UK hotel market continues recovery but challenges and questions remain

The UK hotel market has continued its post-pandemic recovery with the country leading the way from a recovery point of view in Northern and Western Europe, according to the most recent Annual Hotel Conference advisory board meeting. 

However, attendees noted that despite the positives and an optimistic outlook, challenges remain which still need to be addressed. 

“Demand has driven most of the recovery and total revenue per available room is well ahead of 2019 levels. There’s no great operational distress, with hotels largely trading on par to 2019 numbers,” an attendee said. 

Turning to pricing, they noted the differential between vendor and buyer has begun to compress and transactions have started to pick up in comparison to the later part of 2022. 

“There has previously been a prevalence of off-market deals but I think over the last quarter, we’re starting to [see] an increase in overt marketing processes. We’re seeing greater focus and transactions with cash-funded buyers.” 

However, they note there are challenges here when it comes to decarbonisation and net zero goals. 

“Net zero transition in 10 to 20 years is very difficult to price in at the moment from a valuation point of view. But there’s no doubt that it’s coming if not already here and some institutional investors are concerned.” 

Staffing stabalisation 

Staffing was another area in which attendees noted a slight improvement.  

“Staffing is another key factor that we’ve seen stabilise. We haven't seen the European employment coming back into the UK and I don't think we'll see that come back quickly in the short term. But there’s a bit of recruitment from the Far East and Middle East coming to the market slightly,” one noted. 

However, while staffing is seeing some improvement, experts stress more attention is needed and more needs to be done to attract talent into the sector. 

“Whenever we talk to potential entrants to the sector, the conversation is usually around minimum wage and entry level positions and not roles that show a career path. We always focus on attracting people at entry level positions and we don’t really tell people about career paths that will lead them to the 100,000 pounds a year jobs.  

“For example, when the army recruits, they talk about the rosy future. However, with the hotel sector, what people mostly see are the minimum wage jobs. That’s something we should look into,” they note. 

Another concern is the uncertainty around hotels which are currently benefitting from government contracts to house asylum seekers. 

“These hotels are currently doing well and I’ve heard of hotels which normally have average rates of about £30 but with government contracts now have an average rate of about £80. That’s fantastic for them but what we don’t know is if they’re putting that money aside to do that hotel up or if they’re just going to put the hotel on the market when they contracts end,” an attendee says.  

“What happens when they come back into the market, not only from a perspective of what happens to these hotels but also what happens to the thousands of hotels that operate in the same area? Does it affect their business? Do these hotels come back as hotels? Do they not come back? Will they be sold?,” they question. 

Concept evolution 

The UK hotel sector is also witnessing the emergence of evolving concepts, with co-living, aparthotels and extended stay gaining traction as experts note the appeal of limited-service provision with regards to wage costs. 

“Extended stay has really come on in leaps and bounds because people have seen that self-contained apartments were almost pandemic proof or pandemic resistant at the start, and had incredibly strong performance and skeletal staffing. We’ve seen more of the big companies create more brands in that area. 

We’re also seeing more around co-living. However, the biggest challenge this is facing is getting planners on board and getting them to understand how co-living works.” 

Separately, the attendees say the hospitality market in the UK may need to focus more on promotion in order to continue to attract global customers.  

Optimistically, they say that while there’s still a gap in occupancy, they believe there’s still more to come from major markets.  

Finally, they posit that there may be opportunities to get value from empty spaces in hotels.  

“For example, could the meeting space be used for something else,” an attendee suggests.  

They add, “Some meeting-led hotels are exploring using that space to go towards the more high-end wedding business because it makes more money. Also adding things like glamping to your operation can make more money in the summertime.” 

Overall, attendees say that while underlying pressures are softening and there’s greater confidence in the market albeit cautious, there remain some factors to be considered to ensure the UK hotel sector continues to perform strongly.   

The Annual Hotel Conference will take place between 11-12 September at the Manchester Convention Complex. Confirmed speakers include representatives of KSL Capital Partners, LaSalle Investment Management, L&R Hotels, and many more. You can register here.