The UK hotel market has recorded another year of strong trading performance, according to the latest UK Hotel Trading Performance Review 2023 by Knight Frank in partnership with HotStats. Despite a particularly challenging macroeconomic environment, the sector has delivered strong revenue growth, with profits now exceeding pre-pandemic levels across most markets.
The trading performance of the UK hotel sector has continued to improve significantly in 2023, with London’s 12-month occupancy increasing by 16 percentage points to reach 77%, ahead of the UK’s regional occupancy performance for the first time since the post-pandemic recovery began and in line with historical trends.
Meanwhile, the high inflationary environment has supported pricing, with London’s ADR1 rising by 8% in the past 12 months and is up 22% on its 2019 performance. The ongoing recovery of overseas visitors has been the key driver behind the significantly boosted occupancy levels, with trading further supported by strong growth in corporate and meetings and events business, as well as continued robust leisure demand.
The regional market has remained buoyant throughout 2023, with Knight Frank forecasting2 full-year occupancy to reach above 74% and ADR envisaged to grow to €120.5 for, the first time in history. Full-year 2023 occupancy will continue to lag 2019 levels by just 2.6 percentage points, but there will continue to be strong ADR growth, up by 26% versus 2019 - buoyed by conference business returning and continuing strong demand for short break leisure trips.
Whilst macroeconomic uncertainties remain and global tensions intensify, all of which have the potential to dampen economic activity and travel, there is no evidence yet of a slowdown. Instead, a cautiously optimistic picture is forecast, with year-on-year growth rates expected to soften.
London’s strong revenue growth significantly outpaced rising costs, to deliver an impressive GOPPAR3 performance, surging ahead of its 2022 performance by 40%, recording GOPPAR of c. €113.5 for the 12-month period to September 2023. London’s GOPPAR performance is now 1.7% ahead of 2019, at the same time, annual profit conversion improved, achieving a Gross Operating Profit (GOP) of 42% of total revenue, almost two basis points higher than the previous year.
Across the regions, total costs PAR increased at a faster pace than TRevPAR4 growth, with costs rising by 17% over the same 12-month period. Despite the GOP margin falling by 1.5 basis points to 29.1%, respectable GOPPAR growth of 9% was achieved, rising to over €39.78. GOPPAR performance is now 5.1% ahead of 2019 profits.
Knight Frank also reports on current levels of supply, estimating the market to be some 2.4% smaller than at the end of 2019, which has supported trading performance. It is estimated some 35,000 rooms are currently in exclusive-use government contracts, of which some 40% of these rooms were previously traded under a global hotel brand. Some 7,000 new rooms are planned to open in London in 2024, equating to a rise of 4.6% in supply, whilst a more muted growth of 1.6% is forecast in Regional UK, an increase of 8,600 rooms.
Stable supply growth is a key driver of strong RevPAR5 performance. Beyond 2024, the outlook for supply growth is far more subdued, with the cost of construction and high interest rates impacting the number of new projects that break ground. Glasgow, Manchester, and Edinburgh are the top three regional hotspots for hotel development, each with more than 1,000 rooms under construction.
Karen Callahan, Partner, Head of Hotel Valuations at Knight Frank, said: “Fundamentals of the UK hotel sector remain strong, despite its challenges, and 2024 is set for another exciting year of growth and opportunity. The sector has proven repeatedly its ability to weather turbulence and the strong trading performance is serving to counter the increase in yields in a high-interest rate environment, with hotel values holding up strongly and performing well compared to other sectors. The pound staying low, improving flight schedules, and a more stable economic outlook will all serve to boost international demand. Following a slow start to 2023, Q1-2024 presents a real opportunity to drive growth, and we remain optimistic that the UK hotel sector is well-placed to deliver another year of resilient growth.”
1. Average daily rate
2. Knight Frank’s forecasts are based off defined HotStats datasets, which are a sample of hotels that typically exclude the budget hotel sector.
3. Gross operating profit per available room
4. Total revenue per available room
5. Revenue per available room
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