There has been endless speculation on how Brexit will affect the UK economy as a whole – so much so, that despite the fact that the UK has not yet left the EU, high uncertainty has left the pound weak and businesses unwilling to invest. Yet for every type of business suffering, another type of business is reaping the rewards associated with a weakened pound. It isn’t quite clear as to whether the hotel and tourism industry will flounder or flourish, but the early signs are not positive.
Lower occupancy, lower rates
According to figures released by PricewaterhouseCooper (PwC), London hotels will see their average occupancy rates fall by one percent per annum for at least the next two years. This reduction mainly stems from business travellers who are simply not staying away as often – perhaps due to their own strained financial circumstances.
PwC also anticipates that the average price per room will fall by a couple of pounds over the next two years in the capital.
Outside London, though, occupancy rates are expected to rise (from 76% to 77%), as are average room rates (£67 to 70 over the next two years).
Meanwhile, HRS (an online travel agent) reports that room rates around the UK have fallen by as much as 20%. In Cardiff, for instance, room rates fell by 20% in 2016 compared to the same period in 2015, to an average of £95 per night. Edinburgh fared nearly as badly, with rates dropping by 17% to £124 per night, and Bristol hotel room rates fell by 16% to £103 per night. Rates also fell in Liverpool (down 15% to £84), Manchester (down 10% to £102), Birmingham (down 8% to £91) and Leeds (down 8% to £101). HRS also found that London rates had fallen (down 14% to £153), though it remained the city with the highest average room rate.
Why are rates dropping?
A combination of slower economic growth, an increase in supply and uncertainty over tourist figures has led to the falling figures from HRS and relatively poor forecast from PwC.
Managing Director of HRS, Andy Besent, feels that it is too early to tell whether the result of the Brexit referendum has caused these figures, but that a close eye will be kept on the average room rates to see if a pattern emerges over the coming months.
Meanwhile, PwC expects economic growth to begin to recover by late 2017 as negotiations over the UK’s exit from the EU come to take shape, businesses begin to make longer-term plans once more and consumers feel more confident in spending and investing. Global economic growth is also expected to improve at around the same time. Until this happens, though, the economy in the UK remains slow and hoteliers are already feeling the pinch.
Meanwhile, there is an oversupply of hotel rooms (principally budget rooms), particularly within London. Around 18,000 more rooms are expected to open up next year (of which 7,000 will be in London). Increased supply and low demand, of course, do not bode well for the hotel industry.
However, it is hoped that this will be a relatively short-term issue. Fortunately, although business travellers may be less inclined to stay in hotels in the foreseeable future, the weaker pound will make the UK an attractive destination for tourists. For the same reason, UK tourists may be more inclined to take a ‘staycation’ and avoid the higher costs of travelling on the continent and further afield. These trends explain why the dip in occupancy and room rates are not more severe. PwC do temper this optimistic ideal with the fact that increased concerns over security and decreased confidence in the economy may not only affect tourists’ ability and desire to stay in the UK but also make hoteliers less able to maintain services and standards, thereby deterring potential new and returning guests.
This will be a trying time for the UK’s tourist industry and for hoteliers in particular. If this industry falters then it will have a huge impact on the economy as a whole, since it is the UK’s fourth largest employer and is responsible for 10% of the workforce across 180,000 businesses. A Senior Economic Advisor who contributed to PwC’s report, Andrew Sentance, said that the current uncertainty surrounding Brexit may affect hotels’ revenues and their ability to afford to retain sufficient staff and satisfactory standards within their premises. If that happens, then although tourists will want to come to the UK for the cheaper pound, they may wish to opt for some of the new, budget rooms that will be opening.
To stay in the game, now is the time to invest in providing an attractive and attentive service, and put effort into attracting tourists (from the UK and abroad). The outlook begins to grow more positive towards the end of next year, but to survive in the meantime will require dedication and commitment to offering affordable and enticing rooms to those tourists willing to spend money here in the UK.