The latest findings from Knight Frank’s UK Hotel Trading Performance Review 2023, in partnership with HotStats, reveal a resilient UK hotel sector that has defied expectations, surpassing pre-pandemic profit levels in the face of a challenging macro-economic environment.
Throughout 2023, the UK hotel industry showcased notable improvements, particularly in London where the 12-month occupancy spiked by 16 percentage points, reaching an impressive 77%. This exceeded regional occupancy rates for the first time since the post-pandemic recovery commenced, aligning with historical trends.
London’s Average Daily Rate (ADR) surged by 8% in the past year, marking a 22% increase compared to 2019 figures. The revival of overseas visitors contributed significantly to heightened occupancy levels, supported further by robust corporate, meetings, events business, and sustained leisure demand.
In the regional market, Knight Frank projects a strong performance with forecasted full-year occupancy exceeding 74% and ADR anticipated to reach £103, an unprecedented milestone crossing the £100 mark. Although full-year 2023 occupancy slightly lags behind 2019 levels, there’s a substantial 26% ADR growth, fueled by returning conference business and continued leisure travel demand.
Despite lingering macro-economic uncertainties and global tensions, the UK hotel sector shows no signs of slowing down. Instead, a cautiously optimistic forecast predicts a softening of year-on-year growth rates.
London’s remarkable revenue growth outpaced rising costs, resulting in a striking 40% increase in Gross Operating Profit Per Available Room (GOPPAR) compared to 2022, reaching approximately £97 for the 12-month period ending September 2023. Moreover, London’s GOPPAR performance now stands 1.7% higher than 2019 figures, showcasing improved profit conversion to a GOP of 42% of total revenue.
Across regions, while total costs increased faster than revenue growth, a respectable 9% GOPPAR growth was achieved, reaching over £34. This marks a 5.1% increase compared to 2019 profits despite a 1.5 basis point fall in GOP margin to 29.1%.
Knight Frank’s assessment highlights the current hotel supply as 2.4% smaller than 2019, bolstering trading performance. However, plans for new room openings suggest a rise in London’s supply by 4.6% in 2024, while regional UK anticipates a more moderate 1.6% increase.
Stable supply growth continues to drive strong Revenue Per Available Room (RevPAR) performance. Looking ahead, the outlook for supply growth beyond 2024 appears subdued due to construction costs and high interest rates impacting new projects.
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.”
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