Hotel demand slows amid price pressures in London

05 December 2018

Hotels form a key part of the wider tourism and business traveller ecosystem in the UK. Hotels are projected to see stagnant growth in 2019, however, particularly in London, while deal activity in the space slows on changing investor priorities and Brexit uncertainty.

Foreign tourists arriving in the UK grew by 9% in volume in 2017, with almost 40 million people adding 4% in value, to close to £24.5 billion. In this record breaking year, London remained the top destination for inbound tourist spending, at 55% of the total amount, while the rest of England brought in 32%, and Scotland saw 9%, with Wales at 2%. The tourist industry employs around 2.9 million people, representing around 10% of employment, so should the sector encounter headwinds in the near future, it could have dire consequences for the nation.

New analysis from PwC suggests that such a scenario could soon become a reality, however. Exploring how the hotel industry is changing in 2018 to meet the expectations of tourist and business customers while major economic and political shifts are under way, the Big Four firm’s report has warned that price pressures resulting from Brexit and uncertainty surrounding the ease of travel could be set to derail the tourist trade in 2019.

PwC 2018 and 2019 UK hotels forecast

At present, hotel occupancy rates in 2018 are projected to be stable, with growth on the previous year standing at 0.1% for occupancy in London and 0.2% in ADR in London. This is considerably down on the previous years’ ADR growth rate, however, which saw expansion of 0.2%.

A number of factors have affected growth levels in terms of total occupancy. Increased supply on the one side have reduced scope for total occupancy growth, as demand growth came in lower between 2017 and 2018 (2.2% vs. 1.8%). The hot June weather as well as some large-scale events in the UK saw visitor numbers increase at the end of H1, 2018, with a positive impact of weather and events pushing up demand into August.

The relatively slow year in 2018 is projected to continue into 2019. Forecasters see an increase in overall supply while overall demand is likely to slow further. The supply increase in regional rooms is set to be up around 3.3% for 2019, an increase of around 21,000 on the around 658,000 available rooms per night for 2018. The London supply meanwhile is set to see growth of 2.8% or around 4,300 new rooms in the new year.

Hotel deal volume and value booms in 2018

The research points to further price pressures for the London and wider markets – reflecting the growth in supply, while demand is set to be relatively tepid. The firm projects Average Daily Rate (ADR) growth of 1.2% in the provinces for 2019, while for London growth is set at around 0.8%. Occupancy might even decrease in the capital. Meanwhile, revenue per available room (RevPAR) is set to be relatively stagnant, at £122 for London and £55 for the provinces in 2019.

The study found that deal activity in the space has historically reflected relative RevPAR growth. 2018, the study notes, is likely to buck the trend – in part due to a large number of portfolio and large hotel deals in H1. This level of RevPAR-beating activity was last seen in 2015. The firm notes that 2019 will likely return to relatively normal levels, as long-term investors enter the UK hotel market, as well as refinancing from large US hotel owners prior to higher debt costs. Brexit uncertainty too will see investors hold deal activity, with overall deal value falling 34% on 2018’s £6.8 billion to around £4.5 billion.

Commenting on how hotels are hoping to reposition themselves to insulate against these issues, Samantha Van Leeuwen, Head of Hotels and Venues, PwC, said, “Hotels are extending portfolios so they can win the traveller loyalty across their entire hotel lifecycle – moving from economy, select service, long stay, home share, and boutique to luxury… they want you to never leave…”


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Women remain underrepresented in UK's hospitality industry leadership

12 April 2019

Female engagement at the top level of the UK hospitality industry is still lagging, with the vast majority of decision-making roles continue to be held by men. Only 7% of the industry’s FTSE 350 CEOs are women; however, the pay gap in hospitality and leisure is far better than in other industries, at a median of approximately 7%.

The hospitality, travel and leisure (HTL) sector is one of the UK’s largest employers, with 3.2 million people working in its segments. Despite a poor 2018 in terms of tightening consumer spending, the industry is still one of the top sectors in terms of economic activity, hitting £130 billion last year – besting the UK’s automotive, pharmaceutical and aeronautical sectors’ combined activities.

While the industry is one of the country’s largest employers, it still faces considerable issues around diversity at the top. New analysis from PwC has explored the matter, as well what initiatives the industry has engaged to open up its top ranks to a more diverse background.

Female representation at board level for UK companies and HTLs

According to a survey of CEOs, Chairs or HR Directors of over 100 of the most significant leisure businesses across the UK, the hospitality industry has a relatively male-dominated top level. This lags behind the FTSE 100, where companies have female board level representation at 32.2%. Meanwhile, the figure for the combined executive committee and direct reports stands at 28%. This is well above FTSE 250 levels, where female board level representation stands at 22.4% and executive committee & direct reports stand at 27.8%.

For the hospitality industry as a whole, board level representation came in at 23.6%, with FTSE 350 for the industry performing slightly better at 25.1%, while non-listed companies performed considerably worse at 18.2%. The firm notes that the figures hide that while some companies are making strides to improve equality, others are not moving forward – with the positive result reflecting more often the good work of some, while others are not taking the issue seriously in their agenda setting.

Blind spot

The study states, however, that while the overall numbers are relatively strong, the industry has a number of acute weaknesses. These include CEO numbers, with only 7% of HTL FTSE 350 companies helmed by women and 11% of non-listed companies led by female CEOs. Meanwhile, female chairs at FTSE 350 companies for the sector stand at zero. In terms of wider diversity representation, only 1 in 33 leaders at industry companies is from a BAME background.

Pay gap for HTL and hospitality

The report noted discrepancies between FTSE 100 companies and FTSE 250 in terms of improving the number of women at executive level. The majority have met the Hampton-Alexander Review target of 33% women at board level, up from around 25% in 2016. However, the remaining ~40% are not on target, and are unlikely to meet the target by 2020. A similar trend is noted when it comes to executive committee and direct reporting numbers.

Jon Terry, Diversity & Inclusion Consulting Leader at PwC, said, "To make real progress in diversity and inclusion, businesses need to elevate it onto the CEO’s agenda and align diversity & inclusion strategy to the fundamentals of the business."

Tracking progress FTSE 250 level

However, one area where hospitality travel and leisure companies are outperforming other companies in the wider UK economy, is the mean and median pay gap between men and women. PwC found that the median of the wider UK economy comes is approximately 14% – with upper quartile companies noted for a gap of low 20%, and lower quartile companies noted for differences of around 2%.

The median pay gap for HTL comes in at well below 7%, with the median close to parity. There are considerable differences, however, with hospitality at 7%, while travel comes in considerably higher, at 22%. The latter figure reflects fewer women in higher paid pilot and technical positions within the industry.