UK hospitality industry predictions for 2017

January 10, 2017

UK hotels are bracing themselves for a challenging and uncertain year ahead. Last year’s decision to leave the European Union has led to a time of political and economic instability, while security fears have kept some tourists away. But Brexit has also resulted in a weaker pound that has helped to attract overseas travelers.

In 2017, here are some of the key trends we see facing the UK hotel market based on some of the latest industry forecasts.

Sharing economy will continue to be a disruptor

Sharing economy platforms are enjoying significant growth in the UK right now. According to a recent PwC report “Facing the future: UK hotels forecast 2017,” Airbnb listings rose 54% last year in London, and the company is now looking to expand its presence into the regions.

Traditionally aimed at leisure travelers, Airbnb has also announced it will begin targeting the business and meeting markets as it begins to diversify its range of services. In 2017, the wider UK hotel industry could begin feeling the pinch against this increasingly ambitious and agile competitor.

Looking ahead, hotels will need to adapt in a rapidly changing marketplace. Over the coming 12 months, using tactical deals and offers will be important to attract price-savvy travelers. Promoting key points of difference such as quality service, amenities, and room service will also become more important than ever, as will catering to the desires of an Airbnb generation that values uniqueness and distinctness as opposed to traditional brand consistency.

Growth in the regions

Despite the economic downturn, hotels in the regions are predicted to enjoy modest growth throughout 2017. PwC predicts that the regions will see a 2.3% rise in RevPAR, and a 1.8% in ADR. Occupancy levels will also remain above the past 20 year average with growth predicted to be at 0.5%.

However, significant variations between regions mean that growth is likely to be inconsistent. UK hoteliers believe that Manchester, Birmingham and Edinburgh will be the big winners in 2017—coming off the back of a strong 2016 for each of these key tourist cities.

This promising outlook is partly being driven by the UK government’s investment in a regional growth fund, helping to promote destinations outside the capital. In addition, overall domestic travel has been boosted by an increase in staycations.

Some regional cities may also benefit from a rise in overseas travelers who are attracted by a weakened pound—making less expensive regional accommodation look especially affordable.

London marketplace to suffer

While the regions are expected to see growth in 2017, PwC’s forecast for London looks less promising. Occupancy levels in the capital are predicted to contract by -0.8%, taking them to their lowest since 2008. However, London will still have some of the highest occupancy rates in the world at 80%.

RevPAR also looks set to shrink by -0.5% this year, although ADR is estimated to see a slight increase of +0.4%. In 2017, London hotels will also add over 7,000 additional rooms. This increased supply will outstrip demand, creating further competition in a highly crowded marketplace.

So, what are the big issues causing a slowdown in the capital? Tourism in London has already suffered following a series of terrorist attacks in Europe last year, heightening security fears among travelers. The aftermath of the EU Referendum has also led to domestic uncertainty, leading businesses to cut their own travel budgets.

In these tough economic and political times, London hotels (especially those with a strong business base) may need to focus more attention on a buoyant leisure market and the growing number of Brits looking to take staycations.

Impact of Brexit

The initial aftermath of Brexit actually proved beneficial to the UK travel market. A weaker pound led to a surge in overall spending from overseas tourists, and this additional spending filtered through to hotels. In the case of Edwardian Hotels London, the chain reported an increase of 31% in the value of their reservations.

But near the end of last year, the UK actually saw a dip in the number of inbound travelers. An expected surge in overseas tourist spending also failed to materialize as visitors parted with less cash during trips. Faced with turbulent economic conditions, hoteliers will need to maximize revenue from every booking they make as the full impact of Brexit slowly unfolds.

Despite a slump at the end of 2016, the outlook for 2017 appears to be more optimistic. According to VisitBritain, overseas tourist numbers are expected to rise by over 4% in the coming 12 months, while inbound tourist spending is expected to receive an 8% boost.

A downturn in deals

Following the decision to leave the EU, businesses in Britain are facing tough trading conditions. Deals within the hotel sector have already seen a precipitous decline. According to the PwC report, year-on-year investment levels were down by a huge 70% at the end of July 2016.

In 2017, sluggish trading conditions are expected to continue as investors remain hesitant to strike big deals. UK hotel deal volumes are forecast to drop to £5.1bn ($6.3bn), which is down from a record-breaking £9bn ($11.1bn) in 2015.

While investments in 2015 were defined by big portfolio acquisitions, the coming year is likely to see more deals being struck around single assets and smaller hotel clusters. Cautious investors may also look to other European countries where stable market conditions offer a more reliable alternative to the UK.

A final snapshot

The year ahead remains one of uncertainty for the UK hotel sector. A series of political, economic, and security issues has had a significant impact on tourism levels. Added to testing domestic issues, sharing economy platforms are growing and diversifying—attracting a wider customer base that threatens to further hit hotel bottom lines.

But while market conditions are tough, a rise in overseas tourism, a growth in staycations, and an optimistic regional outlook means that some hotels could actually thrive in 2017. Hoteliers who are able to think strategically and adapt quickly in the year ahead are most likely to benefit at a time of unprecedented change and unpredictability.