Record supply levels to meet waning demand
Growth in demand for UK hotel accommodation is expected to stall in 2024, with the pain likely to be shared equally across London and the regions.
While continued optimism in the strength of the UK staycation and business travel is driving record levels of hotel development, we expect this to be met by waning demand. The PwC UK Hotels Forecast 2023-2024 shows this increase in supply comes as the post-Covid ‘revenge travel’ bounce fades, inflationary pressures reduce and the UK economy sits firmly in the doldrums.
London has seen the largest increase in supply since the lead up to the London 2012 Olympics, particularly of luxury high-end rooms. Meanwhile, new supply in the regions is almost twice the historic average level of 1% of new supply. This large supply increase across the UK prompts the risk of oversupply, in some locations, in the short term – given the forecast slowdown in demand levels in the regions for 2024.
“We expect the surge in new development to come to fruition just as demand wanes – with consumer spending down and pressure on businesses to curb their budgets in line with ESG targets. But unlike in previous years, the outlook for slowing growth in demand in 2024 will be felt right across the UK.” Simon Hampton Real Assets Leader, PwC UK
UK Hotels Forecast 2023 – 2024 in numbers
The are a number of actions we believe hoteliers and investors can take to prepare for the year ahead:
Engage with lenders
Higher rates are here to stay, therefore hoteliers and investors need to actively engage in conversations with existing lenders keeping them informed of ongoing performance, particularly those who will be refinancing within the next 12 – 18 months.
Address valuations & liquidity
With debt being materially more expensive, hotel values continue to adjust for those seeking to acquire hotels and use leverage. Hotel transaction volumes by value across the market have slowed in 2023, with a 43% variance for the first half of 2023 vs 2022.
Consider productivity & investment
Hoteliers face ongoing cost pressures, including the recent minimum wage increase by 10% from April 2024, continued higher energy costs and labour shortages. Hotel investors and operators need to consider their productivity and investment strategies, to minimise the impact of these cost pressures going forward:
- Productivity – Continue to focus on investment in working practices and operations such as multi-skilling to maintain service levels, review of supply chain cost efficiency, invest in employee wellbeing and personal development to help reduce staff turnover and maintain an efficient level of headcount.
- Investment – Maximise the opportunity presented by recent changes in capital allowances, such as the full expensing scheme, to optimise return on investment within existing hotels using government tax allowances to invest in cost optimisation technology within operations and unique selling points to drive top line growth.
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