AlixPartners, AM:PM and HVS have published the Q2 2015 Hotel Bulletin analysing demand, supply, pipeline and transactions in the hotel market in 12 cities across the UK. It also includes a focus on serviced apartments.
RevPAR
This quarter’s figures show an average increase in RevPAR of 4% across the UK, the lowest since Q1 2013. Glasgow recorded the highest RevPAR increase of 14%, with hoteliers increasing rates by 12% to capitalize on the buoyant conference sector. The city attracted £75 million of new conference business in the first half of this year and has pre-bookings from now into 2022. For the second quarter Aberdeen recorded a decline in RevPAR of 27% as a likely consequence of the city continuing to suffer from cost cutting measures being implemented by oil companies in reaction to the drop in oil price.
Growth deceleration
London has also recorded a RevPAR decrease of 3% in the last quarter. This appears to be largely due to the significant supply increase in 2012 filtering through to demand metrics. Another potential contributor to the decline is the weakening of the Euro which may have led to a 4% year-on-year decrease in long-haul visitors and forward bookings. Experts believe that the Euro is unlikely to strengthen due to continued uncertainty on the continent, which is likely to leave holidaying in the UK comparatively more expensive (source: Goldman Sachs).
Graeme Smith, Managing Director at AlixPartners, comments: “There are signs that the market is cooling with RevPAR growth decelerating.
The conference market, however, seems to be bolstering occupancy for many cities, enabling hoteliers to push rates.”
Supply/pipeline
The development of three star hotels continues its downward trend with investors focusing on the budget market. With strong competition for new sites, companies are increasingly extending and enhancing existing properties rather than building new hotels. It appears that Banks struggling to deploy acquisition finance are increasingly considering development funding.
Transactions
The total transaction value recorded in Q2 2015 was £300 million higher than in Q2 2014. A large number of Asian and Middle Eastern investors have been active the last quarter with a number of hotel acquisitions across the UK. Investors seem to be attracted by the higher yields available in the UK than what may be available in their home markets.
Focus: Serviced Apartments
The serviced apartment sector has gained momentum over the last three years and seems to be on the point of transitioning from a niche market to mainstream, not only with consumers but also with investors, developers and operators. However, there are challenges, particularly the need for consistency, clear definitions and data transparency to comply with regulations. The Association of Serviced Apartment Providers (ASAP) is encouraging this unified approach among its members.
The Serviced Apartment model is best suited in high population areas with London dominating with over 55% of the UK total (compared with 23% of total UK hotel bedrooms). Most of the leading larger cities are also proving to be fertile ground, where a mix of corporate and leisure demand can be met and Liverpool is a prime example.
The development pipeline is set to increase by 20% in the next three years and leading global hotel brands are active with a number of international operators keen to expand into the sector. As this sector continues to grow investor confidence has risen particularly with the attraction of lower operating costs and superior profit conversion.
Click here for a copy of the full bulletin or visit www.alixpartners.com
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