LEISURE AND HOSPITALITY HOTEL BRITAIN 2015 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK CONTENTS ECONOMY AND TOURISM 4 UK HOTEL TRANSACTIONS 10 UK HOTEL DEVELOPMENT TRENDS 14 2014 SURVEY RESULTS 20 WINNERS AND LOSERS 26 SUMMARY OF FIVE YEAR PERFORMANCE 29 THE ROAD AHEAD 34 COMPETITION 36 CLAIRVOYANT CORNER 38 SURVEY COVERAGE 40 BDO LEISURE AND HOSPITALITY SERVICES 42 THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK | HOTEL BRITAIN 2015 2 FOREWORD Go the regions! As we write, global economic and geopolitical uncertainty is still with rooms yield for the year already surpassing the peak experienced upon us. The European Union continues to be plagued by a stagnating in 2007. economy and sovereign debt issues; developments in the Ukrainian- Russian conflict have greatly affected international relations and The health of the UK hotel sector is confirmed by the increase in consequently the economy of the Russian Federation; while, further transactional activity, which reached £6.1bn in 2014, the highest figure afield, the Chinese economy grew at one of the slowest rates for the since 2006. There has been a rush into regional transactions, where last 24 years in 2014. hotels have sold above the asking price last year. However, despite the somewhat gloomy scenario, there is still some 2014 also cemented the importance of the budget segment. New light at the end of the tunnel. In 2014, the US economy grew by concepts and a modernisation of the offer are underway, with a strong 2.2-2.4% and is forecast to rise above 3% in 2015, the strongest pipeline for the sector at about 47% of the total planned new supply. economic growth in a decade for the country. But it is the UK that Nevertheless, the outlook still remains unclear, especially as the experienced the strongest rate of growth amongst all developed general election in May could cast doubts in the short term, and countries, up 2.8% on the previous year. This was driven by strong the strength of the pound might affect inbound visitors. However, consumer spending. The drop in the oil price kept inflation at a record as already mentioned, the future of the hotel market is expected to low, and boosted both consumer and business confidence, resulting in continue on its upward path. The Rugby World Cup will showcase reduced unemployment and wage growth. the UK abroad and should positively affect hotel performance for As a result of this overall economic optimism, hotels in the UK the current year. Furthermore, international visitors are expected to experienced a stellar 2014. Bucking the trend of last year, regional continue to increase in 2015, reaching 35m, boding well for future hotels outperformed their London counterparts. Rooms yield for hotel performance. hotels in the regions experienced double digit growth. As demand for hotels remained strong, hoteliers succeeded in pushing AARR up, and resulting in regional hotels experiencing a higher compound annual growth rate over the last five years when compared to the capital. However, London hotels did not stand still. Despite the significant 4% increase in supply, occupancy remained robust, confirming the importance of the hotel sector in the capital, where hotel’s occupancy ROBERT BARNARD is one of the highest across Europe. In the capital, AARR continued Partner to grow, albeit modestly and at a varying speed within different Leisure and Hospitality Services segments. Overall, London hotels continued to post growth in 2014, [email protected] THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK | HOTEL BRITAIN 2015 4 ECONOMY AND TOURISM In 2014, the UK economy grew at a faster signs of confidence in the economy and the number of vacancies at a 14 year high. Unemployment is forecast to continue declining further rate than any other major advanced during 2015, albeit at a slower pace. economy and recorded its best performance Notwithstanding the reported good figures, further struggles to grow since 2007. in the Eurozone and uncertainty surrounding the imminent election could compromise recovery and a return to strong growth. The IMF estimates growth for the full year to be at 3.21%, however recent reports suggest that this momentum is now running out of steam, as the Office for National Statistics (ONS) claimed growth TABLE 1: UK economic indicators, 2012-2016f for 2014 was at 2.8%. Growth has primarily been attributable to the services sector, but forecasters believe that the recent fall in oil prices 2012 2013 2014f 2015f 2016f will help to fuel growth in the manufacturing sector. The IMF has forecast a slowdown of growth to less than 3% over the coming years. Real GDP Growth (%) 0.28 1.74 3.21 2.71 2.44 CPI inflation remains below the Bank of England’s target of 2%, falling CPI inflation (%) 2.82 2.56 1.63 1.80 2.00 to 0.0% in February 2015. Tumbling energy prices, and the strength of Current account deficit the pound have been the main causes for this, and forecasters believe -3.83 -4.51 -4.22 -3.77 -3.30 that this could turn negative in the short to medium term. However, (% GDP) Government gross debt this is generally good news for the UK economy, as it should fuel 89.06 90.58 91.98 93.11 92.92 household spending which is an important driver. Inflation is expected (% GDP) to rebound by the end of the year as these effects are absorbed. The Unemployment (%) 7.95 7.60 6.35 5.78 5.47 current account deficit stood at -4.22% of GDP. This figure highlights that with relatively stronger household spending the UK is becoming even more dependent on foreign capital. SOURCE: International Monetary Fund, October 2014 fforecast The UK government’s gross debt increased slightly in 2014 to 91.89% of total GDP. According to the ONS, general government gross debt stood at £1,457.2bn at the end of November 2014, an increase of VISITOR NUMBERS INCREASE £89.7bn when compared with the previous year. International visitor numbers grew for the fourth consecutive year in 2014. Visitors increased by 5.8% to 34.8m, an all time high. Overall, The labour market continues to show positive signs of recovery with the holiday segment remained the main driver of growth, up 7.7%, the ONS reporting 30.9m people in work at the end of 2014. Between accounting for almost two-fifths of the total. However, results are October and December 2014, the rate of unemployment fell to 5.7% still provisional and there is speculation that the total inbound visitor (1.91m), the lowest level for six years. This was as a result of increasing numbers will surpass the 35m mark during the current year. 5 HOTEL BRITAIN 2015 | THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK TABLE 2: Overseas visitors to the UK, by purpose of visit (thousands) 2010 2011 2012 2013 2014 2014 % change 2014 market share Holiday 11,668 12,008 11,961 12,781 13,760 7.7% 39.5% Business 6,793 7,238 7,422 7,931 8,370 5.5% 24.1% Visit friends or family (VFF) 8,408 8,841 8,948 9,369 9,840 5.0% 28.3% Miscellaneous 2,935 2,710 2,752 2,812 2,830 0.6% 8.1% All visits 29,803 30,798 31,084 32,893 34,800 Year-on-year growth -6.5% 3.3% 0.9% 5.8% 5.8% SOURCE: VisitBritain Monthly Update: December 2014 2014 figures are provisional Europe continues to be the main inbound market for the UK, FIGURE 1: Overseas visitors to UK, by source market 2013-2014 accounting for about three-quarters of the total, or 25.8m. North American visits for 2014 were up 4% to 3.7m. However, the segment 3,500 has slowed its pace of growth, mainly due to the 11% drop in visits from Canada. 3,000 Figure 1 shows the seasonality of inbound visits to the UK. Total visits 2,500 peaked during the month of June 2014, surpassing the 3m mark, up 13.6% on the same month the previous year. This was as a result of 2,000 the increase in visits from Europe, while the North American market remained flat (-0.5%) and the rest of the world declined marginally by 1,500 1% to 444,000. Visitors (in thousands) 1,000 Overall January and March were the lowest performing months for inbound visits over the last two years, with the summer months 500 generally welcoming more visitors to the UK. 0 Jul-13 Jul-14 Jan-13 Jan-14 Jun-13 Jun-14 Apr-13 Feb-13 Apr-14 Feb-14 Sep-13 Sep-14 Dec-12 Oct-13 Dec-13 Oct-14 Dec-14 Aug-13 Mar-13 Aug-14 Mar-14 Nov-13 Nov-14 May-13 May-14 All visits Europe Other countries North America SOURCE: International Passenger Survey, ONS THE GUIDE TO THE PERFORMANCE OF HOTELS IN THE UK | HOTEL BRITAIN 2015 6 Figure 2 shows the year-on-year percentage change for selected TABLE 3: Domestic tourism by purpose of visit (YTD October) inbound markets to the UK during 2014. We note that visits from Southern Europe grew very strongly last year, with visits from Greece 2013-2014 experiencing a second consecutive year of growth. Singapore (+24%) 2010 2011 2012 2013 2014 % change and Saudi Arabia (+29%) also grew considerably, with both countries Holiday 50.2 53.0 51.2 50.8 47.7 -6.1% reversing a negative trend experienced in 2013.