Trouble is On the Horizon for UK Hotel Sector
Sat, April 10, 2021

Trouble is On the Horizon for UK Hotel Sector

AlixPartners warned that hotel profits in the United Kingdom are shrinking as costs have risen and sales have slowed / Photo by: giggel via Wikimedia Commons

 

Trouble is on the horizon for the UK hotel sector after enjoying seven years of solid performance, according to hotel market tracker and consultancy AlixPartners, as cited by the newspaper the Financial Times.

Debt-Fueled Growth in the Country

AlixPartners warned that hotel profits in the United Kingdom are shrinking as costs have risen and sales have slowed. This was after debt-fueled growth in the country to support the staging of the 2012 London Olympics pushed the sector’s asset valuations to “unsustainable highs.” Debt-fueled growth means borrowing money to pay for investment or infrastructure that will generate economic growth. It is a way of life for economic planners and governments.

In 2012, the UK's hotel industry enjoyed a period of exceptional YoY revenue per available room (RevPAR), which is a performance metric used by multiplying the average daily room rate by the hotel’s occupancy rate. The RevPAR growth even reached its peak in 2015 when the UK regions and London reported 17% and 10% increases respectively. The growth continued and the hotel industry experienced a further increase in 2017 when the weakened pound strengthened the overseas and domestic visits to UK hotels, particularly in London.

Hotel Revenue Decline, First Since 2012

Seven years of uninterrupted growth is already exceptional, says AlixPartners. However, the RevPAR slowed down in the first half of 2019 and there was also a decline in the revenues of hotels situated outside London. Investors learned to become creative in ways they structured the transactions despite few luxury hotels in London continuing to grow.

The consultancy’s managing director Graeme Smith said that people in the hotel sector are “desperately trying” to lower the cost of capital and have returns, but it has left a little headroom because profits have already gone into weaker growth.

There were big deals in the UK’s hotel sector, such as the £1bn sale of four Grange London hotels by Queensgate Investments. The portfolio comprises 1,345 Central London rooms and the four upscale hotels boast significant conference and meeting space as well. Queensgate agreed that it will run the assets and wanted to refurbish it as parts of its repositioning strategy to drive superior growth and performance, reports British newspaper the Daily Mail. Yet, big deals like the Queensgate acquisition usually involve amounts of debt, and real estate firm Colliers International’s head of hotel consulting Marc Finney opined that sale-and-leaseback arrangements are sustainable as long as the rents are set at levels that will equal the hotel performance.

Leasebacks work when a country acquires capital either by equity financing or debt or both. Since debt must be paid back, it will reflect as debt in the company’s balance sheet. 

Frequency of the Term “Hotel” in Google’s Search Engine

Tech giant Google has also shared the frequency of the term “hotel” in Google’s search engine. To be more particular, the numbers below represent search interest that is relative to the highest point on the chart with regard to the term being searched in the UK. A value of 100 points to the peak popularity for the term and 50 means it was half as popular. On the other hand, a score of 0 means that there was not enough data for the term.

From December 23 to 29, 2018, search interest for the term “hotel” in the UK was 68 and it increased to 88 from April 7 to 13, 2019. From May 19 to 25, 2019, the search interest further increased to 92 and from July 21 to 27, 2019, the interest score reached 93. However, there was a gradual decline of interest in the search from August 25 to 31, 2019 (90), September to October 5 (88), October 27 to November 2 (75), and December 1 to 7 (66). 

The data provided by Google can be used for real-time marketing. By watching the spikes of the search terms for a certain period, one can quickly determine what topics and interests are grabbing people’s attention. It also allows marketers to see the popularity of the term in searches by geography. 

Search marketing news provider Search Engine Journal shared that with individual hotels and hotel chains competing against online travel aggregators and other price booking sites, hotels can take advantage of search engines to make bookings and attract users. It would be advantageous for the hoteliers if their hotel’s website tops in Google searches so potential travelers can check on it for booking.

The latest forecast by AlixPartners reflects economic and political uncertainty in the country and it would present a challenging environment for the hoteliers. Yet, one way to respond to the challenge is by taking advantage of internet marketing to know the number of people interested in or looking for their hotels and services. That way, they can be reachable online, apply the digital marketing strategies to get more bookings and thus, deliver profitable growth.

From December 23 to 29, 2018, search interest for the term “hotel” in the UK was 68 and it increased to 88 from April 7 to 13, 2019. From May 19 to 25, 2019, the search interest further increased to 92 and from July 21 to 27, 2019, the interest score reached 93 / Photo by: Tecmark UK via Flickr