdowns has experienced an impressive recovery over the last few years. But this growth doesn’t come without its headwinds, which are primarily triggered by a looming recession and long-term Covid-19 effects, but the sector remains incredibly resilient as hotel bookings, tradings, and investments stay strong.
Success in 2022
Two years since the eruption of Covid-19, the hospitality industry was set for a successful year in 2022. While offices and retail spaces faced a decline, hotels began an upward trend as people were keen to book holidays again and the rise of staycations began. Even by the end of 2021, a year of lockdowns, the global travel industry grew by an astonishing 4% versus 2020. Propiteer blog
Over the course of the past year, hotel performance has met positive expectations and trading proved to be strong throughout. New hybrid working trends and flexible business travel contributed to a strong recovery, and London in particular fuelled significant growth for the UK with occupancy rates in the capital having achieved 70% between April and October 2022. The year ended in a positive position as regional hotels exceeded their 2019 RevPAR (revenue per available room) figure by 3.5%.
Hotel investments also had a strong start to 2022 and held positive momentum throughout the year. In the January to April 2022 period, UK hotel transaction volumes exceeded £1.5bn, surpassing the H1 2021 volumes by 40% and showing a robust sector recovery. Performance was relatively evenly split between London (approximately £750m) and UK regions (approximately £800m). More online
Challenges in 2023
The hospitality sector has certainly had its challenges over the last few years. The economic struggle in 2022 is one of the factors impacting hotel performance and creating an uncertain outlook for the year ahead with soaring inflation, energy, and rising interest rates all providing considerable headwinds. Rising costs threaten areas such as employment and operations, but the government is due to introduce a new tax relief scheme in 2023, which will keep VAT at its current rate beyond April to support hospitality businesses with the growing costs. BBC News link
Covid-19 has also caused some lingering damage. In the UK, the hospitality sector experienced a loss of £115bn as a result of forced business closures and travel bans for months at a time. Even once hotels, restaurants, and airports started to reopen, some consumer apprehension towards travel remained, which caused a delayed recovery. Nonetheless, hospitality has seen one of the strongest bounce-backs from Covid-19 pressures and defied most expectations.
Optimism for hotels in 2023
“…hospitality can and will be the leading contributor to the UK’s economic recovery” – Pernille Thomsen, UK Hospitality
Despite a looming recession and continued fallout caused by coronavirus, there are signs of hope that make this an exciting time to consider investing in the UK hotel sector.
Business travel is one area that has been bouncing back and contributing to the growth of hotels, and both domestic and international travel are confidently returning to pre-pandemic levels. On average, travel managers estimate that domestic <link: https://www.traveldailymedia.com/business-travel-strong-outlook-in-2023-gbta/> business travel volumes are back to 63% and international back to 50% of pre-pandemic levels, and 2023 growth is expected to surpass that of 2022. Optimism is incredibly strong and neither Covid-19 nor economic implications seem to be stopping industry growth in the new year as 75% of travel buyers claim they won’t be limiting business travel due to economic concerns and only 4% say they may limit business due to Covid-19.
Some of the key forecasts for the UK hotel sector include:
· London RevPAR growth to rise by nearly 6%
· London occupancy to increase by over 8%
· UK regions occupancy to increase by over 2%
Despite the regional RevPAR being anticipated to drop by 0.6% in 2023, Samantha Ward, UK Hotels Leader at PWC, says that “hotels across the UK can weather this latest disruption, emerging stronger and more resilient for the future.”
Hilton hotel growth exceeds expectations
One of the largest and fastest-growing hospitality brands, Hilton, is just one example of the remarkable strength, consumer demand, and investment opportunities within the hotel industry. During Covid-19 recovery in 2021, Hilton’s global growth enabled more than one hotel to be opened per day throughout the year. Hilton’s loyalty programme Hilton Honors also expanded to 128m members, a 13% increase year on year to December 2021. Information link
In Q3 2022, Hilton Worldwide sales increased by 36% year on year, and earnings per share (EPS) reached $1.31, up from $0.78 from the previous year and beating the consensus of $1.24. HLT shares are also up 1.48%. Hilton Worldwide President and CEO Christopher Nassetta comments: “Improved performance reflected the continued strength in leisure travel, as well as recovering business transient and group demand. We expect these strong trends to continue throughout the fourth quarter with system-wide RevPAR once again exceeding prior peaks.” Information link
Hotel investment opportunities in 2023
There are many opportunities for commercial investors to take advantage of in 2023. Here are some of the top UK hotel construction projects to explore:
• Duke Street Hotel Complex, Liverpool, $40m – A former car park is being converted into an eight-storey hotel at 107-125 Duke Street.
• Palace Hotel Redevelopment, Devon, $30m – A 5-star hotel conversion of a former Palace Hotel in Torquay is expected to be completed in late 2023.
• Indigo Hotel Development, Coventry, $25m – A five-storey hotel with 100 rooms in Friargate is due to be completed in Q4 2023.
• Hilton Garden Inn Peterborough City Centre, £26m – A prestigious city-centre hotel with an iconic Sky Bar and key tourist attractions nearby aspires to be the finest Hilton Garden inn in Europe to date.
• Hampton by Hilton Exeter Airport, Devon £23m – With easy links to Exeter airport, this award-winning hotel has a focus on sustainability with new solar panels recently installed. The local area is currently undergoing new travel improvements.
This post was written by Propiteer Capital PLC that works with the Hilton group and provides investment opportunities into new hotel developments around the UK and Ireland. Read more
