Hotel Market Update

These two markets benefit from high overseas demand, particularly visitors from the US and Middle East who typically stay at higher end accommodation. The ongoing recovery of international travel is expected to support demand growth in these markets, especially over the summer. Visit Britain has forecasted that across 2024, inbound visitor numbers will increase by circa 4% year-on-year to just under 40 million visits, although elections in the US and geopolitical tensions in the Middle East could impact outbound travel from those markets into the UK later in the year. On top of the traditionally busiest summer period, Taylor Swift’s Eras Tour will see almost 1.2m fans in attendance across her 15 UK performances this summer, and the impact of ‘Swiftonomics’ shouldn’t be understated to the hotel market of the host cities.

Q1 is traditionally the weakest quarter for the hotel market and 2024 has been no exception, with occupancy in the capital sitting at 73%. This does represent an increase from 68% in 2023 however is still marginally below 2019 levels. Data for last 12 months suggests London occupancy rates in the region of 81%.

The regional market in the UK is predominantly driven by domestic tourism, and this has been somewhat slower to recover than the London/Edinburgh markets, however higher international travel costs will influence many households to travel closer to home which should be a positive outcome for domestic destinations, although consumers may be more selective in seeking value-for-money accommodation.

There has been persistent pressure on households’ disposable income levels over recent years, however with inflation dampening (which will likely lead to interest rate cuts), wage growth and a cut in National Insurance, households’ incomes should look stronger in the second half of the year.

Whilst hotels have seen increased RevPAR against pre-Covid levels, the share of this making its way through to the bottom line has been impacted by persistent cost pressures. Utilities costs, food inflation (albeit now dampening) and staffing issues have contributed to these cost pressures. Payroll costs per available room have increased by almost 20% since 2019, however this has been counteracted by the increased RevPAR across this time.

The hospitality sector has faced staff shortages since the pandemic, partially attributed to the removal of free movement for EU citizens and their right to work, which has flowed through to higher staff costs. The National Minimum Wage has just increased to £11.44 per hour, an increase of 9.8% on the previous year, with this too impacting the hoteliers operating profits. Competition for staff since the pandemic has resulted in a lot of hotel staff already being paid above the minimum wage, however an increase in the minimum wage will have a knock-on effect as higher paid staff demand similar percentage increases.

Recent data however does now show that gross operating profits of UK hotels was circa 39% in May, having now exceeded the pre-pandemic level of 38% for the same month, suggesting that improving top line figures are now outweighing the cost pressures facing hoteliers.