The combined value of transactions in the hotel industry for 2017 was nearly double that of 2016 at £4.6 billion, according to AlixPartners, STR, AM:PM and HVS for the Q4 2017 Hotel Bulletin. On a quarterly basis transaction values were also high at £1.3 billion for Q4 2017, the highest since Q4 2015.
The impact of the EU referendum in 2016 can be seen clearly in the value of transactions which dropped from £5.3 billion in 2015 to £2.4 billion after the vote as some investors cleared out their UK hotel positions before Brexit is enacted. Current levels of transactions are now similar to those of 2014 (£4.4 billion) and 2015 (£5.3 billion), although there is uncertainty as to whether they will remain at these levels in 2018 or drop back to that of 2016 (£2.4 billion).
However, there was a different picture in terms of demand over the quarter with revenue per available room (RevPAR) growth remaining slow across the UK in Q4 2017, only Belfast reached double-digit growth and London recorded its first decline after four consecutive quarters of growth.
This was Belfast’s sixth consecutive quarter of RevPAR growth, in contrast to four of the twelve UK cities examined which declined in Q4 2017. Data from Q4 2017 shows that half of the other cities examined saw a decline in occupancy levels although, for cities like Bath and Birmingham, this follows strong comparators in the previous year.
Despite nearly six million annual average visitors to Bath, RevPAR in the city has declined for the second quarter by 4%. This comes amidst plans to introduce a tourist tax, the impact of which will presumably have to be considered thoroughly to avoid being too detrimental.
More positive results were seen in Edinburgh where RevPAR growth reached 7% in Q4 2017 and averaged at 12% over 2017, making the city a consistent top performer. However, the high number of visitors has raised concerns over infrastructure capacity and how well public transport can cope during peak times with the growing tourist numbers.
Interestingly, after four consecutive quarters of growth in RevPAR, London recorded a 1% decline in Q4. With its numerous tourist hotspots this decline is likely to be partially attributable to the returned strength of the pound which means that overseas visitors are no longer getting the bargain exchange rates enjoyed previously in London and across the UK.
Graeme Smith, Managing Director at AlixPartners commented:
“In 2017, hotel performance in the UK was bolstered by the depreciation of sterling. Building top-line growth off strong comparators is likely to be challenging, particularly given the returning strength of the pound. Given this, and escalating cost pressures, 2018 is likely to be a softer year for profitability; experienced investors appear to be calling the top of the market due to the barrage of exits in the second half of the year.”