Hotel industry enjoys revenue growth on supply constraints

25 August 2017 Consultancy.uk

The top ten UK hotel ten hotel brands operate 205,000 rooms, 54% of which are budget outfits according to new figures. Hotel owners have managed to boost the revenue per available room in a variety of markets, as demand outstrips supply, while new supply is expected to come online, it remains largely in the budget segment.

The hotel industry in the UK has shown steady growth so far this year, with areas of previously slow activity such as Newcastle and London showing increased revenue per available room. In AlixPartners’ ‘Q1 2017 Hotel Bulletin’; the consultancy explores how hotels in various regions are reacting to supply constraints and increased demand.

The study shows that most regions across the UK saw occupancy growth, year-on-year, in the first quarter of 2017. Belfast saw the biggest percentage increase, up 13%, while London saw modest growth, with occupancy up 5% as more and more people sought out the capital from China and the US. Liverpool too saw an increase in occupancy with a similar percentage to London. Birmingham, Manchester and Leeds were the slowest growers in England (all 2%), while Edinburgh was the lowest in Scotland, also at 2%.

UK hotel market

The increase in demand, with little change in supply, means that average room rates percentage changes tended to be positive across the 12 cities surveyed – with the exception of New Castle and Aberdeen. As such, in general, revenue per available room (RevPAR) was up in almost all cities, with Belfast booking the biggest increase, at 25%, while London and Liverpool followed on 11% and 10% respectively.

Top ten suppliers

The UK’s top 10 suppliers provide around 205,000 rooms, with the biggest share, at 132,000 (54%), budget rooms. Premier Inn is the biggest brand in the market, with more than 67,500 rooms in the budget segment, with growth running at 2.1%. Travelodge took the number two spot, with more than 39,500 rooms in the segment, while the budget brand of Holiday Inn owners IHG, HI Express, boasted more than 16,200 rooms.

Bedroom supply

2-3* properties represent around 15% of the top 10 market, with Holiday Inn, Britannia and Best Western the top players in the segment.

Pipeline

Undersupply, while boosting RevPAR, has the longer-term potential to result in lost revenues as cost-weary customers look elsewhere for accommodation. Various companies are therefore seeking to boost their available supply to better serve demand, as well as become competitive through scale.

The study noted that there is some difference between those adding significantly to supply in the coming years, and those in the top ten in terms of available rooms. Whitbread remains relatively active, with its Premier Inn brand continuing to add capacity in the coming years for a total of more than 11,800 rooms. Travelodge too is relatively active, boosting capacity by an additional 4,800 rooms approximately. IHG too will add considerably to its brands, at close to 4,000 new rooms, while Marriott International will see around 2,400 added to its capacity.

Bedroom pipeline

Around 31,600 new properties are in the pipeline meanwhile, with close to 8,200 due later this year, 7,400 due to come online next year, while announcements for projects in the following years, represent around 5% of total new supply.

In terms of wider market strategy assigned to the current pipeline statistics, the firm notes that a large portion of the additional supply in the top ten stems from the addition of budget capacity among the larger players seeking to compete. While some smaller players seek to add share. The higher star segment is relatively underserved with incoming new supply.

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